Ethics and Ponzi schemes...

The NY Times published an interesting article that describes how many Madoff victims are upset because the trustee, Irving Picard, is not counting funds that were paper gains in Madoff's Ponzi scheme. This article does a good job illustrating how we often focus on how a decision affects us, personally, and ignore how it impacts others. When we fail to concern ourselves with how a decision affects others, we often behave in ways that are immoral or unethical. I try to help my students see how unethical behavior is selfish and takes from someone else. Here is a classic example from the NY Times article:

Put yourself, for a moment, in the shoes of a certain class of Madoff victim — what the trustee is calling “net winners.” These are the people who took out more money from their accounts than they put in. ... I’m talking about the Madoff investor who put in, say, $1 million and over a 15-year period withdrew $1.2 million.

On that person’s November 2008 statement — the last one before the fraud was exposed — she probably still had a very healthy balance, maybe $500,000 or more. It’s only natural that she views that balance as money that was hers — but that she has now sadly lost. To her, that money is real.

Now look at that same net winner from Mr. Picard’s point of view. In truth, that $500,000 doesn’t exist. After all, Mr. Madoff wasn’t really running an investment fund; he was running a Ponzi scheme. The steady returns, from which that $500,000 was supposedly generated, were fictitious.

“What they were getting was other people’s money,” said David J. Sheehan, a lawyer at Mr. Picard’s firm, Baker Hostetler. In other words, any money our hypothetical Madoff investor received came from the pockets of other Madoff investors, who were putting money into their accounts. That’s how Ponzi schemes work. And because that $500,000 never really existed, Mr. Picard has said he will not count it. He is going to count only how much actual money went into an account versus how much came out.

Perhaps if people would ask whether the latest "get rich quick" scheme that they are considering might be hurting another person, Ponzi schemes wouldn't be so prevalent in our society...