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Behavioral economics

Posted on January 05, 2009

The Regulator as the "Cooler in the Blowoff"

Posted on January 05, 2009
Image by Getty Images via DaylifeThe Madoff Fraud, which may supplant or overthrow Charles Ponzi as the name of current robbing the future to pay the present scheme, has brought ot the fore examination of the appropriate role of the Regulator. Many commentators wrongly believe that the role of the Regulator is to only to prevent fraud, somewhat like a superhero who spots ongoing frauds, swoops in and makes everything right...

Taleb Mad at Economists

Posted on January 05, 2009
I have been mildly critical of Taleb Nassim in the past for not making it clear exactly what he was arguing for, as opposed to what he is against. But, in this video Nassim is passionate about exposing a fatal conceit he believes that financial economists have engaged in: phony rigour in their risk management theories...

The Second Madoff Fraud

Posted on January 05, 2009
Image via WikipediaAs reported on Bloomberg, bad news for Madoff investors thinking that the official receiver is there to help them"Seeking money from investors who say they were defrauded can result in protracted litigation. In the Bayou case, which is being appealed, $20 million of the $33 million recovered from redeeming investors went to pay legal fees, Neville said...

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What Do Franchisors Have to Tell a Prospective Franchisee About Their Business Model

Posted on January 04, 2009
Image via Wikipedia"On May 9, 2006, over two hundred franchisees, principals and guarantors of "The UPS Store" filed this action against various Mail Boxes Etc., Inc. ("MBE") and United Parcel Service, Inc. entities ("UPS"). Plaintiffs allege they were duped into investing in The UPS Store franchises, which are (allegedly) economically unviable...

Dr. David Sinclair Quits Shaklee Board

Posted on December 30, 2008
Image via WikipediaRachel writing at her blog OP Tree writes about the latest news from Shaklee:"David Sinclair, a Harvard Medical School professor who had been working with Shaklee as a member of their scientific advisory board, has quit. Sinclair's exit from the company is not entirely shocking as he has been questioned lately regarding his involvement and endorsement of Shaklee's latest revolutionary product, and anti-aging serum called Vivix which has been touted as the "world's best anti-aging supplement...

Creative Capital Consortium Ponzi

Posted on December 30, 2008
Image via WikipediaFrom the SEC Press Release:The United States Securities and Exchange Commission announced that on December 29, 2008, it filed an emergency action to halt a Ponzi scheme and affinity fraud conducted by Creative Capital Consortium, LLC and A Creative Capital Concept$, LLC (collectively, Creative Capital), and its principal, George L...

Con Criminal Myths

Posted on December 30, 2008
Image by Getty Images via DaylifeNice story by Anthony Gottlieb, former editor of the Economist.com, about his meeting with Madoff."Mr Madoff gave no hint of any weariness with or hostility towards the burden of regulatory oversight. Perhaps this is because, as we now know, it was in fact too ineffective to cramp his style...

Trust no Substitute for Thought

Posted on December 29, 2008
Image by Getty Images via DaylifeRoss Kerber and Hinda Mandel, reporting in the Boston Globe, reporting on the effect of the Madoff Fraud on charities, write:"Dall Forsythe, who teaches nonprofit financial management at New York University's Wagner School of Public Service, said it's hard to judge whether the nonprofits that hired Madoff neglected the conventional wisdom to diversify their investments, since he may have been telling them their money was being spread adequately...

Madoff Exploited the Jews. Really, how odd?

Posted on December 19, 2008
Image via WikipediaAs I predicted earlier, one of the features of the Madoff fraud would be the affinity fraud angle. The WSJ reports about the Madoff ponzi that"Steven Spielberg. Elie Wiesel. Mort Zuckerman. Frank Lautenberg. Yeshiva University. As I read the list of people and enterprises reportedly bilked to the tune of $50 billion by Bernard Madoff, I recalled a childhood in which my father received bad news by asking first, "Was it a Jew?" My father coupled sensitivity to anti-Semitism with special sympathy for other Jews...

Why the Madoff Ponzi Matters

Posted on December 19, 2008
Image via WikipediaCNN is just wrong in arguing that the Madoff fraud doesn't matter."Granted, it's only been a week since Madoff's arrest, and we may find out more details about the alleged Ponzi scheme that could wind up causing more market volatility...

Advance Fee Scam - Economic TV Report

Posted on December 19, 2008
Image via WikipediaShoemoney reports a neat fraud."A couple weeks ago we got a call from this lady saying she was a assistant producer to the Economic Report TV show. She went on to talk about how the show is syndicated on CNN, /MSNBC, FOX News, and other major cable news outlets...

Blowing off the Marks

Posted on December 19, 2008
Image via WikipediaOne of the most important parts of the successful scam is the blowing off of the mark.Some have queried how Madoff thought he could end the ponzi scheme."I have never understood why someone would ever start a Ponzi scheme when, by definition, there's no way to end it...

Pyramid Scheme Alert

Posted on December 18, 2008
Image via WikipediaRobert FitzPatrick writes about a disturbing trend in regulation."Pyramid Scheme Alert, the only consumer group in the world focused directly on pyramid/Ponzi scheme fraud, charges that the Bernard Madoff Ponzi Scheme is the tip of a far wider pattern of pyramids and Ponzis...

How Ponzi Sold Shares in his Securities Exchange

Posted on December 18, 2008
Image via WikipediaEver wonder how Charles Ponzi was able to recruit his first salesman? Remember that Charles Ponzi had failed at every business he had tried, legal and illegal. How does such a failure, at the age of 35, attract and keep a saleman? First, Ponzi primed the pump...

The Regulators We Deserve

Posted on December 18, 2008
Image by Getty Images via DaylifePaul Wilmott has the best take on the larger picture in the Madoff ponzi and the role of regulation."There is no disincentive for dishonest behaviour in investment banking at the moment, in fact the opposite. If someone wants to invest with a manager they think might be dishonest but successful then they will ignore the dishonesty...

Biz Op Scammer Arrested in Costa Rica

Posted on December 17, 2008
Image via WikipediaFrom a US Department of Justice Press ReleaseA U.S. citizen charged in connection with the operation of a series of fraudulent business opportunities was arrested yesterday in Costa Rica following his indictment by a Miami federal grand jury on Nov...

How did Madoff get Away with it?

Posted on December 17, 2008
Image by Getty Images via DaylifeMegan Mcardle writing at the Atlantic, asks "How Did Madoff get Away with It? "The preferred explanation of many of my interlocutors, that this was somehow a result of Bush's deregulatory mania, won't do, and not just because there's not really all that much evidence of Bush's financial deregulatory mania...

Operation Tele-PHONEY

Posted on December 17, 2008
Image via WikipediaFrom the FTC Press Release about a Telemarketing FraudThe Federal Trade Commission has successfully settled the second of 13 complaints brought as part of the multi-agency "Operation Tele-PHONEY" law enforcement sweep in May 2008 against deceptive telemarketers and the companies they operated throughout the United States...

Offensive Google AdSense

Posted on December 17, 2008
Image via CrunchBase, source unknownFrom the SEO Round Table blog on adsense fraud"A WebmasterWorld forum member who runs Google AdSense on his travel site was a bit appalled when he saw that the ads being run are of nude Asian women. He has no idea how those ads got there and is extremely disgusted that the ad was placed on his site which now makes him guilty by association...

Why aren't there more Lawsuits in the Meal Assembly franchise?

Posted on December 16, 2008
Image by &_yo via FlickrTuckerbox, who writes a good focussed blog on the meal assembly franchise industry has a good post about lawsuits."As I've been looking over the events of the last year, I really have to wonder why there aren't more lawsuits being filed...

Economics and Fairness

Posted on December 16, 2008
Cover of A Theory of JusticeI have been engaged reading Gavin Kennedy's blog defending Adam Smith from a variety of 20th and 21st century misunderstandings, in particular the notion that Adam Smith was the intellectual father of the concept of the "invisible hand"...

Fraud Expert Says Those Wanting to "Be Own Boss" Easily Scammed

Posted on December 16, 2008
Image via WikipediaNice interview by the important internet franchisor newspaper , Blue Mau Mau.  (Blue mau mau are small fish which swim together as a group to protect themselves against predators.)"An expert says that buyers of small businesses who do so solely to have control of their career are easy marks...

Can You Avoid Ponzi Schemes?

Posted on December 16, 2008
Image by Getty Images via DaylifeAfter the Madoff Ponzi, we can expect a number of checklists that explain how to "avoid" Ponzi schemes.These checklists will look reasonable, be put forth by well meaning people, and are utterly useless.  They will fail to address the psychological factors which dispose an individual to act against their own self interest...

From Department of the Obvious

Posted on December 16, 2008
With apologies to Greg Newton, who is always on top of mastery of the obvious, the WSJ breathlessly reports on Madoff's Ponzi:There is a set of books that don't accurately reflect the assets held by the firm, and investigators are going through books showing what Mr...

Real Dollar Auction Game

Posted on December 15, 2008
Image via WikipediaHere is a real life dollar auction game."I was fascinated to discover the auction hybrid site swoopo.com (previously known as telebid.com). It's a strange combination of eBay, woot, and slot machine. Here's how it works: You purchase bids in pre-packaged blocks of at least 30...

And So it Goes ...

Posted on December 15, 2008
Image via WikipediaMore Ponzi schemesMitchell Goldberg, 44, of Pembroke Pines, FL, pled guilty today to a three count Information charging him with fraudulent schemes totaling more than $11 million.  At sentencing, which is set for February 20, 2009 before U...

Unreal Returns and Risk

Posted on December 15, 2008
Image via WikipediaFrom Madoff's Investment Securities website:"Bernard L. Madoff Investment Securities LLC is a leading international market maker. The firm has been providing quality executions for broker-dealers, banks, and financial institutions since its inception in 1960...

It was red when I drove through it

Posted on December 15, 2008
Image via WikipediaI thought it might be valuable to reflect on Cialdini's principles of persuasion in the context of the Madoff scandal. Cialdini posits that there are six principles of persuasion: consistency and commitment, reciprocity, liking, authority, scarcity, and and social proof...

The Madoff Risk

Posted on December 12, 2008
Image via WikipediaGreg Newton, writing at his blog Naked Shorts, has a number of important background documents to the Madoff Ponzi.This is going to a fascinating story, as it unfolds.  There are a number of elements which enabled the fraud, which are so clear in a business opportunity fraud, but may get hidden in the noise...

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