kulkulkan

Where Is Madoff's $50 Billion?

There is one fatal flaw in your assumptions.

In order for scheme to work, Madoff would have needed the new investments coming in to cover the net redemptions. So in your hypothetical model, the $0.5 billion every year for 20 years would be the "net" new money coming in. So, let's say $1 billion in real money came in every year in new money (for 20 years), and $0.5 billion went towards redemption (say 5% redemption on average portfolio size of $10 billion for the 20 years), leaving $0.5 billon in net new money coming in every year.

So the principal money at stake is significantly larger than what you have assumed in the hypothetical scenario. Most of the $50 billion WAS NOT phantom gains and did in fact exist at some point. I would hazard a guess that probably closer to $30 billion of it was real people's money.