1st reaction paper
1st reaction paper prompt
1. A little background:
A well-respected financier, Madoff convinced thousands of investors to hand over their savings, promising consistent profits in return. Madoff was an active member of the financial industry. He started his own firm in 1960 and helped launch the Nasdaq stock market. He sat on the board of National Association of Securities Dealers and advised the Securities and Exchange Commission (SEC) on trading securities. He was arrested in December 2008 after he went undetected for decades, even though there were multiple reports to SEC about suspicions about his practices. He was charged and convicted. Here’s how Madoff conned his investors out of $65 billion:
He used the money from new, incoming investors to pay off the promised returns to older ones.
This makes the operation seem profitable and legitimate, even though no actual profit was being made because there was no actual investment. Madoff pocketed the extra money. To avoid having too many investors reclaim their “profits,” he encouraged them to stay and earn even more money. The “investing strategies” used were vague and/or secretive. Madoff’s victims were not a random assortment of the well-off; he focused on the wealthy Jewish community and several Jewish charitable organizations. This was one of the worst affinity frauds (i.e., exploiting cultural connections and people’s communal identities to rip them off) in American history. Madoff did not just take anyone as a “client”; people needed recommendations and connections and Madoff turned many people away at first (“hard-to-get” strategy).
2. Read The NYT article carefully.
3. Using all the information you now have, discuss in an short essay format:
a) how networks played a role in Madoff’s scheme; i.e., what networks and how he used these network connections and how these connections made this kind of fraud possible;
b) what purpose did the “hard-to-get’ strategy serve;
c) what were the reasons behind the very slow fraud detection, despite several reports to the SEC.
Use Granovetter’s arguments and lecture material to explain the sociological significance of this story. Thus, do not retell the story; use Granovetter’s concepts to analyze the story.
The essay should be less than a page (about three quarters of a page, 12-point font, single spaced) and to the point; reference and analyze facts that further your argument and do not write about things that are not important for understanding the network issues.