Author: Bravado Drives Ponzi Schemes

from National Public Radio

Investigators continue to comb through the books of Wall Street money manager Bernard Madoff to figure out the extent of his alleged fraud. Last week, the Wall Street titan was arrested and charged with running a massive Ponzi scheme.

Madoff allegedly paid old investors with money from new investors and is said to have run up $50 billion in losses.

But what about the psychology behind this kind of fraud?

Nomi Prins, who worked on Wall Street and wrote Other People's Money: The Corporate Mugging of America, tells NPR's Melissa Block that some people on Wall Street can go through a self-justification process based on ego.

She surmises that two levels of self-justification probably were going on in Madoff's mind. One is "I am good at this," she says, and the other is "I'm not doing anything that far wrong. I'm getting assets in the door, I am promising returns to my customers — they're not the highest returns they could get going somewhere else — but you know, I'm giving them money back."

Prins adds that this mentality is typical among "a lot of the egos that run around Wall Street. There is a very strong ... separation between their natural power that they believe themselves to have, whether it's navigating the markets or convincing clients to do things, or whatever it might be. It becomes a sort of superpower that they feel that they have, and it sort of melds into the egos that a lot of them have to have to get to those positions.

"You have to be able to disconnect yourself from the people or the money that you are extracting from in order to sort of look toward the greater deal or the greater trade, and a lot of these — and I got to say, all of the characters I knew happened to have been men who fit into this category, it just so happens — really show that characteristic of 'I am awesome, I can do this. I will swagger down halls whether actually or in my head. And I will make deals, and I am really good at it.' "

Broadcast Dates

• All Things Considered, December 16, 2008