It took me fi ve minutes to know that it was a fraud. It took me almost another four hours of mathematical modelling to prove that it was a fraud.

Harry Markopolos 1

2008 was, in many ways, the year of the Ponzi. It was the year that former Chairman of the NASDAQ stock exchange Bernard L. Madoff received a federal jail term of 150 years for masterminding the largest Ponzi scheme in history (at its peak, Madoff ’s Ascot fund boasted a gargantuan $50 bn under management). 2 It was also a year of Ponzi-fi nancing (Minsky, 1986 ) – an unsustainable fi nancial process where borrowers (e.g. homeowners) can repay neither the principal nor the interest payments on a loan (subprime mortgage) without fi rst refi nancing (taking out a second mortgage) or liquidation (foreclosure). A reliance on (legal) Ponzi fi nancing facilitated the rapid and excessive growth in subprime residential mortgage-backed securities (RMBS) that ultimately brought Wall Street behemoths Lehman Brothers and Bear Stearns, and national mortgage lenders such as CountryWide and investment powerhouse AIG, to their knees.