What happens is, I convince you to invest money in some enterprise and promise a rate of return. If I am a crook - but a good salesman - I pay you the promised return, not from profits of the enterprise but from the money I take in from the next investor. Then I pay the second guy with the money the third guy invests with me and so on.

Sooner or later I run out of people to give me money, so there is nothing to pay the later investors with and the scheme collapses.

Bernard Madoff didn't promise fabulous returns. He promised stability and long-term profits, so as word spread that this was a safe haven with pretty good returns, more and more people came in, allowing him to sustain the scam because every new dollar was a dollar he could use to pay off the previous investors.

But, because of the dreadful economic and market conditions, investors wanted, or needed, to take their money out of his company to pay off other bad investments, to pay off their investors, or to put under their mattress. Some $7 billion worth of investors wanted their money. Madoff, of course, didn't have it, and so his business collapsed and everyone who invested with him has lost every dime.

These were not people responding to e-mails promising huge profits on penny stocks. These were educated, wealthy, intelligent people who knew, or should have known, their way around a prospectus.

According to Forbes' columnist Neil Weinberg:

There are no bigger oxymorons in finance than the terms "smart money" and "sophisticated investors." Too often they describe suckers willing to suspend critical thought in exchange for entry into an exclusive club with a velvet rope out front.

Wall Street does not serve free lunches. It does not grant rewards without risks. Those universal truths apply equally to money whether it's dumb or smart.

Charities, college endowments, foundations doing good works all lost millions or billions in the scheme. They wanted in and, as every fiction writer - author or crooked fund manager - needs from his audience, they suspended disbelief.