How different, really, is Mr. Madoff's tale from the story of the investment industry as a whole?
Meanwhile, I've been thinking that Madoff is a perfect analogy for the public sector. The government gives people money, which it expects to obtain by taking the money from people in the future. Even the Center on Budget Policy and Priorities, not known as a right-wing organization, sees the U.S. fiscal stance as unsustainable (pointer from Ezra Klein via Tyler Cowen)--in other words, a Ponzi scheme.
Frankly, until Krugman made it, the analogy between Madoff and generic investment banking had not occurred to me. Perhaps it has some merit. But the analogy between Madoff and government seems perfect, and my guess it has never occurred to Krugman. It shows how our biases affect our thinking.