[ChrisBennet]

My understanding is that Madoff essentially redistributed old investor's money to newer investors minus whatever "profit" he took?

Question 1:
Obviously, Madoff couldn't spend that much money. I'm thinking the majority of it was stolen from one customer and given to another. The "lost" (actualy stolen) money is sitting in his newest customer's accounts (minus what he stole) and the rest was fake/imaginary profits.

Why can't they unwind these transactions to some extent?

Question 2
Start with $2B, put it in a locked room for 30 years. Put a sign on the door that reads "$2B inside".
Every year, add 12% to the number on the sign. This represents the imaginary earnings/profits of 12% that Madoff was paying.

After 30 years the sign on the door will read "$53.5B inside" but if you unlock the room and look inside you'll find the original $2B - the $51.5B is (gasp!) "missing".

How much of that money never actually existed?

-Chris