Sunday, December 21, 2008

Christmas Special - Ponzi Scheme

I'm taking a break from my review of various political parties to discuss current events. We will continue after the new year.

If you haven't heard the news yet, read the story at the following link.
http://news.yahoo.com/s/nm/20081212/bs_nm/us_madoff_arrest
Basically speaking Bernard L. Madoff was arrested in $50 Billion scam he was running that came to a head. He was offering people high returns and then paying them off with future investors. Apparently he ran out of investors to keep up with the returns he was promising and the SEC finally caught him. He said he was basically running a Ponzi Scheme.

For those of you that don't know what a Ponzi Scheme is, the SEC actually defines it for you.

http://www.sec.gov/answers/ponzi.htm

"Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts. Ponzi was deluged with funds from investors, taking in $1 million during one three-hour period—and this was 1921! Though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons.
Decades later, the Ponzi scheme continues to work on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses. For more information, please read pyramid schemes in our Fast Answers databank."

The point of this post is not to discuss this case. The point of this is to open your eyes to a Ponzi Scheme that the government is running that we are all victims of. Many of us willing victims. It's called Social Security. The system depends on population growth and productive members of society to take social security tax from in order to pay out the current recipients of the payments. I guess the only difference is that the government just doesn't promise outrageously great returns. But the government does keep promising to take care of you in retirement with social security and Medicare benefits that keep getting bigger and bigger. Most of my generation assumes the system will go bust before we reach retirement, so in essence, they are promising bigger returns than they can deliver in the long run.

But the American people don't want to privatize the system, they'd like to keep it going as is in hopes that they'll still get theirs. Because the government has always been dependable.

Merry Christmas and Happy New Year!!!

5 comments:

cube said...

Good post. SS is the largest ponzi scheme of all time. Privatization would've been a great idea prior to the recent downturn of the market.

I know it's not looking likely, but let's just hope our population grows in levels high enough to pay for future seniors.

Meanwhile, I'm saving up for
retirement on my own. Anything I get from SS will be gravy.

Jay said...

I know I'd much rather have bankers, insurance companies, and Wall Street handle it...they've proven so reliable lately.

Lola said...

How about you handle it yourself. You decide whether to put it all in CDs, bonds, stocks, however risky you want to be. How about you keep all that you put in and all that you gain. How about your family get it all if you die prematurely. I don't know how old you are but my generation won't see a dime of it until we're 90 if we're lucky. If SS continues as is. What's the average life span? 85? 87? Yeah that will work out well for us. Of course that doesn't take into account the possibility of negative population growth happening in this country which is a problem in Europe now.

cube said...

I'm with you, Lola. I think I'd handle my money better than the bankers and insurance companies have recently.

Amitabh said...

When I first saw this news about someone operating a Ponzi scheme, I thought it to be a joke. Obviously not. I believe the present financial mess will throw up a few more unsound schemes.
For an Indian touch to the Ponzi scheme you might want to visit my blog.
Cheers!

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