Jan 04 2009
Ponzi Scheme
The world has been astonished by the story of Bernard Madoff’s incredible $50 billion fraud, and has heard countless news reports referring to his shenanigans as a “Ponzi scheme.” What exactly is a Ponzi scheme, and how did it get its name?
A Ponzi scheme is a fraudulent investment operation that pays returns to the investors out of the money paid by subsequent investors rather than from profit. Sooner or later the scheme will collapse when the earnings, if any, become less than the payments. The plan was named after Charles Ponzi, an Italian who immigrated to the United States in 1903. His scheme was first based on arbitraging international reply coupons for postage stamps, but he soon diverted investors’ money to support payments to the original investors and to his own pocketbook. Madoff’s operation was indeed a Ponzi scheme, but the reason he was able to sustain it for so long was the slow but steady returns he promised, coupled with the exclusive clientele which he pursued. Moral of the story? Do your due diligence, always.
This kind of thing makes me sick and breaks my heart. The stock market is so interconnected and confusing, I know I wouldn’t have the first clue of how to figure out if something was a scam or not. I have tried to stick with a large investing firm who has been around for years and years, and just have to cross my fingers I’m not being taken for a ride.
I sure feel for the investors in the Madoff case.
Hava
http://nonfictionlover.today.com
Wow–that’s downright reprehensible. Where do people even get the idea that this sort of thing is worth doing?