Ponzi Schemes

Charles Ponzi, creator of the scheme that bears his name, is considered the greatest swindler who ever lived… until of course today.

A Ponzi is a pretty easy scheme to organise. All one needs is a number of fools. Tell the fools they will get an incredible return on their investment. The definition of the word incredible, suggests they put their money back in their pockets, but remember; fools and their money are soon parted. This is why Ponzi schemes always work.

Firstly, the Ponzi uses the money given to him by the first set of fools to pay the first half of them; so if there are ten fools, he uses the money given to him by Fool 6 to Fool 10 to ‘pay’ Fool 1 through Fool 5. 

Very often, the first five fools, ‘reinvest’ so that they return the money to the Ponzi, who then uses it to pay Fool 6 to Fool 10.  

As Fool 1 – Fool 5 have ‘proven’ the viability of the scheme, (they already doubled their money and have reinvested) they tell their foolish friends, who add their money to the scheme.

Fool 6 – Fool 10 have also ‘proven’ that the scheme ‘works’ so also reinvest and tell their friends, and the Ponzi grows larger and larger.  The Ponzi now starts keeping a  large chunk for himself. As more fools join, he uses their money previous fools,and the scheme grows and grows.

It gets bigger and bigger until some governmental agency gets a little bit interested in how this guy can pay such high ‘interest’.

What is he paying the interest from?

By the time the agency gets involved, Ponzi should be sitting on a beach in Brasil. But alas, being a Ponzi, that is, certain of his own brilliance, he waits around for the police.

Some Ponzi’s are so brazen as to claim that they are being harassed by the government. This works really well in Third World Countries. In Jamaica, one fraudster actually had his dupes demanding his release from jail so he could, (get this) Pay Them. They could not believe that there was no money.

There are lots of Ponzi schemes running on line right now. You know the ones, send X dollars to B and you’ll get X+ dollars in return.

Thousands of people do fall for Ponzi schemes because the first few investors do get that great return. Of course, being fools they reinvest.

Ponzi schemes tap into the basic greed of fools.  Greed is the advertisement, the grease, the impetus; pure greed.  That is why the first Fools invaribly reinvest.

If you think you’ve just invested your money in a Ponzi scheme, if you can get it back, you are ahead of the game. In most cases, you’ll never see it again.