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Thursday, March 31, 2011
Ponzi scheme
A lot of people think the entire financial system is one big Ponzi scheme. Here is a quick look at Ponzi schemes. Basically, someone acts like an investment broker. The money from the second wave of investors is used to pay off the first wave. This continues until there aren't any more new investors and the scheme explodes.
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Really good video. Certainly not flashy, but all of the cliches are alarmingly true.
ReplyDelete"If it's too good to be true, it probably is."
"There is no such thing as a sure thing (investment)."
This video can't help me but think of Bernard Madoff's massive ponzi scheme. Estimates of his fraud top $50 billion. The NY times had a great quote about his scheme:
ReplyDelete"During the decades that Mr. Madoff built his business, he cast himself as a crusader, protecting the interests of smaller investors and bent on changing the way securities trading was done on Wall Street. To that end, like a burglar who knows the patrol routes of the police and can listen in on their radio scanners, he also actively wooed regulators who monitored his business."
The fact that his fraud was overlooked for so long really diminishes the confidence of legitimate investors. The man was the head of NASDAQ and very well connected. He falsified gains, committed securities frauds and investment advisory fraud, and the list goes on and on. It is sad to hear of the stories of the many lives he has ruined. The fact is that this egregious crime affected institutions including Kentucky University and the Women's Zionist Organization of America, and many Jewish federations and hospitals. His actions have forced great charities and organizations to close. I think it is entirely appropriate that the Economist dubbed Madoff's actions as "The Con of the Century".