Ponzi Scheme

From Wikipedia, the free encyclopedia:
"A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business. It is named after Charles Ponzi. The term "Ponzi scheme" is used primarily in the United States."

By now you have heard the name Bernard Madoff. He was the chairman of the NASDAQ at one time and a pioneer in electronic trading. He took investments from people and charities (some of which have been bankrupted by this scheme) promising regular returns of as much as 1% to 2% monthly. 2% a month = 24% return!

He paid these dividends with $ that came in from other investors. The scheme ran a long time and the losses to investors is at least $24,000,000,000 and may be as much as $50,000,000,000.

Maybe you're not sure how a ponzi scheme works. The longest running official ponzi scheme is our Social Security system. What my employer withholds and matches pays recipients who are collecting Social Security now.

You see, there's really no $ in an account earning $ for my retirement. Surprised? If there was $ earning for you, your heirs would inherit it. No. It's a pyramid or ponzi scheme. Money goes out from $ that arrives. There are no assets in these accounts either.

I have heard that investors with Madoff ("made off" like he made off with their $) may be required to pay back any $ "earned" through Madoff's business.

If it's too good to be true, it probably is. Ronald Reagan used to say "trust but verify."

'til later