U. S. Securities and Exchange Commission Ponzi Pyramid Diagram
People . . . we were swindled, plain and simple. Taken in by people who claimed to be smarter — who played on our human weakness for fairy tales and a foolish desire to believe in a mythological world without consequences. The swindlers, our politicians, bankers, investment managers, business leaders and every aspiring bunko player and con artist, played on our collective disdain for reality — and our lust for easy wealth.
A Ponzi scheme is a personality driven pyramid scam in which a charismatic individual persuades people to invest money in some bogus financial enterprise. The allure of every Ponzi scheme stems from a contagious belief that all one must do is put in their money and wait for a return. The scammer pays out a substantial amount of new monies to early investors — producing the illusion of reality.
The excitement of quick returns spreads as people share their sure-fire easy money stories. It is the victims who perpetuate Ponzi scams through enthusiastic stories of easy money — exactly what the perpetrator needs to attract new investors to the scheme. Anyone who believes there are potentially endless streams of free money easily becomes a believer in financial perpetual motion.
Unfortunately, reality eventually gets in the way. Then, moments before the scheme collapses, the perpetrator absconds with the booty leaving believers penniless and dismayed. Those who know the game best, such as Wall Street’s accused swindler Bernard Madoff, can keep a stable Ponzi scam going for years, or decades.
In the aftermath of massive fraud, miscalculation, stupidity and sleight of hand, the financial world is reeling. As wave after wave of ill-conceived, perpetual motion investment schemes tumble, stark reality delivers the bad news. The purveyors of financial perpetual motion were lying — there is no such thing as endless prosperity. America’s love affair with credit and endless prosperity was all a giant hoax and intricately complex — made somehow believable, if incomprehensible, by the oldest adage in computer science: Garbage In, Garbage Out.
People . . . we were swindled, plain and simple. Taken in by people who claimed to be smarter — who played on our human weakness for fairy tales and a foolish desire to believe in a mythological world without consequences. The swindlers, our politicians, bankers, investment managers, business leaders and every aspiring bunko player and con artist, played on our collective disdain for reality — and our lust for easy wealth.
The proliferation of deregulation that enabled Ponzi schemes, took nearly three decades to reach apogee. Starting somewhere around 1980, and growing under presidents and congresses of both parties, the United States, and later the world, fell in love with dreams of eternal, perpetual motion and other fairy tales.
The perpetrators had plenty of help in the Congress where three decades of deregulation ended nearly all the safety legislation put in place during the great depression. It began by ending the separation between banks and brokerages ( Glass-Steagall, 1933 ).
Encouraged by lobbyist-driven demands for more deregulation, the Congress opened the door to today’s massive Ponzi schemes and corporate mischief by deregulating airlines, broadcasting, land transportation, natural gas, and ethical pharmaceuticals.
Treasury Secretary Hank Paulson, Federal Reserve Chairman, Ben Bernanke
And now, the bubble has burst. Some, but far from all the Great American Ponzi schemes, are unraveling. Those who understand Ponzi schemes believe they will all soon collapse while those schooled in economics know it may take years for some to unravel. The economic pain ahead may be with us for decades. That’s because the myth of perpetual motion may die as slowly as it metastasized to our business, financial and banking systems.
But, not to worry – for the United States Treasury has chosen to remedy our national obsession for free money by borrowing an extra couple of trillion dollars to keep the wealthy comfortable, farmers protected from their markets, endless benefits for labor, and bountiful millions for corporate royalty.
The numbers are astounding: Restoring Fannie Mae and Freddy Mac alone will cost as much as a half trillion dollars. Then there’s the embarrassing black hole created by insurance giant AIG estimated at perhaps a quarter trillion and a similar chunk of change parceled out to the big banks to pay off their senior management for guiding their institutions into bankruptcy.
Then there’s the Detroit Three, over extended retailers, commercial real estate, home builders, consumer lenders, military-industrial firms, and a dozen or so states that can no longer support federally mandated expenditures without handouts from Washington.
If our collective belief in perpetual motion got it into this mess, some seem to believe that moving our failed debt to the government is the least painless way out. All of which raises questions most journalists have yet to ask. Where will all the money come from?
The answer is not reassuring for as anyone who understands economics well knows, the biggest Ponzi scheme of all is still running full tilt. Like all the Ponzi schemes that have failed, it too is based on little more than an enduring belief in perpetual motion and other fair tales.
It’s called the U.S. Treasury Department — the world’s Ponzi scheme of last resort.
Depositors Waiting To Withdraw Funds From IndyMac Bank
According to a Yahoo news story attributed to the Associated Press, banks that are getting taxpayer bailouts decided to awarded intellectually challenged top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year. For cash strapped, or out of work Americans, the misbehavior of this nation’s bankers, who are unilaterally raising credit card interest rates and payout schemes, gives the term bank robbery new meaning.
With nearly every passing day we learn that the Great American Ponzi Schemes are far deeper and broader than what was reported by even the best newspapers. In addition to the collapse of Wall Street, due to pervasive fraud enabled by failed governmental oversight, there are other, potentially more serious Ponzi schemes ready to collapse.
At the top of the list is a banking system in which your friendly banker no longer wants to provide traditional collateralized loans. Providing banking services, we are now learning, just isn’t profitable enough for banks made fat by deregulation and irresponsible investing schemes.
In what has become an embarrassing truth, the 1999 deregulation of banking during the Clinton Administration, has become a national scandal. Lax regulation and failed oversight were only part of the problem, for as recently as 2005, the American Banking Association greased politicians on both sides of the aisle to change bankruptcy laws to make them less favorable for over-indebted citizens and more favorable to banks.
Charles Ponzi -- Official Prison Photograph
Americans suddenly out of work, whose credit card payment history is flawless, and whose credit card interest ( based on CitiBank’s new rate structure ) has doubled from 7% to 15% have come to know that there is no such thing as a friendly banker today. Those pushed over the brink are now discovering they could lose their homes due to bank industry lobbying for tighter bankruptcy requirements. Americans eager for endless credit are thus finding that using their credit cards made them unwary participants in one of the best concealed Ponzi schemes.
As a nation we have lost our way. Banks don’t want to make loans unless empowered to charge usurious interest rates. In Detroit, the auto makers and the United Auto Workers want to keep on doing the same things that brought automobile manufacturing in this nation to its knees. On your money.
If you’re not angry consider this: Charles Ponzi spent five years in Federal prison for his bunko.
How many crooked businesses, brokerages, investment fund managers, banks or treasury officials will go to jail?
Meet Charles Ponzi
Charles Ponzi -- namesake for financial fraud
Ponzi schemes are named in honor of Charles Ponzi — a man who swindled thousands of New Englanders who bought into what was a small postage stamp speculation scheme in 1921. Ponzi assured his investors that he alone knew how to profit from the minute differences in value that existed between U.S. and foreign currencies by investing in international mail coupons.
Mr. Ponzi knew what would attract people, so he told his investors that they would receive a 40% return on their investment in the first three months. Ponzi was soon taking in large sums of money from people anxious to get rich quick. According to some reports, Ponzi’s scheme was so popular that he took in one million dollars during one three-hour period.
By using the monies collected from new investors to pay back earlier ones, his scheme appeared to work. Besides, given the powers of two, the inward rush of money could pay off all previous investors and still yield Ponzi half of every dollar he received.
