Robert Todd Carroll
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Ponzi schemesA Ponzi scheme, named after Charles Ponzi who defrauded people in the 1920s using the method, involves getting people to invest in something for a guaranteed rate of return and using the money of later investors to pay off the earlier ones. Who will make money from such a scheme? Those who start it and those who get in early. Does anyone really make money from these schemes. They must, or they would have died off long ago. How? If I start the scheme, I just skim off the top and pay off enough people to make it look like it's working, even if that means buying in again at the bottom. I might even be stupid enough to think that I can keep the scheme going when the recruiting has dried up. I can try to get money quickly by some other scheme. For example, I can take a big chunk of money and go to Las Vegas and hope to hit it big. This happened to a fellow I played Little League Baseball with long before we both grew up. He took his investors' money to the craps table where he "invested" their funds. Unfortunately, his "investments" didn't pay off and he went to prison. I don't know how many people lost money "investing" in my Little League buddy's scheme, but it could not have been as bad as what happened in Romania in 1993 or what happened in Albania in 1997.* In both cases, thousands of people with little opportunity for investment of capital were swindled by pyramid scheme operators. Romania's newspapers claimed that millions of Romanians lost their life savings in a scheme called Caritas. Reports from Albania claim that hundreds of thousands of Albanians "have invested their life savings or money they earned working abroad" in one of several outlawed pyramid schemes. "The schemes offered very high interest rates, with the first investors paid from later investors' deposits. They eventually failed when no new investors came in"("Investment-scam protest turns violent in Albania," by Merita Dhimgjoka, Sacramento Bee, Feb. 6, 1977). Any such scheme is doomed to fail because there cannot be an endless line of "investors." Only greed and self-deception are endless. See also pyramid scheme and chain letter. further reading
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©copyright 2006 Robert Todd Carroll |
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updated 12/03/07
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polygraph