Patenting the Ponzi: the extraordinary growth of Ponzi schemes
“Two world poker champions and other leaders of one of the largest internet card gaming sites turned the company into a massive Ponzi scheme, wrongly taking out more than $440m from player accounts, US officials alleged on Tuesday.”
Office of Charles Ponzi & Sons:
“Mr Ponzi, have you seen what the US Justice Department is saying about this poker website?”
(Sighs) “Don’t tell me, Massimo: they say it’s a Ponzi scheme?”
“You’ve got it in one, Mr Ponzi.”
“This is outrageous! Call my lawyer! Who do these bastards think they are? I am Charles Ponzi! The Ponzi scheme is my creation!”
“I don’t think Full Tilt Poker are planning to infringe on the trademark.”
“I’m not worried about Full Tilt Poker. I’m upset about these sanctimonious asses who keep saying Ponzi, Ponzi, Ponzi and they know nothing! If a company goes bankrupt but the managers get paid, it’s a Ponzi scheme. Internet bubble companies are a Ponzi scheme. If it’s a government policy they don’t like, it’s a Ponzi scheme. Where does it stop? Some kid steals baseball cards from a candy store and it’s a Ponzi scheme? They think I’m a shoplifter or something? What do they say the poker website did anyway?”
“Well, the US Justice Department says that some of the company directors paid themselves handsomely while they were struggling to take in money from new players.”
“Why were they struggling to take in money?”
“Because the US government was trying to make online poker and all related transactions illegal.”
“Oh well. It doesn’t matter to me if they did it or not. What these clowns at the US Justice Department are describing is not a proper Ponzi scheme at all. A proper, classic, elegant Ponzi scheme is an investment offer that pays investors high returns. You know this.”
“I know this, Mr Ponzi.”
“You know this. The high returns attract new investors – and often the old investors keep their money in too. As long as the money coming in from new investors is enough to cover the occasional investor who cashes out – and of course the dividends taken out by the scheme’s creator – then all is well. It is a thing of beauty.”
“It certainly is, Mr Ponzi.”
“If these guys looted the cash register while their company was going bankrupt, that’s not worthy of the great name of Ponzi. I’ll sue the prosecutors for tarnishing my brand name.”
“And Mr Perry.”
“Who?”
“Governor Rick Perry. He’s running for president.”
“What about him?”
“He said that social security was a Ponzi scheme.”
“He said what? Who the hell does he think he is?”
“I think he thinks he’s the next president of the United States.”
“Well screw him! I’m Charles Ponzi! Social security isn’t a Ponzi scheme! It’s just a welfare payment that’s going to be more expensive because of demographic change.”
“I understand, boss. But – well, isn’t it a little bit of a Ponzi scheme? I mean, it depends on each generation being larger than the previous one.”
“Crap! It does not depend on that at all. Sure, it’s cheaper if there are lots of young people around. But social security is perfectly affordable with a bit more tax or a slightly lower pay-out. It’s nothing like a Ponzi scheme. With some adaptations it could run forever. But a good, audacious Ponzi scheme can become unsustainable in months.”
“Shall we sue Mr Madoff too, then, sir?”
“No, no. Bernie is fine, Bernie carried off a proper Ponzi scheme. He sure kept it going for a long time. I cannot complain. I wish we had trademarked the Ponzi name, but I cannot blame Bernie for that.”
“That’s very big of you, Mr Ponzi.”
“I suppose I should not be too upset. The more people carelessly talk about Ponzi schemes, the more confused everybody becomes. It will become easier and easier to operate a real Ponzi scheme. So everything is not so bad.”
“You look tired, sir. Let’s get some pizza and relax.”
“A good idea, Massimo! I have some vouchers from this internet thing, Groupon. It seems the local pizzeria is offering some great deals.”
“Ah. Mr Ponzi?”
“Yes?”
“Have you heard what some people are saying about Groupon?”
“My lawyer, Massimo! My lawyer at once!”
Also published at ft.com.
8 Comments
m imes says:
Social Security is NOTHING like Ponzi scheme. Just repay the 2.2 trillion of iou’s it has paid out for our wars and other things it is one of the best run program the government has ever created. Everyone forgets about those iou’s and never mentions them. I don’t get it. Democrats could save the whole program with the Republican populous if they would just get that fact out there again and keeping it up front. The elected Republicans would have a hard time denying that fact.
25th of September, 2011Peter Vander Straeten says:
Hi Tim,
26th of September, 2011I love your articles and books, but lately you have used a dialogue format to present your ideas, between you and your daughter, between Ponzi and Massimo,…. This is enervating, not particular good writing, and treating your readers as 3rd graders. I do think that most of us can follow an argument presented in the usual way.
Harsh says:
Funny!!
26th of September, 2011Kirsten says:
For what it’s worth I enjoy this format. It’s engaging and actually makes me do some of the work.
26th of September, 2011Nick Hounsome says:
Social security is exactly like a ponzi scheme because the payouts come from new money coming in rather than from profits on investments. Saying that it could be sustainable with higher taxes or lower payouts is as pointless as saying that a Ponzi scheme would be sustainable with more income and lower payouts
27th of September, 2011Hamish Atkinson says:
Surely a Ponzi scheme pretends to be non-redistributive and sustainable, but turns out to be redistributive and unsustainable?
We all know that the government is spending our National Insurance as fast as we pay it but we keep paying it in the knowledge that the government will support us in old age, sickness or unemployment. Especially old age, because older voters are so likely to vote.
If we know this, then it’s not a Ponzi scheme. It’s only like a Ponzi scheme if the government pretends to be investing the money, but gives it away in tax cuts. In fact, with the government nationalizing the banks, instead of giving everyone bank shares, perhaps they use the shares to start a national pension fund?
27th of September, 2011Jimbo says:
A Ponzi scheme promises liquidity as well as income/gains (you can withdraw your capital when you wish). Social security doesn’t do this.
A Ponzi scheme would not “be sustainable with more income and lower payouts” because the same pot of money is treated as one person’s capital and another person’s income. The sustainability depends on the withdrawal of capital, not just the level of payments. There are never enough pots to cover the liabilities when people start to withdraw funds. Social security, aside from not being a Ponzi Scheme, does not have this problem.
27th of September, 2011jomama says:
SS may not be a Ponzi scheme, but current payees paying into it to support withdrawals of current beneficiaries screams ‘Fail’ to me.
15th of October, 2011