Tag Archives: greed

The Ponzi plot: a perennial plague

Ponzi: adj. referring to Charles Ponzi, an Italian immigrant who bilked thousands out of their money in the early 20th century using the investment scam that is now named after him – a “Ponzi Scheme.”

Plot: n. a secret plan for accomplishing a usually evil or unlawful end

Perennial: adj. persistent, enduring, present at all seasons of the year

Plague: n. : a disastrous evil or affliction

Staying on yesterday’s theme of “If it sounds too good to be true, it probably is,” we turn our attention to the Ponzi scheme, which has returned again to the headlines.

In a Ponzi scheme, potential investors are wooed with promises of unusually large returns, usually attributed to the investment manager’s savvy, skill or some other secret sauce.

The returns are repaid, at least for a time, out of new investors’ principal, not from profits. This can continue as long as new investors line up with cash, and old investors don’t try to withdraw too much of their money at once.

Ponzi schemes are also known as pyramid schemes, from the shape of any chart that reflects their basic premise — that ever-growing layers of new recruits are needed to provide gains to the smaller, earlier cohorts.

And from Wikipedia:

The catch is that at some point one of three things will happen:

  1. the promoters will vanish, taking all the investment money (less payouts) with them;
  2. the scheme will collapse under its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);
  3. the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the “assets” that should exist do not.

This time, in keeping with the American way of doing things Bigger, More Brilliantly and More Audaciously than has ever been done before, we have Bernie Madoff – who has managed to bilk his wealthy investors out of 50 BILLION dollars. Charles Ponzi must be salivating in his grave!

It was in many ways (almost) a perfect crime. Madoff had stellar bonafides: he had been the head of the NASDAQ, for God’s sake! If the head of an enormous stock exchange didn’t know investing, who did??  He preyed on only the wealthiest, who fought to get in his good enough graces so they could have the PRIVILEGE of giving him their money.

Despite many tips to the SEC over the past few years, Madoff managed to carry on until we had an economic meltdown; too many investors wanted to get their money out and it all came unglued.

I keep thinking that Madoff is just the easiest target to vilify, when really, wasn’t Enron a Ponzi scheme? What about the mortgage industry, the banking industry, the insurance industry?

Jonathan Weil writes at Bloomberg.com:

It’s unclear why the SEC failed to stop Madoff, whether because of corruption, a lack of smarts, a dearth of interest, or some combination. We can say with confidence, though, that many other huge frauds are still operating freely today — and that the government might not be inclined to intervene, even when it knows all about them.

After all, Madoff’s scheme — at least in spirit, if not in its nefarious intent — wasn’t much different than the business models at some of the nation’s largest failed financial institutions.

Back in May, four months before it collapsed, American International Group Inc. increased its dividend at the same time it unveiled plans to raise $12.5 billion in capital. Later, when its cash ran out, AIG got a government bailout, the size of which has expanded to about $150 billion.

Whether you call that a Ponzi scheme or something less sinister, AIG was paying old investors with money raised from new investors. The same could be said of many banks that blew through billions of dollars in freshly raised capital the past couple of years, continuing to pay large dividends even as their balance sheets quietly imploded.

Kind of makes me want to go back to the days of bartering, when you dealt face to face with the maker/grower of the goods you were trading: a cow for pile of blankets. What you see is what you get.

Update 12/19Paul Krugman asks:

How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole? ….

… while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.

We’re talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing — and it probably was — we’re talking about $400 billion a year in waste, fraud and abuse.

But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.

At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. And while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.

We’re talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing — and it probably was — we’re talking about $400 billion a year in waste, fraud and abuse.

But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.

At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven’t closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.

Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else? [emphasis mine]

Read the whole column. Krugman hit a nerve – hundreds of readers responded – and the top dozen or so add further depth.




Possessed shoppers poleax Wal-Mart employee

Possessed: v. urgently desirous to do or have something, influenced or controlled by something (as an evil spirit, a passion, or an idea), crazed

Poleaxed: v. to attack, strike, or fell as if with a battle ax (poleax)

What have we come to as a society, when holiday shoppers are so anxious for a bargain that they will trample a store employee to death? We’re not talking about starving people rampaging for food.

These folks are rampaging for CRAP – cheesy gifts for their loved ones who are already paralyzed by having more toys than they can ever use.

From today’s paper:

At 4:55 a.m., just five minutes before the doors were set to open, a crowd of 2,000 anxious shoppers started pushing, shoving and piling against the locked sliding glass doors of the Wal-Mart in Valley Stream, N.Y., Nassau County police said. The shoppers broke the doors off their hinges and surged in, toppling a 34-year-old temporary employee, Jdimypai Damour, 34, of Jamaica, Queens, who had been waiting with other workers in the store’s entryway.People did not stop to help the employee as he lay on the ground, and they pushed against other Wal-Mart workers who were trying to aid Mr. Damour. The crowd kept running into the store even after the police arrived, jostling and pushing officers who were trying to perform CPR, the police said.

“They were like a stampede,” said Nassau Det. Lt. Michael Fleming. “Hundreds of people walked past him, over him or around him.”

My heart breaks for this young man’s family.

This Christmas my family is giving nothing or just regifting for the adults. The two grandkids will get a couple of things, but mostly we’ll be doing stuff together. None of us needs anything.

What are you doing?

Praying to false idols?

Pray: v. to address a solemn request or expression of thanks to a deity or other object ofworship 

I thought Christians didn’t worship false idols. But what do I know, Unitarian-Buddhist-Pagan that I am? According to the Christian Broadcasting Network, Prayers are needed for global economy:

In January of this year, Cindy Jacobs was in a worship service when the Lord spoke to her, “Cindy, the strongman over America doesn’t live in Washington, DC – the strongman lives in New York City! Call My people to pray for the economy.”  

For these and other reasons Cindy is calling for a Day of Prayer for the World’s Economies on Wednesday, October 29, 2008. They are calling for prayer for the stock markets, banks, and financial institutions of the world on the date the stock market crashed in 1929. They are meeting at the New York Stock Exchange, the Federal Reserve Bank, and its 12 principal branches around the US that day.  

We are going to intercede at the site of the statue of the bull on Wall Street to ask God to begin a shift from the bull and bear markets to what we feel will be the ‘Lion’s Market,’ or God’s control over the economic systems,” she said.  “While we do not have the full revelation of all this will entail, we do know that without intercession, economies will crumble.”  

So hundreds crowd about the sacred bull on Wall Street:

As Wonkette says:

Don’t they know that God taking over the economic systems would be SOCIALISM from SPACE? Also: God will be very mad that they are worshiping a bronze idol here, since his second commandment PROHIBITS THAT, duh? 

Really! And conservatives get all exercised if Obama forgets his flag pin?