The End is Nigh

New Years is just hours away, so I thought it might be time to do a retrospective of 2010. Then I decided not to - too much work. Instead I am just going to pick one story.

Do you remember Bernie "Made Off" Madoff? He was nabbed two years ago for orchestrating a $20 billion Ponzi scheme that left a huge number of investors and greedheads bereft of retirement funds. He was back in the news earlier this month when his son committed suicide on the anniversary of his arrest. It was really a horrible story for all involved.

Are you familiar with Ponzi schemes? They were named after Charles Ponzi, a dapper young Italian immigrant who spent many years in prison for his swindles. It seems that Ponzi schemes have once again become all the rage in this country. From Florida to California, people have been suckered into these things. If the 80's were "The Decade of Greed," the 00's have been "The Decade of Less Work and Skill for More Return." And that's what all Ponzi schemes have in common: the "victim" has to be after a little somethin' for nothin'. Maybe not at the beginning... but eventually.

Here's how a Ponzi Scheme is structured:

First, the orchestrator comes up with a great investment backstory. This could be a mutual fund, a retirement system, land grabs, or any other example from the limitless capacity of the human mind to dream and believe. He then includes suggestions, claims, and/or documentation of huge returns on the investment. That's critical... it's got to be bigger or more secure than the open market can guarantee, otherwise he won't find any investors.

The second and even more critical element is a continuous and escalating flow of "investors." I emphasized that term because it suggests the person wishes to minimize risk. In reality they are acting much more like speculators, without all the disposable funds to throw into high risk situations. So, Ponzi victims are speculators of relatively modest means who can only continue with their activities by telling themselves nothing can go wrong... even after the orchestrator has left the country or entered the penal system.

And this is how it works:

The first "investors" pour their retirement funds, dream house account, kids' college savings, and life insurance policies into the ponzi vehicle. The orchestrator then takes those funds and pours them into New York apartments, yachts, women half his age, and a team of crooked accountants. As the early investments mature and the orchestrator's lifestyle becomes more expensive, additional investors are brought in to pay out the previous investment funds. This continues until... well, until the whole thing collapses.

Of course, you all know about Ponzi Schemes thanks to Bernie Madoff. His Ponzi scheme came in to the tune of $20 billion dollars. His investors, like all Ponzi Scheme victims, had to actively and consciously ignore warning signs, like investments that didn't mature completely, payouts that were late or always forthcoming, excuses as to why returns weren't as high as promised. For all of that, he received a sentence of 150 years. But why even bring him up? He's soooo 2009.

This year it was announced that Social Security dependents would not be receiving their cost of living increase. Social Security has pulled in $13.8 trillion and is still about $16 trillion in the hole. Don't you think it's high time we put an end to the largest Ponzi scheme in the history of this country and start handing out prison sentences already?