Perry’s Ponzi—A definition is in order


Charles Ponzi

Image via Wikipedia

http://en.wikipedia.org/wiki/Ponzi_scheme

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

The scheme is named after Charles Ponzi[1] who became notorious for using the technique in early 1920.[2] Ponzi did not invent the scheme (for example Charles Dickens’s 1857 novel Little Dorrit described such a scheme decades before Ponzi was born),[3] but his operation took in so much money that it was the first to become known throughout the United States. Ponzi’s original scheme was based on the arbitrage of international reply coupons for postage stamps; however, he soon diverted investors’ money to support payments to earlier investors and himself.

According to wikipedia Perry’s word choice might just be spot on, especially if we look at that first sentence: “not from any actual profit earned by the organization, but from their own money paid by subsequent investors.”  Bingo, touche, I think he was right.  I think I said as much in one of my political ramblings.  So what’s a politico to do? Embrace your inner political child and defend it.

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About heloise8

Meaning of "trough" -- Trough is the bottom of a transverse wave. And generically means a low point or a place to fill. Venus is related to this meaning. Veins are to be filled, and venusian people are loving. The left is more venusian than the right, hence The Trough--where Heloise helps the great and the small. Heloise the politico from Blogcritics.org. Physics preacher, blogger, gardener, beach lover, book lover, writer, author.

Posted on September 7, 2011, in Government Trough, Pig Trough and tagged , , , , , . Bookmark the permalink. Leave a comment.

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