Unemployment soared and steep inflation was setting in across Spain, Italy, Germany, etc.
But an Italian-American businessman who was living in Boston noticed a unique opportunity amid all of that devastation.
He realized that he could buy pre-paid international postage coupons in Europe at dirt-cheap prices, and then resell them in the United States at a hefty profit.
After pitching the idea to a few investors, he raised a total of $1,800 and formed a new company that month– the Securities Exchange Company.
Early investors were rewarded handsomely; within a month they had already received a large return on investment.
Word began to spread, and soon money came pouring in from dozens, then hundreds of other investors
His name was Charles Ponzi. And as you could guess, it was a total scam.
Ponzi wasn’t really generating any investment returns. He was simply taking the new investors’ money to pay the old investors.
business collapsed later that year, giving rise to the term “Ponzi Scheme”.
The most famous Ponzi Scheme in recent history was the case of Bernie Madoff, whose scam robbed investors of $65 billion.
Pensions are the giant funds responsible for paying out retirement benefits to workers.
And if you think calling them a “Ponzi Scheme” is sensational, it’s not.
Pension funds (including Social Security) literally make payments to their beneficiaries with money contributed by people in the work force.
In other words, the money that people pay in to the pension fund is paid out to the people receiving benefits.
In theory this could go on indefinitely as long as possible.
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