Charles Ponzi, Parma (Italy) 1877–1949. He was famous for what is known as the Ponzi scheme, which was nothing more than a large-scale scam caused by a shortage of postal coupons that he was brokering from Spain to the US, where he had been living since 1903 as just another emigrant. He received these coupons via Italy through an arbitrage scheme that generated a staggering profit of 600%. He offered family and friends the chance to join the scheme with a 45% return over 90 days, but was soon overwhelmed by demand. The whole of Boston wanted to get involved in the «Ponzi scheme», and he received requests for as many as 200 million coupons. Faced with an avalanche of demand that made it physically impossible to cover the returns with the corresponding coupons, Ponzi decided to pay investors’ interest using the new daily contributions he received. A pyramid scheme with disastrous consequences had been created, which led to his imprisonment and brought his fleeting opulence to an end within a few years. In fact, he died in a charity hospital in Rio de Janeiro, in utter poverty, at the age of 72.
Is credit abuse comparable to its securitisation Is the current situation comparable to a Ponzi scheme? In a way, we could say so. At the very least, the increase in demand for credit that our economic system has experienced in recent years can be extrapolated. But there is no doubt that the main responsibility is widely shared: it lies with the financos They securitised everything that could be securitised and more; the investors who leveraged beyond belief, with and without, are also in the same boat. carry trade, the blame lies with the credit rating agencies which, whether in good or bad faith, did a very poor job, and the list could go on until it offends more than a few people. In any case, we must acknowledge a certain Minsky Moment, as is quite rightly pointed out by Gurusblog, which has excessively increased Ponzi-style lending.
Although what Ponzi did in his day was a massive scam that ruined thousands of people, perhaps we shouldn’t demonise the Ponzi scheme, because let’s not forget that our National Insurance system practises it with malice aforethought and with no other option to meet its obligations. That said, it is worth noting that in future the pension system may not be sustainable due to increasing life expectancy. If we were truly supportive and politically correct, we should die at the age of 70 to preserve the system. If Ponzi were to rise from the dead…