Ponzi schemes are nothing new. They have been around for years.
They were first made famous by Charles Ponzi back in the 1920s. And continue to be used today.
So just what is a Ponzi scheme?
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation.
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.
It also goes by another name that you might be familiar with – the pyramid scheme.
What’s amazing about is how resilient they are.
I say this because a friend of mine and I were taken in by one such scheme.
And if you don’t think you’d ever fall victim to such a scam think again.
Bernie Madoff, a well respected investor and former chairman of the NASDAQ stock exchange, ran a Ponzi scheme that swindled such famous people as Steven Spielburg, Kevin Bacon, John Malkovich and numerous billionaires out of millions, if not billions, of dollars.
I’ve found that if an investment is too good to be true then it probably is.
What most of us don’t realize is that the biggest Ponzi schemes that exist have been created by governments themselves.
Just the other day a friend sent me an article by Robert Kiyosaki that was well written, informative and a little scary. And as my goal is to share the best information I can find, I feel it fits the bill.
And he is right, too often, most of us “can’t handle the truth.”
Don’t let yourself get sucked into a Ponzi scheme, no matter who’s running it.
Educate yourself. Be prepared.
You Can’t Handle the Truth
One of my favorite Hollywood movie lines comes from A Few Good Men, staring Jack Nicholson and Tom Cruise. The line spoken by Nicholson, “You can’t handle the truth!”, applies in many areas of life, mine included. As a former Marine, I can say Nicholson played a Marine Colonel to perfection.
Although a former Marine, I still hate the truth. I hate it when I go to the doctor and he says, “You need to lose twenty pounds.”
I hate the truth when I realize my life isn’t the fairy tale I’ve dreamt of. I often wish life were easier. I wish I didn’t have to exercise. I wish I didn’t have to wash dishes after eating dinner. I wish I looked like Johnny Depp or Brad Pitt. I wish I could eat pizza and drink beer five nights a week—and still look like Johnny Depp and Brad Pitt.
But that is not real life, and the truth is that life can be pretty cruel, if one cannot handle the truth.
Recently, Republican Presidential hopeful Rick Perry called Social Security a Ponzi scheme, something I’m proud to have been saying for years. Well, this truthful statement sent ripples through his fan base. He upset many people who saw him as the great White Hope. His presidential handlers went to “damage control,” doing their best to smooth the ruffled feathers of voters who can’t handle the truth. He eventually backed off his statements.
The truth is that Social Security and many pension funds such as California’s CalPERS are Ponzi Schemes. There isn’t enough money in those funds to pay for all the people who are collecting. If young people stop putting money in, the gig is over. Rather than face this truth, many people would rather our leaders lie to them…and lie they will.
To make matters worse, most of these people who cannot handle the truth don’t even know what the truth is. Many believe that the money they’ve been putting in for years is still there, much like a private savings account. Most are unable to comprehend that the money they put in is actually gone, having flowed into an older retiree’s wallet. They do not know that if younger, person doesn’t come in behind them and put money in the funds, they’ll be forced to face the truth that there isn’t any money in the kitty.
To make matters worse, there are many young people who know Social Security won’t be there, yet they do nothing to very little about it. One young person I talked to feels confident his 401k will give him all the security he needs. Little does he know that the stock market is nothing but one big Ponzi scheme. In other words, if money stops coming in to the market, the money already in will rush out. With computerized high frequency trading (HFT), money can disappear at the speed of thought.
Most of us still remember the Ponzi scheme in the real estate market. As long as banks were lending, fools were rushing in. The moment the word “subprime” was whispered, the money rushed out and the real estate market crashed.
As you know, after the crash, the rich were bailed out, and the poor and middle class were left holding the bag. Today, the banks are flush with cash. The problem is, the poor and middle class are broke.
What will it take for the economy to come back? Well, obviously, another Ponzi scheme… and that’s the truth.