What is a Ponzi scheme?

Hi

In the past days I have digressed from my theme of financial responsibility to one of exploring current events. Today I hope to try to explain what a "Ponzi scheme" is. Texas Governor Perry has likened he Social Security to such a scheme so I hope this blog sheds some light. The Ponzi scheme is named after a man who used such a scheme to enrich himself at investors expense.

Let me try to illustrate the idea by using an example. Mr. Pinzo decides that he wants to make money, legally or illegally. He now devises this scheme. The first thing Pinzo dose is to enlist investors, which he does by promoting an investment which will pay a high return on the investment. He does so by interesting Andy to invest. For purposes of the illustration Andy puts in $1000. Pinzo doesn't invest it because there is no investment vehicle. Pinzo s faced with the dilemma of paying Andy a dividend or return on his investment, so Pinzo sells Bill on the idea. Bill invests $1000 which is used to pay Andy's return or yield and the balance goes into Pinzos pocket. The idea then becomes a self growing one, as Pinzo now enlists investments from Chuck, Dave, Eddie, etc. The more the merrier because it means more money for Pinzo. Alas, one day the investors call for the return of their principal investment, it is not there. By this time Pinzo is somewhere on a tropical island sipping cocktails on the beach.

Of course the entire scheme is illegal. Try to catch Pinzo becomes the name of the game.

What I will try to explain in my next blog is if this idea ties or links into Social Security. Come back next time.

I ask that you set aside a moment to pray for the safety of our brave service people who are defending our freedoms.
GOD Bless