Ponzi Schemes,
Can’t
live with them, Can’t live without them
In a lot of ways Charles Ponzi got a bad rap. In the first
place he didn’t invent the Ponzi scheme, he only improved on it. Charles
Dickens, albeit from book sales rather than venture sales was profiting from
Ponzi schemes before they were even called Ponzi schemes.
What makes a Ponzi scheme criminal is one thing and one thing
only—deceit.
Promising someone that they will realize a profit from an investment based on the investment’s value when in fact the profit was only coming from new money is where Ponzi and those who imitated him made their mistake. Telling them that their return will depend on getting more people to invest would have been the more honest approach.
That said, even today the stock market’s supposed reliance on real value rather than fabricated value is really dependent on more people putting more money into stocks they hope are worth it. When people pull their money out of the stock market it goes down; when they put money in it goes up. That my friend is all Charles Ponzi was ever selling the public. He just wasn’t telling them that.
Life is a Ponzi scheme in almost every instance. What makes everything all right is transparency. As long as people know what they’re getting into we tend to accept the consequences.
