Ponzi scheme - Revision history

Pestergaines: /* Similar schemes */ +link

2011-05-16T14:56:21Z

Similar schemes: +link

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	* A [[pyramid scheme]] is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:		* A [[pyramid scheme]] is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:
	**In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means ''no'' investment return.)		**In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means ''no'' investment return.)
	**A Ponzi scheme claims to rely on some esoteric investment approach (insider connections, etc.) and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that ''new money'' will be the source of payout for the initial investments.		**A Ponzi scheme claims to rely on some esoteric investment approach ([[Insider trading\|insider connections]], etc.) and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that ''new money'' will be the source of payout for the initial investments.
	**A pyramid scheme is bound to collapse much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to "reinvest" their money, with a relatively small number of new participants.		**A pyramid scheme is bound to collapse much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to "reinvest" their money, with a relatively small number of new participants.

Pestergaines: /* Links */ typo

2011-03-28T22:01:10Z

Links: typo

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	* [http://www.mijiki.com/what-is-a-ponzi-scheme.html Ponzi scheme definition with distinctions, history, and other information]		* [http://www.mijiki.com/what-is-a-ponzi-scheme.html Ponzi scheme definition with distinctions, history, and other information]
	* [http://dillonthompson.com/wp-content/uploads/2010/09/ponzi.swf Illustration of a Ponzi scheme]		* [http://dillonthompson.com/wp-content/uploads/2010/09/ponzi.swf Illustration of a Ponzi scheme]
	* [http://mises.org/daily/1070 "New Technology, Old Scam"] by Clifford F. Thies, October 2002		* [http://mises.org/daily/1070 New Technology, Old Scam] by Clifford F. Thies, October 2002

Pestergaines: /* Links */ +res

2011-03-28T21:36:17Z

Links: +res

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	*{{cite book \|title=Ponzi’s Scheme: The True Story of a Financial Legend \|last=Zuckoff \|first=Mitchell \|authorlink= \|coauthors= \|year=2005 \|publisher=Random House \|location=New York \|isbn=1400060397 \|page= \|pages= \|url= }}		*{{cite book \|title=Ponzi’s Scheme: The True Story of a Financial Legend \|last=Zuckoff \|first=Mitchell \|authorlink= \|coauthors= \|year=2005 \|publisher=Random House \|location=New York \|isbn=1400060397 \|page= \|pages= \|url= }}

	== ~~External links~~ ==		== Links ==
	* [http://www.mijiki.com/what-is-a-ponzi-scheme.html Ponzi scheme definition with distinctions, history, and other information]		* [http://www.mijiki.com/what-is-a-ponzi-scheme.html Ponzi scheme definition with distinctions, history, and other information]
	* [http://dillonthompson.com/wp-content/uploads/2010/09/ponzi.swf Illustration of a Ponzi scheme]		* [http://dillonthompson.com/wp-content/uploads/2010/09/ponzi.swf Illustration of a Ponzi scheme]
			* [http://mises.org/daily/1070 "New Technology, Old Scam"] by Clifford F. Thies, October 2002

Karmaisking at 04:38, 21 November 2010

2010-11-21T04:38:35Z

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	Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be [[rational choice theory\|rational]] economically if there is a reasonable expectation that government or other deep pockets will [[bailout\|bail out]] those participating in the Ponzi scheme.<ref>{{cite journal\|title = The optimal design of Ponzi schemes in finite economies\| first = Utpal\|last=Bhattacharya\|journal = Journal of Financial Intermediation\|volume = 12\|year = 2003\| pages = 2–24 \| doi = 10.1016/S1042-9573(02)00007-4}}</ref>		Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be [[rational choice theory\|rational]] economically if there is a reasonable expectation that government or other deep pockets will [[bailout\|bail out]] those participating in the Ponzi scheme.<ref>{{cite journal\|title = The optimal design of Ponzi schemes in finite economies\| first = Utpal\|last=Bhattacharya\|journal = Journal of Financial Intermediation\|volume = 12\|year = 2003\| pages = 2–24 \| doi = 10.1016/S1042-9573(02)00007-4}}</ref>

	Some Austrian economists such as [[Murray Rothbard]] and [[Peter Schiff]] have characterized the international monetary system as a gigantic Ponzi scheme and therefore it is important for Austrian scholars to understand the dynamics underlying Ponzi schemes in order to understand the criticisms made by Murray Rothbard and other Austrians and to anticipate the possible collapse of this scheme, if indeed the current monetary system is a Ponzi scheme.		Some Austrian economists such as [[Murray Rothbard]] and [[Peter Schiff]] have characterized the international monetary system and the issuance of government bonds backed by nothing but fiat paper currency as a gigantic Ponzi scheme and therefore it is important for Austrian scholars to understand the dynamics underlying Ponzi schemes in order to understand the criticisms made by Murray Rothbard and other Austrians and to anticipate the possible collapse of this scheme, if indeed the current monetary system is a Ponzi scheme.

	== Hypothetical example ==		== Hypothetical example ==

Forgottenman: WP text, with specific revision ID

2010-11-17T14:02:10Z

WP text, with specific revision ID

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			{{Wikipedia text\|\|396439173}}
	A '''Ponzi scheme''' is a [[fraud]]ulent [[investment]] operation that pays returns to investors from their own money or money paid by subsequent investors, rather than from any actual profit earned from its supposedly "core" investment activities. The Ponzi scheme usually entices new investors by offering above average (often spectacular) returns other investments cannot achieve, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going as the additional return on capital can only be sustained by additional capital coming into the scheme, due to the fact that there is no (or very little) actual profitable activity occurring within the "core" investment activities.		A '''Ponzi scheme''' is a [[fraud]]ulent [[investment]] operation that pays returns to investors from their own money or money paid by subsequent investors, rather than from any actual profit earned from its supposedly "core" investment activities. The Ponzi scheme usually entices new investors by offering above average (often spectacular) returns other investments cannot achieve, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going as the additional return on capital can only be sustained by additional capital coming into the scheme, due to the fact that there is no (or very little) actual profitable activity occurring within the "core" investment activities.

Karmaisking: /* See also */ Clean up links

2010-11-17T12:13:01Z

Karmaisking: /* See also */

2010-11-17T12:12:29Z

Karmaisking at 07:34, 17 November 2010

2010-11-17T07:34:35Z

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	A '''Ponzi scheme''' is a [[fraud]]ulent [[investment]] operation that pays returns to ~~separate~~ investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. 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. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.		A '''Ponzi scheme''' is a [[fraud]]ulent [[investment]] operation that pays returns to investors from their own money or money paid by subsequent investors, rather than from any actual profit earned from its supposedly "core" investment activities. The Ponzi scheme usually entices new investors by offering above average (often spectacular) returns other investments cannot achieve, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going as the additional return on capital can only be sustained by additional capital coming into the scheme, due to the fact that there is no (or very little) actual profitable activity occurring within the "core" investment activities.

	The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of [[Bernard Madoff]] demonstrates the ability of a Ponzi scheme to delude both individual and institutional investors as well as securities authorities for long periods: Madoff's variant of the Ponzi scheme stands as the [[Madoff investment scandal\|largest financial investor fraud]] committed by a single person in history. Prosecutors estimate losses at Madoff's hand totaling roughly $21 billion, as estimated by the money invested by his victims. If the promised returns are added the losses amount to $64.8 billion, but a New York court dismissed this estimation method during the Madoff trial.		The system is destined to collapse because the "real" earnings, if any, are much less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of [[Bernard Madoff]] demonstrates the ability of a Ponzi scheme to delude both individual and institutional investors as well as securities authorities for long periods: Madoff's variant of the Ponzi scheme stands as the [[Madoff investment scandal\|largest financial investor fraud]] committed by a single person in history. Prosecutors estimate losses at Madoff's hand totaling roughly $21 billion, as estimated by the money invested by his victims. If the promised returns are added the losses amount to $64.8 billion, but a New York court dismissed this estimation method during the Madoff trial.

	The scheme is named for [[Charles Ponzi]],<ref name=ssadoc>{{cite web \|url=http://web.archive.org/web/20041001-20051231re_/http://www.ssa.gov/history/ponzi.html \|title=Ponzi Schemes \|publisher=US Social Security Administration \|accessdate=2008-12-24 }}</ref> who became notorious for using the technique in early 1920. He had emigrated from [[Italy]] to the [[United States]] in 1903. Ponzi did not invent the scheme ([[Charles Dickens]]' 1857 novel ''[[Little Dorrit]]'' described such a scheme decades before Ponzi was born, for example), but his operation took in so much money that it was the first to become known throughout the United States. [[Charles Ponzi\|His original scheme]] was in theory based on [[Arbitrage\|arbitraging]] [[international reply coupon]]s for postage stamps, but soon diverted investors' money to support payments to earlier investors and Ponzi's personal wealth.		The scheme is named for [[Charles Ponzi]],<ref name=ssadoc>{{cite web \|url=http://web.archive.org/web/20041001-20051231re_/http://www.ssa.gov/history/ponzi.html \|title=Ponzi Schemes \|publisher=US Social Security Administration \|accessdate=2008-12-24 }}</ref> who became notorious for using the technique in early 1920. He had emigrated from [[Italy]] to the [[United States]] in 1903. Ponzi did not invent the scheme ([[Charles Dickens]]' 1857 novel ''[[Little Dorrit]]'' described such a scheme decades before Ponzi was born, for example), but his operation took in so much money that it was the first to become known throughout the United States. [[Charles Ponzi\|His original scheme]] was in theory based on [[Arbitrage\|arbitraging]] [[international reply coupon]]s for postage stamps, but soon diverted investors' money to support payments to earlier investors and Ponzi's personal wealth.
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	Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be [[rational choice theory\|rational]] economically if there is a reasonable expectation that government or other deep pockets will [[bailout\|bail out]] those participating in the Ponzi scheme.<ref>{{cite journal\|title = The optimal design of Ponzi schemes in finite economies\| first = Utpal\|last=Bhattacharya\|journal = Journal of Financial Intermediation\|volume = 12\|year = 2003\| pages = 2–24 \| doi = 10.1016/S1042-9573(02)00007-4}}</ref>		Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be [[rational choice theory\|rational]] economically if there is a reasonable expectation that government or other deep pockets will [[bailout\|bail out]] those participating in the Ponzi scheme.<ref>{{cite journal\|title = The optimal design of Ponzi schemes in finite economies\| first = Utpal\|last=Bhattacharya\|journal = Journal of Financial Intermediation\|volume = 12\|year = 2003\| pages = 2–24 \| doi = 10.1016/S1042-9573(02)00007-4}}</ref>

	Some Austrian economists such as [[Murray Rothbard]] and [[Peter Schiff]] have characterized the international monetary system as a gigantic Ponzi scheme and therefore it is important for Austrian scholars to understand the dynamics underlying Ponzi schemes in order to understand the criticisms made by Murray Rothbard and other Austrians.		Some Austrian economists such as [[Murray Rothbard]] and [[Peter Schiff]] have characterized the international monetary system as a gigantic Ponzi scheme and therefore it is important for Austrian scholars to understand the dynamics underlying Ponzi schemes in order to understand the criticisms made by Murray Rothbard and other Austrians and to anticipate the possible collapse of this scheme, if indeed the current monetary system is a Ponzi scheme.

	== Hypothetical example ==		== Hypothetical example ==

Karmaisking: /* References */

2010-11-17T06:30:27Z

References

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	== References ==		== References ==
	{{reflist\|2}}		{{reflist\|2}}
	~~{{Refimprove\|date=December 2008}}~~

	==Further reading==		==Further reading==

Karmaisking: /* Notable Ponzi schemes */

2010-11-17T06:30:13Z

Notable Ponzi schemes

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	* [[wiktionary:rob Peter to pay Paul\|"Robbing Peter to pay Paul"]]: When debts are due and the money to pay them is lacking, whether because of bad luck or deliberate theft, debtors often make their payments by borrowing or stealing from other investors they have. It does '''not''' follow that this is a Ponzi scheme, because from the basic facts set out there is no indication that the lenders were promised unrealistically high rates of return via claims of unusual financial investments. Nor (from these basic facts) is there any indication that the borrower (banker) is progressively increasing the amount of borrowing ("investing") to cover payments to initial investors.		* [[wiktionary:rob Peter to pay Paul\|"Robbing Peter to pay Paul"]]: When debts are due and the money to pay them is lacking, whether because of bad luck or deliberate theft, debtors often make their payments by borrowing or stealing from other investors they have. It does '''not''' follow that this is a Ponzi scheme, because from the basic facts set out there is no indication that the lenders were promised unrealistically high rates of return via claims of unusual financial investments. Nor (from these basic facts) is there any indication that the borrower (banker) is progressively increasing the amount of borrowing ("investing") to cover payments to initial investors.

	~~== Notable Ponzi schemes ==~~
	~~{{main\|List of Ponzi schemes}}~~

	== See also ==		== See also ==

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	== See also ==		== See also ==
	* [[~~High-yield investment program]]~~		* [[Embezzlment]]
	* [[Bucket shop (stock market)]]
	* [[Get-rich-quick scheme]]
	* [[Matrix scheme]]
	* [[Double Shah]]
	* [[White-collar crime]]

	== References ==		== References ==

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	== See also ==		== See also ==
	* [[~~Embezzlment~~]]		* [[Embezzlement]]

	== References ==		== References ==