The Real Ponzi Scheme

by Sal on December 16, 2008

in Economy,Politics

The news surrounding  the scam perpetrated by Bernard Madoff has been widely publicized in the last few days.  Madoff, using the classic Ponzi scheme, defrauded investors of over $50 billion dollars, possibly the largest private-sector scandal, and certainly the largest private-sector Ponzi scheme in history (of course, Washington stands by to give Madoff’s victims a bailout).  I say this, because Rush Limbaugh yesterday pointed out a bigger Ponzi scheme.

For those who don’t know, in a Ponzi scheme, the con-artist convinces people to invest their money, promising huge returns.  He then keeps some in reserve (possibly investing some), and pockets the rest.  He keeps getting new money from new victims, and whenever a victim wants a withdrawal, he gets more money, or uses some of his reserve money to pay out the withdrawal.  Statements are provided that show fake returns, keeping most of the investors happen.  What will happen to every Ponzi scheme is that it will eventually crash and burn when too many people demand their money, such as is happening now with the current economic crisis.

But what Madoff did with $50 billion pales in comparison to the elaborate Ponzi scheme perpetrated by the Federal Government.  Rush Limbaugh pointed out on his show that Social Security fits the classic definition of a Ponzai scheme.  Case in point:

  • Money is collected from citizens with expectations of future returns
  • The money is said to be invested in a “Trust Fund”.
  • Statements are sent out regularly, telling contributors how much their investment is now “worth.”
  • The money that is collected pays the reserve of those who are demanding it back.
  • The remaining money, instead of being placed in a trust fund to grow, is “re-allocated” by the federal government to the general fund, and then spent on various other programs.

Like all Ponzi schemes, Social Security is destined to fail because it is a house of cards that will not be able to survive when a large number of retirees demand their returns.  Which goes to show you, as I’ve always suspected, liberalism is nothing more than a con-job.

{ 4 comments… read them below or add one }

Ryan December 16, 2008 at 4:44 pm

I completely agree with the Social Security Ponzi scheme concept. Charles Ponzi was all about hooking up those who initially invested pretty well so that he could attract others to join up. Yet, the more who joined in, the less returns would be produced, hence the inevitable collapse of the system.

Social Security fits this concept perfectly. It’s too bad so few people recognize that, and those who do either can’t or won’t do anything to change the system. That’s change we won’t be able to count on over the next four years — unless SS needs a bailout, but of course, it’d still be a Ponzi scheme.


rightonoz December 16, 2008 at 6:04 pm

Which is why in Australia we are moving as rapidly as possible to a self fundig Superannuation system.

From the day you start work, your empoyer contributes 9% of your income into superannuation fund/s of your choice. The aim is that as more come throught he system who have had this in place all their working lives they will be largely self sufficient.

Now before you start slamming it as state intervention there are a couple of facts.

1. Most people do not have the ability or brains to put money aside in their own retirement funds and will end up being a cost to socitey, perpetuating an ever growing demand on tax funds, and the financial black hole you speak of.

2. It does not constiture an onerous cost to industry, we simply factor it into the package we offer staff.

While I am strongly against state support of those who are too lazy to work, teenagers who deliberately get preganant to get the baby bonus (turned around our dropping birht rate, though I have serious concerns with it’s implementation) and live their lives on state handouts. (case in point two teen slags on TV recently raving on about how they would never work as there was not enough extra money in it. They would take their $1000 per fortnight of my tax money and spend on booze and cigs and teach their children the wonders of gov’t handouts, while living in subsidised housing)I do support responsible intervention to put in place strategies to reduce the need for taxes down the track.


Ryan December 17, 2008 at 9:58 am

Hi Oz,

On the Australian baby bonus: it sounds JUST like Massachusetts here in the states! I’ve heard story after story after story about girls and young women getting pregnant to mooch off the government dole in MA over the last two decades. They, of course, do not marry the father (even if in love) because the state hand-outs would stop. Even Mitt Romney wasn’t able to successfully end this trend in the Peoples Republic of MA.

On the Superannuation system: it sounds much better than what we have here in the USA. It may be a government sponsored retirement pension system, but it sounds like a simple flat rate with the potential for personal contributions along the way (am I right about that?). Gov’t controlled or not, it sounds better than my system.


rightonoz December 17, 2008 at 7:23 pm

Hi Ryan,

On the super, yes, you can add personal top up’s pre-tax as a salary sacrifice etc, and only get taxed at 15% instead of the usual (anywhere from 30% to 48.5%).

Yes, the gov’t put it in place and keeps an eye to make certain companies pay, but from there on it’s private enterprise. Can’t be touched until 55 or 65 depending on status. You can run it yourself if you wish, but have to have it audited yearly and can use it to purchase investment property with bank loans for the balance under strict guidelines.

On the unmarried mother/baby scheme, I am a fan of a certain US republican (can’t remember the name) who said, once is a mistake and we should help the mother, more than once is careless or deliberate and they should be on their own. My personal view, yes we should help, but it should be subsistence level and possibly some voucher system to stop it being wasted on cigs and booze, but that there should be a much larger figure if the father is named and made to pay. In addition, on the subsistence payment, perhaps a system where if they get off their backside and work, the payment drops at 50-70c for each dollar earned at work, so even if they can’t get full time work they have every incentive to try.

As an aside, we have FINALLY had it suggested we should adopt the US/UK/others system of max 6 months unemployment pay to encourage our young surfers to actually work instead of pretending to look. I’ll vote for that!


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