I used to work for a subsidiary of a company that I believed to be involved in a Ponzi scheme. I was never sure and even if it was going on, I didn’t necessarily think that they knew it. The truth is that it is really easy for an investment company to work its way into one of these. Shortly after leaving Italy, Charles Ponzi ended up working at the Banco Zarossi in Montreal. The bank got into trouble with some bad investment and the president started paying interest with the money from new deposits. That’s a Ponzi scheme. But I doubt that Zarossi thought of it that way. He probably thought he was just taking temporary measures to protect his bank.
What is really interesting is that Charles Ponzi didn’t originally mean to scam his investors. He had a good idea to scam the US government—in a totally legal way. This was right after World War I. Ponzi noted that anyone could buy international reply coupons (IRC) cheaply in Italy and sell them high in the US. There was a 400% margin in this deal. But there was a problem: the overhead was huge. You could only buy and exchange the IRCs individually. So in the end, there was no profit.
That’s when Charles Ponzi became the man we all know and love. He used the plausible story about great profits to be made with IRCs to get investors. And boy did they come. He was offering people 100% return after 90 days. People were very impressed with this given that banks were offering 5% per year. The rest is history. In his later years, Ponzi claimed that it was all about the con, “Without malice aforethought I had given them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over.” But I question this. I think this is all historical revision. I suspect that at the time he thought he was just a businessman.
And I think the same thing about Bernie Madoff. I suspect he eased himself into the Ponzi pool slowly. And once he found himself in the deep end, all he could do was tread water. I’m sure when he was pontificating on CNBC that he thought what he was doing was right; to admit that he was billions of dollars into a Ponzi scheme would have hurt investors.
The truth is that Ponzi was right: he did provide a great show. Madoff didn’t. But here’s the thing. At first, Ponzi was a darling of the newspapers. But after a fairly short period of time, he was exposed. In a time when news runs very fast, it took the financial press over a decade to take allegations against them seriously. Harry Markopolos claims that he proved Madoff was a fraud with a 5 minute calculation. The big banks and investors on Wall Street all avoided Madoff because they knew he was a fraud. Yet it went on and on. When it comes to financial matters both the government and the press are hopeless.
But it isn’t Madoff’s birthday today. It’s Ponzi’s. Happy birthday you magnificent bastard!
There was a recent story about diamond thieves ripping off millions in a Belgian airport heist that I enjoyed. I like those stories, they’re fun in an "Ocean’s Eleven" or Bond sort of way.
I worked for H&R Block one year when I really needed the money. It’s basically a predatory lender, charging people 500% APR to get advances on their tax refunds; the notion they pimp in TV ads of being a real tax service, staffed by experts, is just bunk. Those ads run in January and February, when poor people who need money yesterday get their W-2s. The ads stop running in March and April, when wealthy people have completed compiling all their receipts (which they bring to a genuine CPA.)
When you work there, you’re paid on commission. And you’re led to believe the obscene fees poor people are charged to get refund anticipation loans are part of your commission. So you gleefully pimp those loans, because if you didn’t desperately need the money, you wouldn’t be working for H&R Block.
Then the slowdown comes. It’s mid-February, and far fewer people are walking into the office. You’re encouraged (nay, compelled, if you haven’t quit already) to attend a corporate training seminar. Where it is explained to you that none of those exorbitant bank fees counted as part of your commission. Your commission is based of the number of IRS forms you billed clients for filing. (Usually a federal return, a state return, and the forms poor people need to claim dependents via Earned Income Credit, a wholly corrupt and wholly misguided program Reagan loved.) You’re befuddled. You’re bamboozled.
And you still need the money, so for the rest of the tax season you do one of three things. 1: Spend your free hours (you have quite a few) calling people who filed H&R Block returns in the past and explaining to them how they will get less boned this time. (They won’t.) 2:If your job history is such that you have few other options, call those former H&R Block clients and bring them back, using your considerable personal skills to convince them they’re not getting robbed (they are; you can send your W-2 to the IRS if you want them to figure your taxes for you, and they’re pretty skilled at it.)
Or, #3: Keep working at H&R Block if you need the minimum wage, and do your best to fuck the company every chance you get. Now that you know listening to those sad-sack cases (it’s like being a Catholic priest) won’t get you much money, you get intense about trying not to rob them. People in the office start trading discoveries about how to fool the H&R Block software into getting clients additional breaks without paying Block a cent for those additional forms. While those Block employees who need the job next year look aside and don’t tell management what they see you doing. And you don’t tell the customers they’re scamming to run away, because some employees need to work at H&R Block next year. It’s all perfectly disgusting.
Anyhoo, that’s my take on Ponzi schemes. You described how his corruption started elegantly and efficiently.
@JMF – That was great. It deserves to be made into an article, "My Time as a Tax Preparing Scum." About ten years ago, I did my wife and my taxes for 4 years all at once. (I know!) I found that I loved it. We had ridiculously complicated taxes and I loved delving into the law. Now I do the taxes for a lot of friends and family. Most of it is trivial, and it angers me that people get charged for it. (My older sister’s taxes are fairly complex, but I can’t believe how much her CPA used to charge her. The first year I did it, it was a bit hard; it took some research. Since then, it is the same stuff so it’s maybe a couple of hours work.)
What we would do if we were really a democracy is have the IRS do everyone’s taxes by default. Those who wanted to, could file their own. But all the EZ people have no reason to do their own. The IRS could just cut them checks in February and be done with it. But we can’t do that because H&R Block would lose money! This is also the reason why we can’t have single payer healthcare. It is the reason we can’t have any nice things.