No. 802



The late Charles Ponzi (1882-1949) was an Italian swindler who is considered one of the greatest swindlers in American history. He could appropriately be called the “Father of the Ponzi Scheme.”
The term “Ponzi Scheme” was coined after Charles Ponzi’s scam, and today it is the description of any scam that pays early investors returns from the investments of later investors. Charles Ponzi promised clients a 50 percent profit within 45 days, or 100 percent profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage -- meaning the practice of taking advantage of a price difference between two or more markets. Ponzi was probably inspired by the scheme of William Miller, a Brooklyn bookkeeper who used the same scheme to take in $1 million.
The name that most modern-day Americans will remember and relate to readily is Bernie Madoff, who sits in prison as I write these words. In this regard, a thoughtful reader sent me something that, because of the way it was presented, was very insightful and sobering. It was a side-by-side comparison of Bernie Madoff’s Ponzi Scheme and our own Social Security system. While I already knew most of the give-and-take factors (mostly take) of our Social Security system, this comparison put the cookies on the bottom shelf and really brought it home to me. Permit me to share it with you and I believe it will give you some new insights as well.
There are five different points in a comparison of each, Bernie Madoff and Social Security.
“BERNIE MADOFF – Takes money from investors with the promise that the money will be invested and made available to them later. SOCIAL SECURITY – Takes money from wage earners with the promise that the money will be invested in a ‘Trust Fund’ and made available later. BERNIE MADOFF – Instead of investing the money Madoff spends it on nice homes in the Hamptons and yachts. SOCIAL SECURITY – Instead of depositing money in a Trust Fund the politicians use it for general spending and vote buying. BERNIE MADOFF – When the time comes to pay the investors back Madoff simply uses some of the new funds from newer investors to pay back the older investors. SOCIAL SECURITY – When benefits for older investors become due, the politicians pay them with money taken from younger and newer wage earners to pay the geezers.
“BERNIE MADOFF – When Madoff’s scheme is discovered, all hell breaks loose. New investors won’t give him any more cash. SOCIAL SECURITY – When Social Security runs out of money, they simply force the taxpayers to send them some more. BERNIE MADOFF – Bernie Madoff is in jail. SOCIAL SECURITY – Politicians remain in Washington.”
This last bit of information reminds me of a quotation by Milton Friedman, a prominent economist: “If you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand.”
It has taken me a while, but I have finally figured out why we can’t reduce the deficit without increasing taxes. Nobody wants the government to cut their program. We can’t do it without it being painful, but the right thing to do is make cuts across the board where everyone knows, up front, that it’s fair.
(EDITOR'S NOTE: Jim Davidson is a public speaker and syndicated columnist. You may contact him at 2 Bentley Drive, Conway, AR 72034. To begin a bookcase literacy project visit You won’t go wrong helping a needy child.)