Beyond Blessed by Robert Morris

Author:Robert Morris [Morris, Robert]
Language: eng
Format: epub
Publisher: FaithWords
Published: 2019-01-08T00:00:00+00:00

CHAPTER EIGHT

THERE IS ENOUGH

Charles Ponzi. He’s the infamous individual whose name is now forever associated with a particular type of financial scam… the Ponzi scheme.

In the early 1920s, the smooth-talking con man living in Boston founded an official-sounding investment firm called the Securities Exchange Company. His pitch to prospective investors was straightforward. Invest $100 with him and he’d deliver an astonishing 50 percent return on the investment within forty-five days. Keep it with him for a full ninety days and he’d deliver a full 100 percent return! This, in a day in which traditional savings accounts were paying about 3 percent.

These kinds of results sounded too good to be true, and indeed they were. Yet this was the beginning of the Roaring Twenties, and at the time it seemed like everyone knew someone who was getting rich in the booming stock market. As a result, Ponzi found eighteen people who bought his sales pitch and forked over $100—a sizable sum in that day. At the end of forty-five days, Ponzi took some of the money he’d recently collected from new investors and used it to provide the original investors the amazing 50 percent returns he’d promised. Of course, most didn’t want out. They wanted to keep their money with Ponzi so it would earn even more. With dollar signs in their eyes and what seemed like a bona fide get-rich-quick opportunity before them, they poured even more savings into Ponzi’s hands.

They also told all their friends and relatives about the amazing investment deal they’d discovered. Of course, all these wanted in, too. As a result, a rapidly growing stream of new investors flowed into Ponzi’s fund. And in each case, Ponzi delivered on his outrageous promise—not with genuine returns on an investment but by simply using the money of newer investors to pay the earlier ones who cashed out. Fortunately for Ponzi, once greed took hold, very few wanted to cash out. Within six months of launching his endeavor, investors had placed nearly $2.5 million in Ponzi’s hands (roughly $30 million in today’s dollars). After another month he was hauling in an additional $1 million per week. Another month after that, it had surged to $1 million per day.

Ponzi could only keep this merry-go-round going as long as far more people poured into the fund than wanted out. But eventually, a few skeptical newspaper articles were published, and the stream of new investors dried up. As a result, the whole scam collapsed with breathtaking speed. Ponzi went to prison while the majority of the investors never saw a dime of their money. Many of these were working-class Bostonians who’d invested their life savings. For example, it was estimated that 75 percent of Boston’s police force had invested in the fraudulent scheme.1

Ponzi’s scam has been repeated many times and in various forms in the nearly one hundred years since then. It always ends badly, with the investors who come in toward the end invariably left out in the cold with nothing but an expensive, painful lesson to show for it.

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