Kings of Stings by Morton & Lobez

Author:Morton & Lobez
Language: eng
Format: epub
Publisher: Melbourne University Press
Published: 2011-03-14T16:00:00+00:00

12

White-Collar Grime

Excrementa vixit cerebellum. [Bullshit baffles brains.]

Dog-Latin, World War II Army.

In early 2009, with the news of New York banker Bernard Madoff’s default, suddenly everything was a Ponzi and it seemed as though a new phrase, ‘Ponzi scheme’, had been coined. In fact, the so-called Ponzis are named after the Italian-born Charles Ponzi, and have been in operation worldwide for over a century, after the eponymous Ponzi went to America in the late nineteenth century and discovered he could buy international postal-reply coupons in some countries at below face value. They could then be resold in the United States at a profit of up to 50 per cent. His first venture netted him US$1250.

Based on this scheme, he next offered investors 50 per cent on their money, payable in three months, which was later cut to forty-five days. Once he started paying the interest, more money poured into his offices and this was used to pay the interest on the investments as well as to buy land and a brokerage company and, for himself, 200 suits, twenty-four diamond stick pins, forty-eight gold-handled Malacca canes and a lifestyle to go with them. Then in 1920, the Boston Post printed an article that Ponzi had served time for cheque frauds in Canada and for smuggling immigrants. The rot set in, particularly when it was shown there were not enough international reply coupons in the whole world to back his scheme. The default was reckoned to be somewhere between US$5 million and US$10 million, but it could have been more. Ponzi received a mere five years’ imprisonment.1

Yet in all but name, Ponzi schemes had been with us for decades before Charles arrived. On 12 May 1879 a notice appeared in the Melbourne papers announcing that the directors of the Provincial and Suburban Bank regretted that, due to their inability to collect on their debts, they were compelled to temporarily suspend payments. Several days later, independent investigators reported to shareholders that the bank’s financial statements were ‘a tissue of deceptions’.2 Paid capital was fictitious, dividends had been paid from capital, and profits earned were zero. The bank’s general manager, one-time cordial-maker Richard Willis, had been promoted from co-auditor, and the board had helped him dig the bank into a hole by granting him £1000 overdrafts every so often so that he could buy more shares and artificially prop up the market value. Further, the bank had huge bad debts, much of it involving the proposed railway to run from Oakleigh to South Yarra, which would enable Gippsland farmers to get their produce to town on one direct line. Willis had assured the contractors that his bank had the funds to back their project and so when the bank took its inevitable dive, so did the contractors.

In February 1880, unusually for the time, four bank directors and Willis were prosecuted for conspiring to defraud the shareholders. The jury took a few hours to find the defendants guilty, but they recommended mercy and Chief Justice Stawell

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.