Financial Reflections

I like to think that I’m “scam proof.”  I can pretty much take a glance at something and smell the slightest hint of fraud or deceit.  I’ve done pretty well over the years, but this latest story is a big wakeup call.  It was recently found that a money manager named Bernard Madoff has bilked some of the biggest banks out there out of over 50 billion (you read that right) dollars.  This is proof that even an Nobel prize winner can get taken by a Ponzi scheme.

What’s a Ponzi scheme?  A Ponzi scheme (named after Charles Ponzi) is when one person takes in money from “investors” with the promise of a high rate of return.  The problem is, the returns come from future investors, not any actual investment increasing in value.  As soon as the person running the Ponzi can’t find enough new investors to pay off the original investors, the whole thing falls apart.  If found the video below on Afternoon Rally, and I think it explains the whole thing much better than I could.

If the video doesn’t show, you can watch it here: Ponzi and Pyramid Schemes Explained Hope that helps. Now, if you will excuse me, I have some prime oceanfront property to invest in.  I haven’t seen it, but they guy selling it seems legit.

Had any experiences with Ponzi (or pyramid) schemes?  I’d love to hear about it.  Share your comments below.