Ponzi promised 50% profit in 45 days or 100% profit in 90 days; investor’s choice. He originally bought Postal Reply Coupons in other countries and then cashed them in the USA. Due to the foreign currencies exchange-rate differences, it was a form of arbitrage. But the paperwork to make this happen was so involved that there was just not enough profit to warrant all the work required. That didn’t slow-down Ponzi, however. He kept promoting his scheme despite the lack of actual Postal Reply Coupons in his vault.

So the concept of taking money from one person early-on and then repaying that early person with monies obtained from later investors has been called a “Ponzi Scheme” ever since. Sound like anything else in which you’re forced to participate?

It wasn’t even original to Ponzi. Charles Dickens described a similar scheme in “Little Dorrit” which was published before Ponzi was born. Speculation is that Ponzi actually learned of this concept from William F. Miller, a Brooklyn bookkeeper who used the same pyramid scheme in 1899 with which he took-in $1 million.

Charles Ponzi was always a ne’er-do-well throughout his life. Bernie Madoff by comparison, had developed an impeccable business reputation. Furthermore, Bernie kept within the realm of reasonable expectations; high though they may have been. Bernie also operated his scheme during a period of generally increasing stock prices.

So now that we’ve sentenced Madoff for “high crimes,” when are we going to sentence the SEC (the Swindler’s Encouragement Committee) for their crimes? After all, one Harry Markopolos sent letter after letter to the SEC over a 10-year period telling them that Madoff was doing something illegal. Markopolos even provided calculations to prove that Madoff couldn’t possibly have accomplished what he claimed. In their infinite wisdom, the SEC ignored Markopolos and allowed Madoff to continue his Ponzi scheme. Shouldn’t the SEC be held responsible? We’re told time and again that we needn’t worry – the SEC (read government) is here to protect us from financial fraud. Right! Most investors do rely on SEC oversight, and Madoff was right at the very top of their good-guy list. Now, the very agency that allowed this to happen right under their noses not only goes Scott-free but is being allocated still more money for their budget needs. Are you beginning to see the picture here? Talk about rot on the vine!

Just how unusually evil were Madoff’s actions? Not that unusual. In fact, the whole notion of paying off past investors with the funds of present investors is at the very core of our Social Security system. At least Madoff sought the consent of his investors who let him “invest” their money based on their own free volition. Do you have anything to say about the withholding of Social Security taxes from your paycheck? And at least Madoff didn’t attempt to then defend himself with the claim that he was conducting wise public policy.

It never ceases to amaze me that “the folks” continue to permit the government to play this charade. Invariably, the government messes-up some program and then says by way of excuse, “we were overworked, understaffed and didn’t have enough money to do it correctly.” And then they get even more money for that failed project, yet the project continues to fail. Many of FDR’s “programs” from the 1930s were later ruled unconstitutional yet they still exist in Washington, District of Criminals. Their excuse is that they are still “winding-down” those programs in preparation to then end them. Don’t forget that the Department of No-Energy created under the Carter Administration now employs over 100,000 bureaucrats, operates with a budget in excess of $100 Billion, and has yet to accomplish it stated objective – that of helping the USA become energy-independent.

Back in the 1980s, a “creative” teenager by the name of Barry Minkow, formed a company in Los Angeles called ZZZZBest. He took his company public in 1986 and was considered a real hot shot in the business world. Well, of course, it was a sham and Barry went to jail. But now Barry works for the government helping them ferret out other crooks. “It takes one to know one” seems to work. So why not put Madoff to work helping the government root-out all the other Wall Street crooks? Chances are he knows all of them on a first-name basis.

Sincerely,
Tex Norton

July 7, 2009

Bernie, Ponzi and Social Security was originally featured on Whiskey and Gunpowder

Greeting Shooters,

Your submissions are rolling in, but I figured I’d pour the first shot.

Welcome to Morning Whiskey. We’re going to use this little corner of our site to feature your thoughts on the matters dear to all the hearts at this bar.

First up: Muntadhar al-Zeidi has been punished for striking a symbolic blow for liberty; he insulted the head of an invading state and he did so with no regard to personal cost. How utterly American! You’d think that Bush and Co. would be proud.

The law of his land demands at least three years jail time for assaulting a visiting head of state. Ironically, Bush II hadn’t been officially invited that day…just as his forces hadn’t been invited back in the spring of 2003. The man just can’t seem to figure out when he’s not wanted.

My sympathies lie with Mr. Al-Zeidi. That won’t score me any points with the sort of Republicans who often pay lip service to the ideas of republicanism (little “r”) and liberty, but who still love an aggressive king. But there it is.

I have a hard enough time living under the yoke of my own government. I can’t imagine how incensed I would be if another bunch of armed thugs from across the globe swooped in with the usual bushel of state lies and tore my country apart.

And before the “Yes We Can” crowd starts to cheer too loudly at my Republican-bashing, allow me to express my sympathies to Bernie Madoff. Surely the man’s a swindler…and just maybe he deserves to spend the rest of his life in prison…maybe…

But he was just fulfilling a necessary ecological role. In the blow off stage of the era of central banks, easy money and easier credit, someone had to separate a bunch of fools from their money. Amway is allowed to do it with impunity. And the Fed actually encourages this sort of thing by creating the credit and cash that inflates these bubbles in the first place. But Bernie is the one who’s going to the big house.

Says Bernie "When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme, however, this proved difficult, and ultimately impossible, and as the years went by I realized that my arrest and this day would inevitably come."

How tragic. The poor man probably never really got to enjoy the wealth he amassed. He went to sleep every night with full knowledge that at any time the jig would be up. All the fine food he surely ate must have been like ashes in his mouth…or maybe he did savor every bit of his well-heeled life since he knew it would all vanish one day.

Now in service to his family—who probably were in on the scam—he is making no deals with prosecutors and giving up no names, and plans to live out his remaining years as a guest of the federal government…the same enabler who runs a much bigger Ponzi scheme of fiat money and social security. Bernie must feel a like a low-level drug dealer who just got beat up and jailed by the same crooked cop who was supplying him with dope.

But as mentioned, Bernie belongs in jail. Still, I can’t help but see him as a noble patsy, a martyr for the mob’s expectation of something for nothing. I’m less ambiguous about Muntadhar; I don’t wish Bush II any lasting physical harm, but occasionally the smug bastards who ruin millions of lives need to be embarrassed a little.

I just wish Muntadhar had had a little better aim.

Happy Friday the 13th.

Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder

Al-Zeidi and Madoff: Liberty and Capitalism at Work was originally featured on Whiskey and Gunpowder