I know that headline probably triggered more than a few Elon Musk acolytes. But once I’m done here, I’m hopeful they’ll hate me a little bit less… or at least see I’m only trying to help.
So let’s get into it…
What Is a Ponzi Scheme?
Back in the 1920s, a particular businessman in Boston made quite a living for himself running schemes where he’d promise great investment returns but just steal the money.
He started off with a legitimate arbitrage play, but quickly started diverting new investor money to pay himself and earlier investors.
He was far from the first person to do this. In fact, this kind of scheme had been going on for at least a hundred years at that point, but has probably been around even longer.
Yet, for one reason or another, this man’s scheme got a ton of attention in the press both inside and outside of the United States… both while it was inflating and after it collapsed too.
And a hundred years later, those kinds of schemes still bears that Bostonian’s name: Charles Ponzi.
But you don’t have to be named Ponzi to orchestrate one. Probably the biggest and most famous Ponzi was perpetrated by the former chair of the Nasdaq, Bernard “Bernie” Madoff.
Madoff’s scheme likely ran for decades, defrauded thousands of investors, and cost its participants tens of billions of dollars.
But whether they’re large or small, Ponzi schemes all share one characteristic: Existing investors are only paid with funds from new investors.
That…
