PONZIANDPYRAMIDSCHEMES

PONZI AND PYRAMID SCHEMES

THE WEEK (2008)12/26/08

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A ponzi scheme comes from a man named Ponzi from Italy in the late 19th century. It is part of the Madoff scheme in the news. Madoff is a powerful man in both the private

and public sector. He ran a legit investment business and then he had this special 50 billion fund on the side. The suckers were the rich and powerful. Madoff had a great record and was an excellent duplicator of authentic accounts.

So here is what he did. As he was lining up suckers to buy into this fund, he paid annually something very exceptional like a 10% increase in payouts EVERY YEAR. To be able to do that he had to keep recruiting more suckers. Say you have 100 dollars and you keep giving out a 10% increase every year. So the first year, you get 10 dollars then the next year you get a 10% increase of 10 dollars or an additional (10% of 10 and then added on ) is 11 dollars. Each year it consistently grows by 10% or something like that.

Folks, these returns are incredible. So, you need to keep recruiting suckers or marks. The bigger you get, the more likely you can return with a 10% increase. In the end, it is a house of cards. Northing was really invested; it is just that Madoff kept giving increases from the new investors to the older investors. Further, the older investors didn’t want to move their money into something else  because the return on this is great in good and bad

times. If they do want to cash out, there is enough money. In the mean time, Madoff took most of it.

The SEC was warned about this in 1999. Nothing happened. Lots of rich and rich charities lost a ton of money.

A pyramid is a much older scheme without an originator. It often involves a product, but there are some that issue phony commercial paper or related. So lets say that you build a widget pyramid. As you are on the top, you recruit 10 suckers. Each sucker gets lots of widgets that they then sell to ten more suckers. So 1 turns to 10 turns to 100 suckers. By now, those in the early part of the pyradmid know what is up and they continue to profit from later suckers who have a garage full of widgets. The big winner is the first person.

So. 1 sells to 10. 10 sell to 100. 100 sell to 1,000 and so forth. In the meant time, every new sucker is paying unwittingly money to buy the widgets that filter up to the original schemers.

They are both seductive and end up with lots of losers.

U.S. NEWS & WORLD REPORT (2008) year end issue

Denton /73-75

U.S. NEWS has gotten into the business of rating cars. There are 14 categories from the least expensive micro impact to the elite sedan as well as SUV and trucks. And this year’s winner is 2 American cars and rest Japanese. In every category, it is the best for the money. Further, they have the original cost and 5 year costs. There were 5 Toyotas, 1 Honda, 3 Lexus’s along with others.

NEWSWEEK (2008) 12/29

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NEWSWEEK LISTS THE TOP ELITE IN THE USA FOR 2008

Well guess what? Warren Buffet is on the list and they sure like him for quickly buying property when the Crash hit and he made some money for himself.

BUSINESS WEEK (2008) 1/5

COOPER/ O11

It is staring. It is the vicious downward spiral of DEFLATION. That means that prices go down. Wages and dividends go down. People quit buying. It is the hardest economic, social, and psychological phenomena for a market. Inflation can be handled by increasing interest rates. Deflation is done by spending money that is printed by the feds. That money is usually from sources outside the country. In this instance, Japan and China have the revenue.

COY/22

The battle plan is to flood the market with targeted money on infrastructure and education as well as health. Bernanke of the Bush administration and the Obama administration want to spend like it is World War 2. Roosevelt did not do enough spending, nor did Japan in the 90’s. It must be done like Sweden did a few years ago. It guaranteed all bad loans.

ADLER/ 028

The Detroit 3 should be nationalized and completely restructure. Government than acts as a silent partner. Or, the big 3 pay back the loan.

The real problem is that the rest of the world is having trouble too.