Ponzi and His Scheme, Crypto, and “Forex”, Oh and Bernie Madoff too

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Ponzi and His Scheme, Crypto, and “Forex”, Oh and Bernie Madoff too

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Charles Ponzi moved from Italy to the United States in the early 1900s. He needed a quick way to make some cash.

So, he began trading postal stamps (something people could do back in the day), which could turn a nice profit if timed correctly with fluctuating rates. This was perfectly legal.

However, Ponzi got greedy. He started recruiting investors with promises of 50% returns within a matter of days. Ponzi got the promised returns to his investors, so everyone involved was happy and word of his financial wizardry spread quickly, which garnered even more investors.

Soon enough, Ponzi had employees all over the world recruiting investors for him. At his peak, he was making between $250,000 and $1,000,000 per day (numbers I have seen vary).

Unfortunately, his “business” was not as fundamentally sound as it was propped up to be. The math did not add up. There simply were not enough postal reply coupons circulating the world for all of this to work. There would have had to be 160 million postal reply coupons in circulation for everything to add up when in reality there were only 27,000. However, since Ponzi had a constant surplus of new investors, he easily paid off the older investors. In other words, people were giving him more money than he was returning. Theoretically, this could go on forever.

Eventually, people caught on, and Ponzi went to prison on fraud charges. Upon starting new schemes, he was deported to Italy where he died in poverty in 1949.

You may think, “How could anyone fall for this?”

Well, maybe 100 years ago people were a bit more naive about schemes like these.

Oh, and people still do fall for this stuff, even a century later.

Bernie Madoff tricked investors for decades, promising that if they gave him their money, then he would invest it for them with steady returns of 12% per year for the rest of time. Unfortunately, the market is never this steady for eternity, and he never actually invested the money… it just went straight into his bank account, but since people were giving him more than he was returning, it worked perfectly fine… that is, until the recession in 2008 when many pulled their investments. It was then that he ran out of money to give back, and his investors lost something crazy like a combined $20 billion. Many of them killed themselves, including one of his sons, and Madoff is currently 80 years old with 141 years left on his prison term. Something tells me he won’t make it out alive.

Again, you may think, “I would never fall for this!”

But perhaps you already have, and if you have not, you surely know someone who has. The Ponzi/Madoff schemes of today come in the form of “Initial Coin Offerings” (ICO’s), “Cryptocurrency,” “and “iMarketsLive.”

All of these lures us with the possibility of unusually large returns.


Initial Coin Offerings

“An initial coin offering (ICO) or initial currency offering, a type of crowdfunding using cryptocurrencies, is a means of raising capital that has been prone to scams and securities law violations.”

Enough said.


Cryptocurrency

Nobody really knows where this money is going, quite like Ponzi and his scheme, and don’t even try to tell me you have crypto figured out because .000001% of people do, and perhaps those are the ones facilitating it all. It is also worth considering the definition of the word “Crypto.”

Crypto (as an adjective) – secret or hidden.

Here is the sentence that Dictionary.com uses for the word: “A crypto Nazi.”

Cryptocurrency is secret currency. Sketchy.

I must admit though, the lure of huge returns lured me early on. In fact, I invested a large sum in Litecoin and I pulled everything out when I had tripled my money. Not bad, I got lucky by getting in early. A nice short run winning, but had I kept everything in, I would already be down money, and I would surely have lost everything in the long run.


iMarketsLive

Even the name sounds dumb. iMarketsLive deals with foreign exchange (aka “forex”). The CEO’s stated goal “is to build a global army of traders (emphasis mine) who reach is their desires of financial Independence and become educated on the principles of success, both technically & mentally. ” I pulled that straight from the homepage of their website, and yes the grammatical error is theirs (who reach is their desires).

The worst part of iMarketsLive is the CEO’s “desire to educate on the principles of success,” which essentially means they make their students pay for pointless crap like seminars and other “materials,” while simultaneously lining the head honcho’s pockets. Virtually everyone who falls for this stuff is down money almost instantly because of this “education.” In fact, iMarketsLive prominently features on their homepage “YOU WON’T WIN EVERY BATTLE, BUT YOU’LL WIN THE WAR.” Funny. This is their way of saying, “You’re going to lose money initially, and then again, and again, and again, but (maybe) one day soon you will ‘win big,’ whatever that means.”

Oh, and the recruiters of iMarketsLive are spammy, scammy, and just will not quit. It is painfully obvious that there is alterior motive. I even feel a bit of second hand embarassment for them.

Of all the schemes, this one is eerily similar to Ponzi’s original scheme.


Social Security

Didn’t see this one coming!

Social security is like a Ponzi scheme and all the other schemes, except it is mandatory. We have to pay social security taxes. It is great for those who got in early (1930s), but for people my age (20), we have a better chance at spotting a UFO than getting our social security checks. After 2034, the Social Security Trust Fund is expected to run deficits every year for the rest of time.


The Moral of the Story

For those that invest early, all of the above schemes are actually a good deal. Unfortunately, those that come along later are deluded with false hope and always get the short end of the stick.

Success, monetary riches, relationships, other prosperities, and all of life is a long game, not a short game. Instead of focusing on finding the next plug to fill the hole or the next quick fix, focus on building the next ship. Building the ship might take longer, sure, but it is definitely worth it in the long run.

Ponzi scheme, Bernie Madoff, iMarketsLive, Bitcoin, Litecoin, FILL IN THE BLANK. It’s all the same. They are all playing the same short game, and you will likely feel the pain from them in the long run. We keep falling for this stuff, it all seems so rosy. We all need to get better at not being tricked and deluded.

The goal, then, is not to try to jump to the top of the Empire State Building (because it simply is not possible), but to build something that matters and evolves over time, inch by inch, brick by brick, and one day reach similar heights.

The goal is to play a long game.


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