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Ponzi Redux

Charles Ponzi didn't invent the pyramid scheme that bears his name; he just made it famous. His sensational swindle started as a form of arbitrage involving international postage coupons promising extremely high returns. But Ponzi merely paid off one wave of investors with money from the next. Over just six months in 1920, he took in $15 million before the pyramid collapsed.

Adjusted for inflation, Ponzi's total would be about $160 million today. Not chump change, to be sure, but a paltry sum compared to Bernard Madoff's $50 billion charade that left charitable institutions, pension funds, banks and wealthy investors reeling. There may be a case for renaming this particular scam.

Hub and Spoke

That plausibility evaporates when the market turns and investors look to cash out, as happened last year.

Contributing Author

Steven Andersen

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