💰How 'Ponzi Scheme' Came About

Hello to all 113 of you. If you’re new here, it might be beneficial to read some of the previous posts.

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I think most of us heard of the term ‘Ponzi scheme’.

But have you ever wondered where the term came from?

Well…

I have.

The Guy Behind the First Ponzi Scheme

In 1882, a guy named Charles Ponzi was born in Italy.

He was the ambitious type, so at 21 he migrated to the United States to follow his dreams.

He moved from job to job, working as a waiter, then a dishwasher, eventually finding his way into finance.

In 1919, he came up with an idea.

He realised he could make money by taking advantage of price differences in international reply coupons, which were used to prepay postage for mail sent to other countries.

Motivated by this opportunity, and probably by his New Year’s resolution, he launched ‘The Securities Exchange Company’ in January 1920.

Almost immediately, he started pitching this opportunity to people. In meetings, he would throw around terms like ‘international postal union’ and ‘arbitrage’ to impress possible investors.

And it worked. His charm worked. Like magic.

That, and the promise of a 50% return on investments within 45 days and 100% return within 90 days.

Naturally, everyone went crazy for it. People started telling their friends and relatives.

Within 7 months of trading, Ponzi was making $15 million a day.(in today’s money)

He was living like a king. He bought a mansion, a macaroni company, and part of a wine company.

When a Boston financial writer claimed that Ponzi couldn’t legally deliver such high returns in such a short time, Ponzi sued for libel—and won $500,000 in damages.(😂)

But I think you can tell where he was headed.

As time passed, people didn’t see any profits, and began asking questions.

He never answered in detail, always motivating he needed to protect his trade secrets.

That worked for a while.

Until it didn't.

In August 1920, the ‘Securities Exchange Company’ collapsed. He left thousands of people $200 million poorer. He was later jailed, then deported.

I’m curious what you think about this. Feel free to reply, or answer the poll below:

By the way, if you think people today wouldn’t fall for something like this, just look up Bernie Madoff. He pulled off the same scheme over 17 years, taking $65 billion from investors.

Talk Friday,

George