Bernard Madoff, former Nasdaq Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, was arrested and charged with securities fraud in what federal prosecutors called a “Ponzi scheme” that involved losses of more than $50 billion. Some of the world’s richest people were duped by Madoff. He was turned in by his two sons. Since the arrests and investigations, Madoff’s 46-year-old son, Mark,committed suicide.
A Ponzi scheme is an investment program that promises to pay unusually high returns to investors after a specified period of time. A pyramid scheme is similar in that the person running the program pays off the early investors from money paid by later investors who were told that they too can get rich. The early investors, who are often unaware of the fraud, are used as testimonials for how well the program works. So much money is promised to investors that there is no possible way to get enough later investors to meet the investment promises. The Ponzi scheme is named after Charles Ponzi (1882–1949) who was involved in a multi-million dollar fraud scheme where nearly 40,000 people invested about $15 million. This was a lot of many in the 1920s.
The Federal government is quick to shut down these schemes and arrest the perpetrators, but they turn a blind eye to their own Ponzi and Pyramid schemes because it can print money without any legal ramifications. Ben Bernanke, when he was head of the Federal Reserve, said that a liquidity crisis that might lead to deflation could be averted by dropping money from a helicopter. Counterfeiting is illegal, but it’s an everyday occurrence in Washington.
Soon after Charles Ponzi was arrested for his pyramid scheme, Congress legalized one of its own — the Social Security System. When Social Security was implemented, the maximum amount any one person paid into the system was $60 per year — a total of two percent from employee and employer of a maximum $3000 per year. Today, the percentage is around 14% on up to $106,000 per year. This compulsory “contribution,” as in the “employer’s contribution portion of Social Security,” is the largest legalized pyramid scheme in history.