Ponzi Nation

Posted by: Matthew Goldstein on December 14, 2008

Wall Street trader Bernard Madoff allegedly defrauds the rich and famous out of tens of billions of dollars. Minnesota businessman Tom Petters allegedly fleeces hedge funds out of $3.5 billion. And socialite New York lawyer Marc Dreier may have duped some hedge funds into giving him hundreds of millions of dollars for an apparently bogus real estate scheme.

All of these scams are big and all appear to be some kind of Ponzi scheme, designed to take in money from new investors to pay-off earlier investors. A Ponzi scheme is one of the oldest financial frauds around. And many are referring to the Madoff caper as the biggest Wall Street fraud ever.

But derivatives consultant Janet Tavakoli may be onto something. In a note to her clients, she says the biggest Ponzi scheme of all may be the one that brought the world financial markets to its knees. And that’s the scheme that united Wall Street bankers with mortgage lenders in a bid to funnel more and more money into the market for supbrime homes loans. She says the packaging of iffy home loans into securitized bonds that could be sold to insitutional investors—many of them relying on borrowed money—was a system born to fail.

“The largest Ponzi scheme in the history of the capital markets is the relationship between failed mortgage lenders and investment banks that securitized the risky overpriced loans and sold these packages to other investors—a Ponzi scheme by every definition applied to Madoff,” says Tavakoli. “These and other related deeds led to the largest global credit meltdown in the history of the world.”

About a year ago, BusinessWeek made a similar point in an article about the two Bear Stearns hedge funds that collapsed in June 2007 and helped spark the credit crisis. The story focused on a novel type of collateralized debt obligation that the managers of the Bear funds used to tap funding from money-market funds. The CDOs which were widely copied on Wall Street helped fuel the market for these esoteric securities, along with the underlying housing boom.

In that article, BusinessWeek likened the new market that the Bear funds helped inspire a pyramid scheme. Or, as Tavakoli says, a Ponzi scheme.

One of the hallmarks of a Ponzi scheme is an investment vehicle that generates consistent, steady returns. That’s what discourages investors from pulling too much money out of the fund—the event that ulimately causes a Ponzi scheme to collapse. One reason so many wealthy people showered money on Madoff is that his fund generated predictable returns—rain or shine.

The Bear funds similiarly generated steady and stable returns before the bottom fell out of the subprime mortgage market. In the final months before the Bear funds collapses, Ralph Cioffi and Matthew Tannin scrambled to find new investor money and other sources of funding. This past summer, federal prosecutors charged Cioffi and Tannin with deceiving investors about the health of the funds and actively discouraging investors from pulling their money out.

Cioffi and Tannin were the first Wall Street executives charged in the financial meltdown. Now you can add Madoff’s name to that list and more are sure to follow. One thing the credit crunch is unearthing are lots of long running scams. Just as money has dried up for legitimate businesses, there’s no money to keep the Ponzi machine going.

Reader Comments

Karl

December 14, 2008 2:06 PM

Maybe the biggest Ponzi Scheme in the world is simply the United States of America!!!! Look at our stock market, as an example! One year ago today the Dow closed at 13,340. It's now at about 8,650, but that's with OVER $200 BILLION that the FED injected into the Banking System earlier this year BEFORE the $700 BILLION was even a reality!!!! Now, the $700 BILLION grows another $100 BILLION to equal $800 BILLION! And don't forget about China's $500 BILLION that they have/HAD in Treasury bonds! Is it still there? Did they take it out? What about China's other $1 TRILLION that they had invested in the USA, besides the $500 BILLION in Treasury bonds? Did they take it out of the USA? Perhaps the entire U.S. economy is, and HAS BEEN, the biggest PONZI SCHEME in the WORLD? We'll soon find out when '4th QUARTER RESULTS' are posted in January! That's when the TRUTH should all come out!!! Go Harvard!!!!! Go BusinessWeek!!!!! P.S. If investors go to "cash-in" their stocks, 401K's, IRA's......in January & it's NOT there, then the U.S. economy WAS nothing but a PONZI SCHEME, correct? I hope I'm wrong & all is well in the USA, but I'd hate to have money invested in the stock market right now. 90% of all those 401k's & IRA's are invested in the stock market!!!! Say a PRAYER that all is well. Happy Holidays!

Vince

December 14, 2008 2:30 PM

Yes Karl, the us economy is a ponzi scheme. It's also refered to as the Capatlist, boom and bust theory. Some people get rich, most are left eventualy to defend for themselves. Then the process starts all over again, after you have a recession or depression like we are now entering.

Chuck Gaffney

December 14, 2008 2:40 PM

Let's not forget to add Social Security and College Tuition to the list of Ponzi schemes

Carl P

December 14, 2008 2:45 PM

....And many are referring to the Madoff caper as the biggest Wall Street fraud ever.

Are you sure?

One could argue the CDS driven financial crisis resulting in the $1 trillion government bailout, is a bigger Ponzi scheme. Taxpayers (new investors) are funding the exit of old investors - except Goldman Sachs - they are doing just fine.

Anybody out there still want to privatize Social Security?

Its not a Masonic, Illuminati or Skull and Bones conspiracy, lets not be silly. As my father's Godfather would say; Its just business.

Michael

December 14, 2008 2:51 PM

One thing that should be done to prevent these ponzi schemes is to enable individual investors to buy and sell stocks directly; and to declare most of these "investment funds" illegal.

c

December 14, 2008 2:57 PM

us dollar = ponzi scheme no doubt about it.

dollar bills = just worth their recyclable value in my opinion. poj

Ace

December 14, 2008 3:45 PM

The Mark Mitchell article posted here is a hack conspiracy drivel SPAM shtick ran by a group in Utah funded by a rich loon.

Mark is a paid "reporter" lapdog for the wild eyed "Worst CEO Ever" nominee Patrick Byrne of Overstock.com

Tread lightly at that link, they have a bad habit of cyberstalkng folks.

Ching Fu

December 14, 2008 3:58 PM

I agree with Kari that the whole USA is a ponzi scheme. It's surprising that the US institutions and government has managed to 'censor' these info away from the public. Since 1970s when USA stopped backing the US Dollar with gold, they started the biggest ponzi scheme ever - printing money without limit by forcing oil to be traded in US dollar. Getting countries of the world to invest in the US by both carrots and sticks. Who are the investors? Countries like Japan, China, Singapore, etc who invest in US Treasury bills who will one day find them to be worthless. In 2006 the Fed decided to stop revealing M3 data abt the economy - I assume they are printing even more dollars now! The US dollar is not backed by gold. It is backed by the US military hence you have Iraq and possibly Iran as they have all threatened to trade oil in other currencies. But how long can you go on defending the dollar this way? It is a matter of time. Right now the United States is already bankrupt. Its investors (Japan, China, etc) are in a catch 22 situation cos if they decide to pull out their Treasure bills, the value will plummet like no tomorrow and the whole world, including their own economies, will be in a mess. NO ONE HAS A CLUE WHAT TO DO.

Now do you agree that that is the biggest ponzi scheme ever?

Viking

December 14, 2008 4:03 PM

This is not that complicated!!We simply need to go back to the controls of the financial system that were put in place after the Great Depression.These control systems were gradually removed starting in the 1980ies and we see the results now!!The new system should retain FDIC insurance on unlimited deposits in banks to prevent a run on the banks,but otherwise no government backing or subsidies of mortgages or other market activities.Money supply should only be allowed to grow at the rate of the real growth of the economy after inflation and we should have real and transparent reporting and oversight of all financial companies,including hedgefunds.This would probably mean slower growth in the future,but I will take that in exchange for greater stability.Also,can someone please tell me what other countries subsidizes housing the way we do?We must find a way to privatize FANNIE and FREDDIE as we cannot afford to live beyond our means anymore!!

maggie lee

December 14, 2008 4:17 PM

All pension schemes are Ponzi schemes,too.

thebob.bob

December 14, 2008 4:55 PM

The blame lays squarely on the runaway de-regulation ideology of the Republicans. Now we see what happens when Government "gets out of the way" of business.they come up with clever and creative ways to steal.

Peter

December 14, 2008 4:59 PM

Great article. Tavakoli is right.

BTW I am amazed at the number of wacko and yahoo comments about this article.

It was INDEED!

December 14, 2008 5:06 PM

Unfortunately indeed. Manipulated stock markets by hedge funds, investment banks, day traders and shorties. And many IT and DOT.COM companies, hosuing, derivatives, ... Just name a few!

Celia Kent

December 14, 2008 5:51 PM

Great story. This is right on the money.

Alban

December 14, 2008 5:54 PM

If American business and the financial services industry in particular has deteriorated to the level of being one huge Ponzi scheme, perhaps the rest of the world will see our financial centers in New York, Philadelphia, Boston, Chicago, and San Francisco as willing partners in these crimes.
That being the case, I can just hear that great sucking sound as international investments in America go flying out the window.

The question is, who will bail out the Federal Reserve as it comes to their aid? You got it. We the people will. Creating inflation on a scale we thought only Turkey could achieve.

Formyx

December 14, 2008 5:56 PM

As some readers mentioned, social security was designed to be a Ponzi scheme. If that were not enough in comes the PBGC to guarantee private pension Ponzi schemes which assumes that corporations will grow and thrive forever. In fact no such enterprise exists in history which implies that the PBGC will come into play in some form or another to bail them out. Some people may argue about the "Chinese Wall" between the pension fund of a company and the company itself. Go argue that with UAW pensioners.

Bill

December 14, 2008 6:28 PM

We should be grateful that things were not worse. We enacted Sarbanes-Oxley, which I think prevented much worse from happening. The financial companies could value their intangibles, and create products whose value could not be measured; but for most of corporate America, there is not a Ponzi scheme, precisely because of Sarbox.

Watch your pocketbook whenever a Wall Street type says we can't regulate, or our accounting standards have to be losened, in order to compete with other financial centers. To the contrary, insist on more transparency and greater accountability.

Lert

December 14, 2008 6:33 PM

The US dollar (FRN) is the mother of all Ponzi Schemes. The 1950 dollar was worth $.04 in 2006 dollars. Think about that for a minute, 96% purchasing power vaporized in a little over 50 years. Now add in the $7 Trillion bailouts, and I'm sure we are approaching $.00. The end of the US dollar Ponzi Scheme is nearing an end. By a minimum of 2017 in my estimation. All IMO, and FWIW.

Magic Dragon

December 14, 2008 6:36 PM

Capitalism... It brings out the worse in people, not the best!

Aware

December 14, 2008 7:11 PM

Sorry: all wrong. The biggest Ponzi of all is the idea of state-run pensions where today's pensioners are paid from today's contributors who hope to become tomorrow's pensioners. It's precisely the same principle.

And all over the world, they schemes are preparing to unravel because the baby-boomer generation didn't breed fast enough to make sure their kids were paying enough taxes - and now with a depression on our doorsteps, the taxes that should pay those pensions are being used to prop up ailing businesses.

Oops.

Ski

December 14, 2008 7:17 PM

Good article.

The comments being made about China/Japan/Singapore etc rapidly ditching the US$ because it's "worthless" are forgetting the most important issue with respect to fiat currencies: they're all "worthless" in absolute terms but have relative value compared to other currencies. The communist-led Chinese Yuan is NOT a more stable currency than the US$, nor does it have 300 years of pro-capitalist experience on its resume.

If the US$ becomes very inflationary, then so will go all other major currencies, and your only good trade will be into physical assets (leveraged).

GloomBoom.com

December 14, 2008 7:33 PM

I agree that MBS were a Ponzi scheme par excellence. How could they have rated sub-prime based securities AAA? That is fraud, plain and simple. Check out GloomBoom.com - it will make your day!

williambanzai7

December 14, 2008 7:44 PM

HEDGE FUND'S ROASTING ON AN OPEN FIRE
(The Christmas Song)
WilliamBanzai7

Hedgefunds roasting on an open fire
Investors sure to get the hose
Alpha carols being sung by a wealthy choir of the dumb
And regulators dressed up like Eskimos

Everybody knows the hedge hog turkeys and
Madoff's ponzi scheme help to make the seasons blight
SEC examiners with their eyes all aglow
Will find it hard to sleep tonight

They know that billions of losses are on the way
The markets are loaded with cash cows for slaughter
Its the Wall Street way
And ev'ry wealthy grandmother's
Child is gonna spy to see if
Quants, traders and pinstriped conmen really know how to fly

And so, I'm offering this
Simple phrase to investors from
One to ninety-two
Altho' it's been said many times
Many ways
Merry Redemptions to you

Joe

December 14, 2008 7:50 PM

Madoff should oversee the Tarp program. If he can mishandle $50 billion, let's see what he would do with $700 billion1!!

b

December 14, 2008 8:35 PM

Madoff

No body need to worry about this one. oney that is lost was made using such ponzi scheme any way.

These vehicle are not used by individuals only, government is the biggest fraud. Social Security, Fed budget, dollar value, War on Terror, are the monther of all Ponzi scheme that should be brought to light.

Jay

December 14, 2008 9:10 PM

The Universe is a Ponzi scheme too! There, I think we covered everything.

PC

December 14, 2008 10:34 PM

United We Ponzi

billythekid

December 14, 2008 10:58 PM

the vast majority of you posting on this board have lost a lot of money. you're gloomy and scared. Everyone is moving to cash. T-Bills are at 0% as a result. It seems the world is hoarding US Treasuries or the yield would not be so low. It doesn't look like they are dumping them. Gold is lower than it was 6 months ago. Stocks are 50% cheaper. The time to have been scared was when the S&P was 35% higher. In Greenwich, you can buy 4 acres for a little over $2 million. This is dirt cheap compared to any other suburb of any major city in the world. Try buying 4 acres outside Paris or Mumbai for $2 million. Same thing with Beverly Hills. All of those Chinese and Japanese dollars, if they can't spend it on American goods, will be spent on La Jolla, Santa Barbara, and Pacific Heights real estate. You watch.

joe

December 15, 2008 12:10 AM

Madoff ran a multi-billion dollar Bonzi scheme by paying old investors with money from new investors. Our government is doing almost the same scheme by paying old foreign debtors with money from new foreign debtors. The only difference is the scale. It's multi-trillion scheme.

Bunchy Carter

December 15, 2008 12:30 AM


What about the DOW?

MSFT/Microsoft peaked in 2000 at about 60.

Now it's 19. All during this time the insiders sold off hundreds of millions of shares while promoting "Vista/Longhorn" as an OS that would redefine the computer.

Instead it killed the desktop PC market entirely. Again, check the insider trading roster on Yahoo and you'll see that 100s of millions of cash were transferred out of the market for 8 long years.

It's ok to focus on the loose cannons like Maddow -- but how about the crooks that rob us daily inside and out?

adilmkassim

December 15, 2008 12:31 AM

To all those fellows who wrote and agreed about Ponzis,

I fully concur!!!

The question however is... do ANY of you bright sparks have an idea for an alternative??

and if you do... do you have the gumption to pull it off??


If you do plese step up cos the world sure need you now!!

Docto Genius

December 15, 2008 12:53 AM

I just have one question for you sheeple out there:

Who did the borrowing that started this Ponzi scheme?

A: the average American SHEEP!

He is the cattle that walked into the bank during the housing boom days and DEMANDED A LOAN in order to get rich quick! The blame lies solely on the sheeple and thus the SUFFERING shall affect solely the sheeple.

Roy

December 15, 2008 1:14 AM

America where it is admirable to make money off other people's money and or
other people.
Ponzi's last interview he said with ever so slight humility "Even if they never got anything for it, it was cheap at that price."

Sam

December 15, 2008 1:18 AM

It is interesting that banks are above the investigation, while they've bought and sold the highest volume of junk-mortgage-packages, especially to foreign banks - to accept real money, while selling fake or wealth that was created off of thin air! Clever!

I guess it is easy to find a few individual scapegoats, that are less powerful than banks, and have lesser number of congressmen supporting them.

IvanTheLessTerribleFed

December 15, 2008 1:27 AM

All banks are Ponzi schemes with the same fate.

Rob

December 15, 2008 7:45 AM

Bill, you are absolutely correct with your Sarbanes-Oxley comment. The article is also correct as are many comments, there's no shortage of Ponzi schemes out there. The solution isn't difficult - the government just needs to do it's job and ensure regulations exist and are enforced (laws - isn't that why we have governments?) to ensure TRANSPARENCY in financial reporting. If financial reporting is REQUIRED to be transparent there's no room for Ponzi schemes.

jamesinflorida

December 15, 2008 8:23 AM

Based upon the new revelations about the Madoff affair, the regulators, by in large, can't catch anyone until the fresh money to fund the ponzi runs out. The collapse of the investment banking cesspool will flush out the con men, no fresh fools to con... this is actually quite fun to watch. As a small businessman who, over the past twenty years, has attempted to fund real businesses that make real profits, the competition from the likes of 'petfoods.com' and other crazy 'concepts' drove real businesses out of the fund raising markets because they were promoted by, yes, the big investment houses. I love to see their pain now. The only question is how big will they build the jails to house them, oh, no, we have secretary Paulson to bail them out again.

Jason Usborne

December 15, 2008 9:22 AM

For all the doom and gloom, there is a ray of light-like a forest fire, it clears the dead wood to make room for new life. We as a people have a GOLDEN opportunity to redefine and retool and transform this nation.

Yes, it is production that generates true wealth, not loans. So if we can fork over $700 B to fraudsters, certainly we can afford a mass of FAB labs at $50k per unit. Here is a link to a video that describes them:

http://www.principalvoices.com/2007/technology.innovation/video/neil.gershenfeld/

DaveL

December 15, 2008 10:52 AM

And, what is the alternative to Capitalism and free markets?

Historically, these are new features and however imperfect they beat the alternative - government allocation of wealth and resources. We can thank Blagojevich, Ted Stevens, et al for reminding us how that works - it's another friends and family plan, the politicians and their family and fiends get rich. If you don't play with the right boys, you are screwed. In fact we have the equivalent of 100 Roman emperors in the Senate all too willing to take the money and party like its 1999.

In a Capitalist system it is possible to get ahead through merit and hard work. You can own a fraction of a large company or a piece of the economy in a share of stock. Formerly, only the big boys, the nobility owned all the resources, the great mass of people were poor.

Like all things designed by humans this system is imperfect because human nature is imperfect. People are prone to "monkey see monkey do" type herd activity. Like a bunch of stampeading Buffalo we can follow each other over a cliff from to time. If we expect to be able to craft a perfect system for us imperfect humans we will be embarking on fool's errand.

cinefoz

December 15, 2008 11:54 AM

Let's not forget the oil ponzies last summer. New investors bid up the price of oil using leveraged long only commodity index funds. Old investors profited from the new suckers. It was actually the perfect crime in that a lot of people sill confuse the high and fraudulent price of oil with 'peak oil' driven oil shortages. This is a crime that will occur again and sooner than most people think.

ARJTurgot

December 15, 2008 12:25 PM

The starting point to recovery is campaign finance reform. Chuck Schumer took lots of contributions and gutted the SEC. And he did it as a populist! Now he's overseeing the Banking Committee? Take the profit out of politics and you begin to change things.

dw

December 15, 2008 12:33 PM

the real downer to all of this is that the US has the best and most transparent financial system in the world. what does that say about the rest if we can do this?

jupiter

December 15, 2008 1:29 PM

Nearly ALL of these white-collar crooks are Jewish...why do they have to confirm all of the worst stereotypes about Jews in business?

Paul

December 15, 2008 1:30 PM

Dw, "Transparent"? 2 trillion went down the rabbit hole during the bailout, and they won`t tell anyone where it went.

Joseph T.

December 15, 2008 1:42 PM

The problem is that for the US to run a chronic trade deficit and for Asian countries to manipulate their currencies, huge money flows had to be reinvested in America. This caused the bankers to throw too much of this money at dodgy loans. The cure is to reduce the trade deficit and end currency manipulation. Let natural free trade take its course, not special interest mercantile trade that only benefits the elites.

Neocon4ARepublicanJesus

December 15, 2008 2:36 PM

"You can't cheat an honest man"

The only true investment advice you can count on.

Don

December 15, 2008 4:20 PM

Yes , capitalism sucks from time to time , not because of the system but
because of greedy people . If you want
real misery however ,try socialism .

A Parent

December 15, 2008 4:41 PM

Oh, please, not Sarbanes-Oxley. It was supposed to prevent another Enron, wasn't it? Well now we have Enrons by the score, while the Sarbanes-Oxley industry fans out across the worker-bee cubicles of America trying to ding people for changing their printer settings without fifteen pages of authorization documents.

len

December 15, 2008 8:58 PM

FOLKS, IT'S ALL OVER. COMMERCIAL REAL ESTATE IS NEXT. AND THE COMMERCIAL REAL ESTATE DON'T TRY TO HOLD ONTO THEIR BUILDINGS. THEY JUST WALK. AS THIS BEGINS TO HAPPEN IN THE NEXT FEW WEEKS YOU CAN KISS THE ECONOMY GOOD BYE FOR A DECADE OR MORE. TWO MORE WEEKS UNTIL NEW YEAR AND WHAT DO YOU THINK WILL HAPPEND TO RETAIL THEN> folks - it's all over.

No Mercy

December 15, 2008 9:43 PM

In the Atlantic magazine there was an article with an interview with a Chinese official in charge of buying American treasury bonds. One of the people who allows us to live our lives of debt.

He stated his view of capitalism, and the mortgage mess in particular, was there was the thing of value, then there was the mirror image of the thing people bought and sold, (mortgage backed paper).

Eventually people understand they own only the image not the real thing.

Sounded good to me.

Bob Snyder

December 15, 2008 9:56 PM

All of these comments are following a "herd mentality." The failure of the market was a bubble caused by numerous factors. Investing in real businesses with real and/or financial assets which pay out any profits earned to investors is NOT A PONZI SCHEME. Please stop sensationalizing this article, I can't stomach the comments anymore. A ponzi scheme is characterized by abnormally high returns not backed by any real business model whereby old investors get paid from new investors and nothing more. Mortgage backed securities are not ponzi schemes because they are backed by real cash flows for financing the sale of a real asset. One could argue that there was fraudulent activity going on but you can't call it a ponzi scheme.

Bob Snyder

December 15, 2008 10:01 PM

And to the person who claimed that the Fed subsidizes housing through Fannie and Freddie is incorrect. They subsidize housing by allowing the deduction of interest on mortgages. Fannie and Freddie were GSE's but privately owned.

Bob Snyder

December 15, 2008 10:25 PM

As for most of the other comments, I wouldn't even know where to begin. There are so many ignorant posts its unbelievable. But here's an idea, before posting do a teeny tiny bit of research if you're going to claim ANYTHING. And back it up with logical arguments. An argument such as "The market is a ponzi scheme because it collapsed," is not valid. If you want to claim this nation is a ponzi scheme, explain it. For a company, the less you disclose to competitors the more advantage you have. For investors, the more information you have, the better investment decisions you can make. There's a delicate balance. And while stock options/warrants are supposed to align top execs and investors interest it also needs to be delicately balanced.

Julian Zambrano

December 15, 2008 10:45 PM

If every person in the world, reads about the "New World Order" evil control we live in this world, and how the world money's supply and demand is controlled, the people will have more conscience to know the best thing to do to keep humanity alive is to bring this economic system down.

Guy Fox (Tampa Bay/Key West/Havana)

December 16, 2008 12:28 PM

Derivative bad paper floating around out there may be as much as 600 TRILLION at a minimum! Six months ago... I talked to one advisor who claims that this bad paper may be as high as 1250 TRILLION.

So... the 700 BILLION dollar bail out is $mall potatos. Get rrready for 2009! It's gonna be a wild ride down the hill!

FBEye

December 16, 2008 1:42 PM

Not too long ago Alan Greenspan was testifying in front of Congress and he said something like this- The model for the way the world should work has been flawed. (END). We can all see that there have been flaws, but my question is this- Why is the Federal Reserve in charge of the way the WORLD should work? Does anyone see something wrong here? Was the way that the American Indians lived their lives wrong? According to Alan Greenspan & the Federal Reserve it was wrong! However, the American Indians had no mortgages, no credit card debt, no deficits, no cash problems........and no fraud & corruption in their corporate sector, at least nothing like we have, correct? So, why is the Federal Reserve in charge of the 'model' by which the way the world should work??????

Bob Snyder

December 16, 2008 5:43 PM

To Guy Fox, no matter how much Derivative "bad paper" is floating around, they are still only "side bets" which derive their value from the underlying asset or the outcome of a specific event. No wealth is created or destroyed by the use of derivatives, wealth is merely transferred from one party to another, its a "zero-sum game." Derivatives are not inherently bad either. Used as intended, they can successfully transfer risk from one party to another. Speculators merely fill in the gaps to complete both sides of an agreement. Another problem with the figure of $600 Trillion is that its the Notional Value of the derivatives, or for example, a futures contract for 1000 bushels of corn at X dollars has a notional value of 1000 bushels at current market price. The strike price may equal the spot, so there is no gain or loss from the derivative but its notional value is still 1000 bushels at spot price (current market price).

Krishnaraj Rao

December 18, 2008 3:13 AM

Yup, the US is truly the world's biggest Ponzi scheme -- no two ways about it. Those who bought into the dream of everlasting growth were not only American consumers, investors, bankers etc. but also central bankers of every nation! So, as this ponzi scheme collapses, the whole planet's 6.5 billion populace pays the price!

There is an Indian proverb for this situation: When the lake's water-level rises in the monsoons, the lotus (which has roots in the muddy bottom and leaves on the water surface) grows a very tall stem. When the season of plenty ends, the stem, unable to cope with lower water levels, breaks. The lotus dies.

ABC

December 18, 2008 2:14 PM

It is different to accidentally impose hurt on people. But, it is something else when it is done with clear intent and wrongful purpose. It is surprising that only a few of these financial perpetrators are being punished. The U.S. capital market is a game that will forever be a game to be played and learned a lesson from. Some are very good in lying and breaking the law without any single repercussion. To re-gain the eroding trust by foreign lenders is to re-program that American greed is not healthy and can only be detrimental to us all. I am a son of an immigrant and a proud US Marine !!!

The Good Madoff

December 18, 2008 4:14 PM

The real biggest Ponzi sheme is CDO/CDS which brought this global financial meltdown.

Robert

December 25, 2008 10:58 AM

Read your history. Just the never ending boom/bust cycle associated with peoples efforts to get a fast buck. Bush I/Clinton, Clinton .com, Bush II housing but go back the the post reconstruction era and follow the ups and downs, over and over and over. Railroads, land speculation etc etc.

Command economies go bust. Capitalism just oscillates between boom and bust but mostly boom.

RB

January 9, 2009 11:26 PM

If you think only American government uses Ponzi schemes, think again. Singapore, with one the world's most respected currencies and governance, repeatedly pushes back retirement age from 55 to 65 over the last 5 years just so that it can delay payment of pensions to retiress of the baby boom generation. "Doesn't Singapore have the sovereign wealth funds like GIC and Temasek which invest the pension funds prudently and claimed to have achieved real returns of over 3% over the years?" you might ask. Well, unfortunately, the bulk of the money has been squandered first in the dot-com bust, now by Temasek and GIC with multi billions invested in Citibank, UBS, WAMU, Merrill Lynch, many hedge funds which have since imploded etc. And most of all, they both are big holders of US government bonds!

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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