Friday, December 11, 2009

Ponzi Scheme No-No’s

By: Kelsey Hoffman

About a year ago in a town 20 minutes from my home, a man named Madoff was being busted for one of the largest financial scandals of the decade, the epic ponzi scheme. For those of you who don’t know how a ponzi scheme works, Madoff pulled it off in the following fashion. A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by new investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going. These investors were investing not only their money but also their trust in Madoff and instead he was taking their money for his own.

Clearly this is not something that we want to aspire to do in our lifetime, but in all honesty we have to give Madoff credit for his skills and mastermind. He must be smart if he was able to pull this off and have it work for about 20 years. I think he always knew it would never last as he was definitely not ignorant on the fact that investments would have to drop at sometime. In the end though, Madoff lost about $50 billion in his scheme and obviously has been put away for life.

No comments:

Post a Comment