Bernard Madoff, the former Chairman of NASDAQ, was arrested for defrauding investors of over $ 50 billion in a Ponzi scheme. Those defrauded included some very sophisticated and famous people and organizations, including non-profit foundations.
In a Ponzi scheme initial investors are enticed by the promise of a high rate of return. However, the fund managers do not invest all the money but pay returns to investors out of the money paid in by subsequent investors. The money is then stolen. This works as long as there are new investors and the earlier investors do not ask for a return of large amounts of their capital.
The Wall Street Journal reports the Madoff’s investors “placed money on what could prove to be history’s largest financial scam.” Oh really?
When Social Security was first started it was with the promise that the initial contributions taken from then employed workers pay would be invested. When a worker retired, the money from the growth in contributions would pay the retirement benefit. But social security money has not been invested. In fact the benefits for present retires are paid out of the contributions of current workers. Sound familiar? Isn’t Social Security just a giant Ponzi scheme?
Who changed the plan, and why aren’t they in jail with Mr. Madoff? Why do the politicians think, that if they do it, it is not a crime?
(See author’s comment Post about how the “Roosevelt Social Security Recession” prompted Congress to change the Social Security funding concept)
Michael D’Angelo
3 responses so far ↓
pochp // December 23, 2008 at 1:57 pm
If this is true, then Philippines was beaten (at last).
Is this one of the causes of US recession?
Michael D'Angelo // December 23, 2008 at 2:25 pm
When Social Security was started in 1935 the taxes were to be invested to create a surplus out of which the benefits would eventually be paid. However, as politicians should have learned by now, the increase in taxes left people with less money to spend and so the economy slowed down. Some historians argue that it lead to a “Roosevelt recession” in 1937 and 1938. So what did they do? They freed the money up to stimulate the economy. So the system has been tottering even since and now is essentially a “pay as you go” system with today’s young worker’s contributions being paid out immediately to older retired workers. So, what happens when everything disappears? See Wikipedia discussion – http://en.wikipedia.org/wiki/Social_Security_(United_States)#cite_note-Social_Security_Act_of_1935-0
Addigeoto // December 27, 2008 at 10:45 pm
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