While listening to NPR last week, my husband asked me what a Ponzi Scheme was, and I was excited to explain because I found the background story so interesting when I first learned about it in college.
A Ponzi Scheme is an investment operation that pays returns to investors with the investments of new investors instead of from a true profit. Eventually the earnings from new investors is less than the payouts needed, so the entire system collapses.
Charles Ponzi came to the US from Italy in 1903, and while he wasn’t the first to implement the scheme, it was named after him because the amount of money he took in made him headline news. Ponzi started by taking advantage of the price difference between international reply coupons and post stamps and became a millionaire within months, luring over 40,000 investors with the promise of a 50% ROI in 45 days.
It’s a tangled web, and Ponzi was only able to pay back about 2/3 of the investors, which is more than some of the current Ponzi Schemes!
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