The World's Largest Ponzi Scheme

There has been a lot in the news lately about the Bernard Madoff (pronounced made off?) Ponzi scheme. Now a lot of you might not know what a Ponzi scheme is, so I’ll explain it briefly. Ponzi schemes have been around a while, but they got their name from Charles Ponzi, the first guy to make it famous because his grew to be so large during the 1920’s. Put simply, a Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business.

Suppose an advertisement is placed promising extraordinary returns on an investment—for example 20% for a 30 day contract. The golden key is to bamboozle ordinary people who have no in-depth knowledge of finance or financial terms. High flown terms that sound impressive but are essentially meaningless will be used to dazzle investors. Terms such as "global currency arbitrage", "hedge futures trading", "high-yield investment programs", "offshore investment". Taking advantage of the lack of investor financial sophistication, the promoter will then proceed to sell them a stake in his pot of gold.

With no proven track record for the investors, only a few investors are tempted, usually for smaller sums. Sure enough, 30 days later the investor receives the original capital plus the 20% return. At this point, the investor will have more incentive to put in additional money and, as word begins to spread, other investors grab the "opportunity" to participate. More and more people invest, and see their investments return the promised large returns.

The reality of the scheme is that the "return" to the initial investors is being paid out of the new, incoming investment money, not out of profits. No "global currency arbitrage", "hedge futures trading" or "high yield investment program" is actually taking place. Instead, when investor D puts in money, that money becomes available to pay out "profits" to investors A, B, and C. When investors X, Y, and Z put in money, that money is available to pay “profits” to investors A through W.

The catch is that at some point one of three things will happen:
1. the promoters will vanish, taking all the investment money (less payouts) with them;
2. the scheme will collapse under its own weight, as investment slows and the promoters start having problems paying out the promised returns. When the promoters start having problems, the word spreads and more people start asking for their money, similar to a bank run;
3. the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the "assets" that should exist do not.

Hmmm… sounds eerily like Social Security… Our parents and grandparents are being paid by the money we put in, but eventually it will collapse under its own wait, and some unfortunate generation will not get paid.

Oh. I forgot. The government can just print the money. I guess that’s the only thing Mr. Madoff didn’t take into account. If he could have simply printed the money he would have been all set when his investors cashed in.

The ironic thing is that Mr. Madoff is made out to be a bad guy, while politicians on Capitol Hill are heroes for doing the very same thing only on a much larger scale. Mr. Madoff’s little $50 billion Ponzi scheme is chump change compared the trillions we have dumped into the bottomless pit of Social Security, the world’s largest Ponzi scheme.

Reagan Reborn

I just came across this article by Michael Reagan, written the day after Sarah Palin's speech at the Republican National Convenetion earlier this year. He says everything that I felt, so I figured I'd share it with you all.

Welcome Back Dad
By Michael Reagan September 4, 2008

I've been trying to convince my fellow conservatives that they have been wasting their time in a fruitless quest for a new Ronald Reagan to emerge and lead our party and our nation. I insisted that we'd never see his like again because he was one of a kind.

I was wrong!

Wednesday night I watched the Republican National Convention on television and there, before my very eyes, I saw my Dad reborn; only this time he's a she.

And what a she!

In one blockbuster of a speech, Alaska Gov. Sarah Palin resurrected my Dad's indomitable spirit and sent it soaring above the convention center, shooting shock waves through the cynical media's assigned spaces and electrifying the huge audience with the kind of inspiring rhetoric we haven't heard since my Dad left the scene.

This was Ronald Reagan at his best -- the same Ronald Reagan who made the address known now solely as "The Speech," which during the Goldwater campaign set the tone and the agenda for the rebirth of the traditional conservative movement that later sent him to the White House for eight years and revived the moribund GOP.

Last night was an extraordinary event. Widely seen beforehand as a make-or-break effort -- either an opportunity for Sarah Palin to show that she was the happy warrior that John McCain assured us she was, or a disaster that would dash McCain's presidential hopes and send her back to Alaska, sadder but wiser.

Obviously un-intimidated by either the savage onslaught to which the left-leaning media had subjected her, or the incredible challenge she faced -- and oozing with confidence -- she strode defiantly to the podium and proved she was everything and even more than John McCain told us.

Much has been made of the fact that she is a woman. What we saw last night, however, was something much more than a just a woman accomplishing something no Republican woman has ever achieved. What we saw was a red-blooded American with that rare, God-given ability to rally her dispirited fellow Republicans and take up the daunting task of leading them -- and all her fellow Americans -- on a pilgrimage to that shining city on the hill my father envisioned as our nation's real destination.

In a few words she managed to rip the mask from the faces of her Democratic rivals and reveal them for what they are -- a pair of old-fashioned liberals making promises that cannot be kept without bankrupting the nation and reducing most Americans to the status of mendicants begging for their daily bread at the feet of an all-powerful government.

Most important, by comparing her own stunning record of achievement with his, she showed Barack Obama for the sham that he is, a man without any solid accomplishments beyond conspicuous self-aggrandizement.

Like Ronald Reagan, Sarah Palin is one of us. She knows how most of us live because that's the way she lives. She shares our homespun values and our beliefs, and she glories in her status as a small-town woman who put her shoulder to the wheel and made life better for her neighbors.

Her astonishing rise up from the grass-roots, her total lack of self-importance, and her ordinary American values and modest lifestyle reveal her to be the kind of hard-working, optimistic, ordinary American who made this country the greatest, most powerful nation on the face of the earth.

As hard as you might try, you won't find that kind of plain-spoken, down-to-earth, self-reliant American in the upper ranks of the liberal-infested, elitist Democratic Party, or in the Obama campaign.

Sarah Palin didn't go to Harvard, or fiddle around in urban neighborhood leftist activism while engaging in opportunism within the ranks of one of the nation's most corrupt political machines, never challenging it and going along to get along, like Barack Obama.

Instead she took on the corrupt establishment in Alaska and beat it, rising to the governorship while bringing reforms to every level of government she served in on her way up the ladder.

Welcome back, Dad, even if you're wearing a dress and bearing children this time around.

The Wisdom of Reagan

The era of Reagan will never be over because individual liberty and freedom (conservatism) never goes out of style. Until the Republican Party recognizes this and stops trying to out-Democrat the Democrats, they will not win another national election. Here are some of my favorite quotes from Ronald Reagan.

“Here's my strategy on the Cold War: We win, they lose.” ~ Ronald Reagan

“The most terrifying words in the English language are: I'm from the government and I'm here to help.” ~ Ronald Reagan

“The trouble with our liberal friends is not that they're ignorant; it's just that they know so much that isn't so.” ~ Ronald Reagan

“Of the four wars in my lifetime, none came about because the U.S. was too strong.”
~ Ronald Reagan

“I have wondered at times about what the Ten Commandments would have looked like if Moses had run them through the U.S. Congress.” ~ Ronald Reagan

“The taxpayer: That's someone who works for the federal government but doesn't have to take the civil service examination.” ~ Ronald Reagan

“Government is like a baby: An alimentary canal with a big appetite at one end and no sense of responsibility at the other.” ~ Ronald Reagan

'The nearest thing to eternal life we will ever see on this earth is a government program.' ~ Ronald Reagan

“It has been said that politics is the second oldest profession. I have learned that it bears a striking resemblance to the first.” ~ Ronald Reagan

“Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” ~Ronald Reagan

“Politics is not a bad profession. If you succeed, there are many rewards; if you disgrace yourself, you can always write a book.” ~ Ronald Reagan

“No arsenal, or no weapon in the arsenals of the world, is as formidable as the will and moral courage of free men and women.” ~ Ronald Reagan

“If we ever forget that we're one nation under God, then we will be a nation gone under.” ~Ronald Reagan

Congress Should Be The Ones Answering The Questions

The whole Fannie Mae, Freddie Mac debacle is proof enough that government needs to stay out of the business sector. Most, if not all, of the people on Capitol Hill have never nor ever will run a business, yet they all seem to think they know how. We have seen the results of bad government regulation, mandating that loans be made available to people who could not pay them back. This type of practice was bound to come around and bite us in the back, and now it has. The true travesty in all of this is that the very people who caused the problem are now claiming that they have the solution. And what is their solution? Their solution is more of the same, more of the same government intervention, more of the same ridiculous hearings on Capitol Hill led by Henry “Nostrilitus” Waxman where the people who are asking the questions should be the ones answering questions.

We are now watching as Congress is putting on the necessary show to prove what a tough decision it is to have to bail out the auto industry. Sixty one percent of the American people to not want this bailout to go through (Rooney, December 4, 2008), but we all know it is going to happen. Congress has dragged the auto execs up on Capitol Hill to answer questions, yet it should be Congress answering questions from the auto execs. Here are a few questions that I would like to see members of Congress answering.

What did you think was going to happen to the auto industry when you were continually regulating the types of cars they had to build via emissions standards regulations, fuel economy regulations, etc that change every year? With every new regulation that you passed, did you think about the costs to the auto industry to redesign vehicles that would comply?

What did you think was going to happen to the auto industry when you mandated that auto companies manufacture small, fuel efficient, death-trap cars even if no one wanted them?

Did you consider what the effect on the auto industry, which is geared around the premise of cheap, available fuel, would be when you continually refused to enact policies that would ensure the continual flow of cheap fuel for the American consumer, such as encouraging domestic supplies and lower fuel taxes, and instead did just the opposite?

When you mandated that gasoline has to have at least 10 percent ethanol, did you consider what the effect would be on the auto industry for them to re-engineer engines and parts to run on this type of fuel?

When you mandated that employers have to provide healthcare benefits, did you consider the effect on the Big Three, who has millions of employees and retirees and whose “foreign competitors have no retirees to take care of and received huge subsidies to build Greenfield plants in America to augment their imports to the United States” (Brown, November 24, 2008)?

Have you ever considered how the world’s highest corporate tax rate of thirty five percent might affect domestic automakers?

I would love to see the auto CEOs stand up to Congress and say, “You know what? You have made it virtually impossible to run a successful business here in America, not to mention the extreme costs that the union labor incurs. Therefore, we are rejecting any bailout and instead are going to declare bankruptcy, close all of our plants, move to Mexico where we can build cars people want at a price they can afford, where we don’t have to worry about all your ridiculous regulations, where we won’t have to be dragged before your hearings only to be berated for flying and sent back to complete a homework assignment over Thanksgiving, where we won’t have to worry about labor costs being twice as high as our competitors, where the corporate tax rate is not the highest in the world, and where there isn’t a government and entire side of the political spectrum that sees big business as evil, sees profits and success as obscene windfalls, and wants to tax everything they can get their hands on and regulate everything else. It’s been nice doing business here, but not to nice. See ya.”