Thursday, July 16, 2009

The Snowballing Ponzi Lie

Ponzi schemes are in the news again, the most recent being Montreal swindler Earl Jones. I suspect more and more cases will come forward in the coming months.

Often, I would guess the Ponzi masters are caught up in a snowballing cascade of numbers shifting. People now ask where the money went? I would wager that a lot of it went to payouts over the years, while much of the remainder would have been lost in the recent stock market crash. Between the two forces, there probably just isn't much left.

Money can be fudged and shifted easily enough when the markets are performing well. When the markets falter significantly as they've done over the past year, that's when the Ponzi schemes blow up. The money is shifted until there's nothing left, or the Ponzi masters cash in their remaining few chips and bail.

Sure, they've accrued assets, perhaps a couple million dollars in real estate and toys, but it's a pittance compared to the original sums invested.

So to the Montrealers who hold out hope that a magic bank account will come to light and they'll get most of their savings back. I hate to be the bearer of bad news, but your moneys likely been frittered away through various bad investments, payouts, and perhaps the advisor's extravagant lifestyle.

A ponzi scheme is simply a lie that gets bigger and bigger, until one day a lot of people get really really hurt. Investors should take an important lesson from it. Research your financial advisers. Make sure they're registered and legit, even if they're your best friend, relative, or spouse.

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