Daniel Kowalski
When Charles Ponzi’s investment opportunity to sell international postage stamps was exposed to be a scam in 1920, its basic premise would forever be associated with the man’s name. A Ponzi Scheme promises investors massive returns on an investment that does not really exist. Instead, unknown to everyone but the person or people running it, old investors are paid with money that comes in from new investors. This set up usually goes undetected until the one day when the well of new investors dries up and the money stops flowing in.
The structure of Ponzi’s scheme must have really impressed the policy makers that were coming to age during this era because they would use the same set up for the nation’s new Social Security system in the 1930s. Starting in 1937, employees and employers needed to fund the system and in 1940, retirees began to draw benefits. The financial amount of these benefits dwarfed what the first retirees put in during their working careers. …