Part of FDR’s statement upon signing the Social Security Bill:
“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family …”
History will judge the Social Security Bill to be the grandest Ponzi scheme in all of history; unless, the government continues on with the Anthropogenic Global Warming regulations. These may sound like wild ambiguous statements to you the reader; however, you probably aren’t that familiar with the history of Ponzi schemes or understand how they function or the similarity would be painfully obvious. So obvious, that it is conceivable that the SS Bill used the genius of Charles Ponzi as the framework for the Social Security Bill.
The public wasn’t really familiar with the Ponzi scheme until Bernie Madoff pulled his now comedic rise to wealth by peddling his version of the Ponzi scheme to the wealthy. Concentrating on the extremely wealthy, he sold an exclusivity of influence for investors. Making a mockery of “the rich are so smart” parable, he had them clamoring for the opportunity to get close to Bernie and be bilked for millions.
The Ponzi scheme wasn’t invented by Charles Ponzi, but he had the name that was adopted by the public for the designation of an old confidence game called, “Rob Peter to pay Paul“. This fairly simple larceny involves promising huge returns on investments, so that you have a continuous flow of naive and simple minded investors who will believe the lies of the confidence man. The original investors are paid outrageous returns to entice new investors.
There is always a defining characteristic for confidence men, they have pleasing personalities that inspire confidence in the naive and weak minded.
The scam often continues on its own momentum and the lies of the perpetrator, until a point of critical mass is reached or until the carnival barker runs out of rubes to ante up fresh money for the scam. Once there is no longer funds to payout to the older investors the scam falls apart.
The Social Security Administration is approaching the critical mass phase. Adjustments will need to be made or the program will bankrupt itself, I have termed this phase critical mass. There is a major difference in the design of the Rob Peter to pay Paul scams and Social Security: the others are illegal, FDR had the genius to not only make Social Security legal, but he made dues paying membership required by law. Thus he assumed there will never be a tell tale line up of doubting Thomas’s wanting their money back. Another tragic, but humorous trait of the critical mass phase of a classic Ponzi Scheme.
However, there were some unforeseen problems that evolved in FDR’s Ponzi Scheme. People have begun to live longer and a changing demographic is upsetting the worker to retiree ratio. Obviously, FDR wasn’t a mercenary confidence man, but whether Social Security was set up with the Ponzi Scheme as a template or he just used the old Rob Peter To Pay Paul scenario is without doubt, a cold hard fact of American life. It fits the classic description or definition of this particular con game. The only reason it isn’t in the midst of critical mass is that participation is required by law. Once the public stops believing in a con man or a hoax, the jig is up. Requiring participation was a stroke of genius that delays the inevitable end of all Ponzi Schemes, this period known as critical mass or melt down.
Charles Ponzi started his scheme by buying older undervalued postal coupons in European currencies at fixed, outdated rates of exchange and trading them in the Us for dollars, generating a guaranteed profit. He promised investors a 50% return on investment in 45 days. The bank’s return on investments at this time was 5% per annum.
His early investors doubled and tripled their money. Many of his investors declined to redeem the coupons and preferred to let their money ride to get the exponential increases. His company, the Security Exchange Company or the SEC, yes, you read that correctly, received great reviews in the financial editorials of newspapers and new investors stood in line to become part of the scam. At his peak, Ponzi received one million dollars from investors in a three-hour period. In nine months his scam took in $15,000,000 during 1919 and 1920 (approximately $174 million in 2007 dollars). No one realized that there weren’t enough of these foreign exchange coupons to begin to equal the amount of money that was being invested. They were essentially a coupon that people sent to Europe from the US so that their relatives could afford a stamp to mail a return letter with a postage coupon redeemable for a certain amount of postage in a foreign country. Remember, this was the Great Depression.
Ponzi spent five years in federal prison, when his scam collapsed. The State of Massachusetts sentenced Ponzi to an additional nine years, but he left the country and settled in Brazil. He lived the rest of his life in poverty and was buried in a pauper’s grave.
In his last interview he came clean about his scam:
“My business is simple. It was the old game of robbing Peter to pay Paul. You would give me one hundred dollars and I would give you a note to pay you one-hundred-and-fifty dollars in three months. Usually I would redeem my note in 45 days. My notes became more valuable than American money … Then came trouble. The whole thing was broken.” (Zuckoff, Mitchell, Ponzi’s Scheme: The True Story of a Financial Legend, p. 313)
Ponzi didn’t possess the killer instinct of the true confidence man; the goal of the confidence man is to take the money and run; he was trying up until the end to make his scheme into a legitimate business. Whether he was aware that there was not enough postal coupons on the planet to cover his customers’ investments is open to debate, but if he could have become Ponzi International Shipping, he could have avoided prison and retired a wealthy man.
Al Gore, one of the biggest confidence men of the modern age seems to have reached the point of no return, he has lost credibility and his sanctimonious pleas to make money and save the earth are falling on deaf ears more and more.
Obama is possibly the greatest hoax in history. He is the first undocumented president in the history of the country. His “Hope and Change” jingoism, seems to only benefit campaign contributors; but his days as a confidence man are nearly over, the Son of Stimulus will tell the tale of whether the country has lost faith in the Obama Magic. Obama also has numerous incidents of corruption nipping at his anles, Fast and Furious, Gunwalker, Solyndra, Operation Castaway in Tampa, Gangwalker and Lightsquared have compromised his confidence game. But he hasn’t promoted a Ponzi Scheme.
Bernie Madoff’s scheme was another deal entirely. He “Made Off” (the correct pronunciation of his name, BTW) with $50 Billion. It is the largest (money involved) Ponzi scheme in history: investigators found his larceny stretched back the 1970’s. Madoff had a head start with his position as Chairman of NASDAQ, a prominent and influential position on Wall Street. His victims were arguably the most financially savvy and wealthiest in the world; he required a minimum of twenty-million to invest with him. His literature was meant to convey “Confidence” among potential investors.
Ponzi was a Democratic conman in that he reached out to the masses and gave them a chance to accrue wealth. In a manner of speaking Madoff was also a Democratic swindler; although, he serviced the Elites or Limousine Liberals of Wall Street and Palm Beach, he serviced their hunger for wealth and greed. You had to be in the upper echelons of society and wealth to be accepted into Madoff’s select group of suckers.
In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner’s name is on the door. Clients know that Bernard Madoff had a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark.
Of course, when the veil was lifted on the nefarious nature of Madoff’s investment scheme, there was pandemonium as the world’s elite tried to recover their investments like starving peasants. No more were they interested in having access to the genius Bernie Madoff; it was time to scratch and claw to the front of the line to get their money; unfortunately, Bernie had squandered the funds by living the profligate lifestyle that had attracted those same affluent investors. The so-called smart rich people were played for fools and morons by Bernie Madoff, the charismatic conman, the guy who didn’t know when to quit.
Madoff offered little more than his word. There have been scams with real value and legitimate businesses with a practical product.
On the other side of the world, Wang Fengyou founded Yilishen Tisnxi an ant farm conglomerate that had farmers maintaining ant farms on a precise feeding regimen so that they could later convert dead ants into an aphrodisiac. A million Chinese developed a passion for farming ants. They saw the financial rewards of a simple enterprise and were happy to be involved in improving life for people with deflated egos.
Poor farmers bought into the scheme for 10,000 yuan (approx. $1,500) and they were given a box of special ants. The insects were fed the a sugar and honey solution twice a day at 9 am and 4 pm and they were to be fed a cake and egg yolk solution every three to five days. They were never to open the box and after 74 days the boxes were picked up. The farmer received 13,500 yuan every 14 months, an excellent return on investment.
The ants were ground to a pulp and sold as an aphrodisiac, did the product work? Yes indeed, it worked like no other traditional medicine in the history of the world! The powdered ants put extra lead into the pencils of tens of millions of Chinese men!
Wang became a very wealthy man, his aphrodisiacs were sold in 80,000 pharmacies across China. He is reported to have had over one million farmers raising his ants. His company had a yearly turn over of 15 Billion yuan or $2 billion US. In October 2007, he reached critical mass and his company missed farmer payouts and collapsed, he was soon arrested.
Although, the ants were traditionally considered to be an aphrodisiac in traditional Chinese Medicine, Weng hedged his bets by including sildenafil with his crushed ants to give them a little extra boost. Sildenafil is the main active ingredient in Viagra.
In 1935, while the country was under the yoke of poverty and depression, Roosevelt signed into law “Social Insurance” to alleviate the cruelty of abject poverty imposed upon retirees and the unemployed, it was considered a part of the New Deal. The benefits paid to retirees and the unemployed were paid by taxes from the wages of employed workers.
Over the years the rules and regulations have changed, but we still have the basic premise of Charles Ponzi: the new investors (workers) pays in the form of taxes to support the older investors (retirees). This is the first and primary premise of the Rob Peter to Pay Paul confidence game or the Ponzi Scheme.
Between 1937 and 2005, Social Security took in $10.7 trillion in taxes and other revenue: during that same period it paid out more than $8.9 trillion.
Currently Social Security runs a surplus (it invests the money in Treasurys, thus complicating the issue, because the government is essentially giving itself an IOU). It is expected to run a surplus until 2018. The baby boomers will then be retired and drawing benefits; the Social Security program will have theoretically reached critical mass. Unless the system is altered, it will be bankrupt by 2040. Taxed income will need to be increased and the retirement age will need to be increased; these are two of the obvious possible partial adjustments that will need to be made.
Even though FDR mandated participation by law, he hedged his bets by making the retirement age 65 when the average lifespan was 62. He was such a kind hearted man. No one figured the lifespan would be increased to approximately 80 in 75 years. People are sticking around far too long as far as the Rob Peter to Pay Paul confidence scheme is concerned. Now the young people in their thirties are complaining that there won’t be any money left for them when they retire: ha! they just don’t realize there was never any stockpile of money in the lock box, it has been a Ponzi Scheme since day one. They must rely on the younger generations to support them in the greatest Ponzi Scheme of all time. Have faith young people, we older people believed the conmen, why can’t you follow the government in blind obedience like your grandparents and great grandparents? Why should you not have faith in the great Liberal Ponzi Scheme?
Young Americans should remember Ernest Ackerman and Ida May Fuller before they worry themselves into an early grave over the prospect of paying into the Social Security version of a Ponzi Scheme. Like the traditional Ponzi Scheme, the early investors have the best chance to make money. Ernest worked for one day under the Social Security before he retired. His total involuntary contribution was $.05. The government decided to pay him a lump payment of $.17 for his retirement. Ida May Fuller, of Ludlow, Virginia, was the first person to receive monthly retirement checks in 1940 at the age of 65. She paid $24.75 and received $22,888.92 until her death at 100 years of age.
FDR was truly the most Democratic of all the conmen of Ponzi Scheme history, he offered the helping hand of government to the retired workers in a show of humanism; of course, you were supposed to be dead according to the statisticians and odds makers before you could start dipping into the kitty. Now, that was a fantastic idea for a con game; until, the parameters changed and people began to live healthier lifestyles and longer lives.
Social Security started paying benefits in 1940, there was only one beneficiary for 160 workers. In 1950, there were 16.5 workers for every beneficiary. Presently, we have three workers for every beneficiary. In twenty years, we are projected to have only two workers for every beneficiary.
The average retiree receives approximately a third of what the average worker earns. In 1940, the worker paid .02% of his income to support a retiree. In 1950, he was required to pay 2% of his income towards Social Security. Today he must pay 11% to support the system. In twenty years, it will require 17% of a paycheck to keep the system viable. With the increasing costs of Medicare, the costs to the taxpayer will be astronomical.
The Treasury is borrowing money to pay the deficit in Social Security revenue to meet the payouts to seniors and this deficit will only increase as the ratio of workers to retirees continues to invert.
Yes, my friends, Social Security is the greatest Ponzi scheme ever devised, but it is an institutionalized and integral confidence game of Rob Peter to pay Paul, within our society and our economy. It is imperative that we alter the plan by increasing the retirement age and we will surely need to raise the taxes for Social Security; unless, someone can figure out a way to avoid the inevitable. We can’t throw our seniors into the street. It is not who we are and besides they have already paid into our grand Ponzi Scheme for 50 years.
A professional horseman for over 50 years, Skook continues to work with horses. Skook has finished an historical novel, Fifty Thousand Years, that traces a mitochondrial line of DNA from 50,000 years ago to the present. The story follows a line of courageous women, from the Ice Ages to the present, as they meet the challenges of survival with grit and creativity. These are not women who whimper of being victims, they meet the challenges of survival as women who use their abilities without excuses or remorse, these women are winners, they are our ancestors.