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So What is a Ponzi Scheme?

The story that has broken over the past few weeks about former Nasdaq head Bernard Madoff being the head (allegedly alone, but no one really buys that who can appreciate the magnitude of his scam), of a ponzi scheme has brought to the forefront in people’s minds the audacity that some people have and the greed that sometimes can lead to these types of scams being successful for a while, even though they eventually fall apart.

It led me to look up what “ponzi scheme” meant so I could get a grasp of how the scheme worked, although I did know that it somehow involved debts being paid with participants money, and that the alleged investment scheme didn’t actually make the returns it claimed to, but instead used new participants investment money to pay hefty “returns” to others who were already involved in the investment.

A ponzi scheme is named ponzi because it is named after an Italian immigrant who came ot the US and started the first scheme of it’s kind, bilking people out of their money unbenknownst to them. What a ponzi scheme is, is basically a big pyramid scheme. You may have heard of them or even been involved in them on a smaller scale.

I actually was the unwitting victim of a much smaller ponzi scheme when I was in college. I was scrimping to save money and pay the bills, waiting tables at a Bob Evans to pay my way through school and pay for things like car repairs, living expenses, food, utilities and the like, and one of my college friends said he had a friend of a friend who had a glorious story about a pyramid scheme that worked where if you put your money in, you would get double that money back within about eight weeks.

I thought it sounded too good to be true, and my roommate, who had heard the same story was leery of it and decided not put the 400 bucks it required in. At the time, 400 bucks was a lot of money! I, always being an adventurous person and willing to take a risk for a handsome return, although I did have some doubts in the back of my mind, decided to put the four hundred dollars in. Of course, what happened, in my naivety at the time, was that the head of this scheme made off with my money.

The guys who told my friend about it said they heard the guy died who headed it up, which I’m sure was a lie and a way for them to retain our money without paying it back. Of course, I learned a hard lesson then, that these types of schemes prey on people’s optimistic (albeit greedy) nature, and people are willing to swallow information that doesn’t necessarily make a lot of sense, even if it’s at the expense of their pride and their intellectual part telling them it’s wrong, if they thing they may be rewarded financially.

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