And Who Was Ponzi?

Mug shot of Charles Ponzi, remembered for his "Ponzi Scheme." CBS

With Ponzi schemes so much in the news, it's time to give Founding Father Charles Ponzi his due.

Ponzi (1882- 1949) hatched his scheme in Boston in the days after World War One, and his gimmick was the International Reply Coupon, a way of pre-paying foreign postage.

Because of a currency exchange quirk, Ponzi's Coupon - bought at a low price overseas - could be cashed in for a higher amount in the United States.

Ponzi told investors he could double their money by buying and selling the coupons … and it worked, at first.

The money came in. Ponzi paid big profits. And still MORE money came in, up to a million dollars a week (and that's in 1920 dollars).

But after a newspaper revealed that there weren't enough coupons in the entire world to support Ponzi's scheme, his fraud was exposed.

He hadn't been investing in coupons at all, only paying off his early investors with fresh money from his later ones.

Many of his customers went into bankruptcy. Ponzi went to jail.

And though he's long dead, the Ponzi scheme lives on … as a catch-all term for a sort of financial musical chairs that works just fine - until the music stops.
  • CBSNews

Comments

Follow Us

On Twitter