Wall Street Roulette

Charles Ponzi (March 3, 1882–January 18, 1949)...

Charles Ponzi (Image via Wikipedia)

This article has been corrected. 

Charles Ponzi started it all back in the early 1900s. The idea was to get people to invest real funds on a speculative deal. The more people who bought into this idea, the richer the people at the top would get. But eventually the house of cards would necessarily fall. This has sort of become the template for Wall Street.

I became aware of Ponzi schemes in the late eighties when I was an undergraduate student. My roommate became involved in an ‘airplane’ or ‘pyramid’ ruse, which is similar to a Ponzi scheme. It relies upon more suckers paying into it than there are beneficiaries to profit from it. I came home from studying in the library one night to find a rather angry redneck and his friends from Red Bay, Alabama standing in my living room with a gun wanting to know where his money was. My roommate was able to convince him that he had been played as well, albeit higher up on the pyramid.

Bernie Madoff is the latest high profile predator to use the Ponzi ploy. He took a lot of people down with him because many of them took it upon good faith that the financial institution in America was solid and smart investments would result in a good ROI. But most people never expect someone will game the system.

Here are some stats:

  • Charles Ponzi made off (no pun intended) with $15 million in the early part of the 20th century.
  • Bernie Madoff made off with $65 billion in the early 21st century
  • The TARP bailout was $700 Billion
  • At 310 million people in the United States, that comes to about $2,258 per man., woman, and child.
  • The AIG bailout cost $183 billion
  • $1.2 billion* in bonuses were paid to AIG executives after the bailout
  • Number of AIG employees receiving post-bailout bonuses: 73
  • Goldman Sachs tax rate for 2007 = 34%
  • Goldman Sachs tax rate for 2008 = 1%
  • Average ratio CEO to employee salary:
    • 1921 = 9:1
    • 1970 = 39:1
    • 1990 = 110:1
    • 2000 = 171:1
    • 2010 = 319:1
  • Average Executive Salary:
    • 2003 = 8.6 Million
    • 2004 = 10.7 million
    • 2005 = 11.8 million
  • Average value of a 401K
    • 2005 = $102,014
    • 2007 = $69,200
    • 2009 = $64,200

We’re being fleeced and we’re being told that we like it. But the numbers don’t lie.

*Note: An earlier version of this article incorrectly identified the AIG bonuses as being $1.2 trillion. It was $1.2 billion. We regret the error.


About Mr. Universe

Mr. Universe is a musician/songwriter and an ex-patriot of the south. He currently lives and teaches at a University in the Pacific Northwest. He is a long distance hiker who has hiked the Appalachian Trail and the Pacific Crest Trail. He is also an author and woodworker. An outspoken political voice, he takes a decidedly liberal stance in politics.
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8 Responses to Wall Street Roulette

  1. Just Sayin' says:

    And everyone is surprised, Why? it’s always amazed me that we as citizens spend our money the way we do. why would you put your money in a bank that’s only motivation is to fleece you. I worked briefly for two major banks and your job was in no uncertain terms to get as much money as you possibly could from each and everyone of your customers. Not fleecing enough, and not hitting your quotas, those were grounds for dismissal. I did the best i could to counsel as many as my customers to not fall into their money making schemes. I didn’t last a year. When off shoring became the norm is when you saw CEO saleries go through the roof. One of the reasons unemployment remains so high is that there just are not that many jobs out there because out sourcing remains popular. I would say stop being suprised and start researching the companies you do business with and shop with, you might just be one person but after awhile businesses do take notice.

  2. Number Seven says:

    Holy shit Mr. U., all I can say is your discovery of what a pyramid scheme is is far more dramatic than mine was. I merely tried to sell Slick-50 and Kirby vacuums.

  3. Bart DePalma says:

    U:

    Numbers lie all the time. This whopper for example:

    “$1.2 trillion in bonuses were paid to AIG executives after the bailout”

    This is several times AIG’s gross revenues:

    http://www.wikinvest.com/stock/American_International_Group_(AIG)/Data/Revenue/2010/Q3

    Sources please.

  4. Max aka Birdpilot says:

    @ JustSayin

    See the earlier thread and comments on Henry Ford

  5. Max aka Birdpilot says:

    Bart,

    I too wonder about that number. It would make more sense if it were billion instead.

  6. shortchain says:

    Here’s a handy rule to explain the legalities:

    Sell stock in your company and pay dividends using the money from the sale of such stock: Illegal Ponzi scheme.

    Sell stock in your company and pay yourself millions while driving the company into the ground: perfectly legal.

    How to tell, when buying stock, that you are buying into a Ponzi scheme:

    If the company’s business is opaque, and you can’t tell where the money it makes come from, but it pays dividends, it may be a Ponzi scheme.

    If the company’s business is opaque, and you can’t tell where the money it makes come from, but it pays no dividends, and the CEO makes millions of dollars, it’s not a Ponzi scheme. Probably a growth stock.

    Enjoy your investment experience!

  7. Just Sayin' says:

    Max: I did read the earlier thread on Henry Ford, I’ve always liked that part of his business practice, paying his workers, more that the prevailing wage. Other things about him, not so much, his anti-semitism.
    We live in interesting times, and now we have this handy little device known as the internet, our best chance for a level playing field.

  8. Mr. Universe says:

    It was billion. My bad. Corrected. Thanks for catching it.

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