$tupid! $tupid! $tupid!

It's one of those ongoing news stories that has me shaking my head. I wondering: "What were they thinking?"

Okay, there are two big and damaging Ponzi Schemes that have come to light recently and in the latest news, Barnie Madoff has recently settled for a plea bargain which, essentially, equals a life sentence. The commentators keep talking about how he had to be so brilliant to keep the scheme going so long, but I would argue that the fact he kept it going so long is indicative of his lack of intelligence!

Think about it: Ponzi Schemes are inherently unstable. Anything that requires, for its success, a continuing influx of participation which can only be rewarded by that influx constantly growing is inherently an unstable scheme. The only outcomes possible for someone perpetrating a Ponzi Scheme are Failure through lack of participation and Failure through exposure.

It becomes progressively harder to maintain the illusion of returns by recruiting new marks into your scheme. Eventually, the house of cards you're building. Plus, the more people who are involved, the more likely it is that someone will notice that something is amiss. If you are worth your salt, you'll get in, make your mint, and get out before you are discovered, fleeing beyond the reach of the law and retiring to live on your ill-gotten gains.

So far from being brilliant, the perpetrator of a large and impressive Ponzi Scheme is too stupid to realize that it is destined to fail. They would be better-off picking a single rich person and robbing them honestly. They would be far less likely to get caught that way. But that is just the way I see it.

Wherever you are today, I hope that all your investments are paying off!

Don Bergquist - March 15, 2009 - Lakewood, Colorado, USA