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The Ponzi Scheme
25 Plays3 years ago
Josh educates M on the origin of the name, "The Ponzi Scheme."
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Josh is @monkeyfluids and M is @conspiracism on Twitter
You can also contact us at: podcastconspiracy@gmail.com
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Transcript
Life Updates and Career Milestones
00:00:00
Speaker
So how are things in China? This again every week since I arrived in Guangzhou you've asked how are things in China and every week it's the same story. Listeners are getting bored of hearing about my 12-hour flight, the three weeks in quarantine and signing on at the university. It's old news Joshua, no one needs to hear about it again.
00:00:21
Speaker
Yeah, true, but this week was more momentous. You're officially an associate professor now, giving you signed the contract and all, but you got the swankiest office. Well, not quite. I haven't seen it yet. They're cleaning it today. Sorry, did you say cleaning it in the sense of they are cleaning it, or cleaning it in the sense that I'm meant to pick up on something sinister? You heard me. I heard you, or I
00:00:48
Speaker
Heard you. I can't really comment. Mm-hmm. Okay. Blink twice if you're in danger. No, twice. Not five times. No, you're not blinking at all. Should you be able to lick your own eyeball?
Podcast Introduction
00:01:12
Speaker
The Podcaster's Guide to the Conspiracy, brought to you today by Josh Addison and Dr. N. Denton.
00:01:22
Speaker
Hello and welcome to the podcaster's guide to the conspiracy in Auckland, New Zealand. I am Josh Addison and in Zhuhai, China, we have Dr. Emdentith. Did I say Dr. Emdentith? I meant Associate Professor Emdentith.
00:01:39
Speaker
Yeah, that's probably worth a sting. Do the announcement of my position again. Did I say Dr. Emdenteth? I meant Associate Professor Emdenteth.
00:01:56
Speaker
Yes, so the papers are signed. Signed, sealed and delivered, I assume. Right, you know, I actually just received a message on WeChat from my friend in the international office to say that the contract has actually been officially sealed.
00:02:13
Speaker
So I signed it yesterday. It's now got the official university seal upon it. There are three copies of it. It is done and dusted. They can't get work. They can get rid of me within the next six months because there's a probationary period. But if they can wait out the six months, well, they're stuck with me forever. Excellent.
00:02:33
Speaker
So I think that's kind of all we have to say.
Main Topic Introduction: Ponzi Schemes
00:02:37
Speaker
I mean, everybody knows the details about the long process of getting a university job in China and how long it's taken you to sort all that out and doing all your quarantine and everything. So we probably don't need to talk about that at all.
00:02:50
Speaker
Shall we just get into the main episode? Indeed, because we've got an exciting installment of Conspiracy Theory Masterpiece Theatre, which I believe, Josh, you are the master, and I am the theatre. No, it's about the conspiracy. Conspiracy Theory Masterpiece Theatre is the other one that we have the other sting for. Then you are the master. And I am the conspiracy? See, this doesn't work. I know, you know, it would have worked better. Maybe, maybe we got the
00:03:20
Speaker
Maybe we got the titles wrong. All along we should have been calling this Conspiracy Theory Masterpiece Theatre and the other ones. I don't know. It's true. Maybe we need a third sting. We're stuck with the stings as they are. But we can always have to have a sense of regret. Because basically, what is life other than a series of vague senses of regret and an overblown budget for MCU series?
00:03:46
Speaker
Yes. Well, yeah, okay, just play the theme and we'll see who regrets what. I'll insert the theme around about here. It's time to play Want the Conspiracy.
00:04:10
Speaker
Right, so, what the conspiracy and it's my turn. So we should do the where, when and what and why and how and who. Before I get you to guess when, where and what this conspiracy theory concerns, I have a slight confession to make.
00:04:28
Speaker
I'm cheating a bit this week. Rather than trying to introduce you to a conspiracy theory that you've never heard of, I want to talk about something you probably definitely have heard of, but don't know all the details in the background, because I think that will still make for an interesting story. So with that in mind,
00:04:45
Speaker
Give me the when, the where, and the what as you discern them. Well, I'm going to go 20th century for the when. The what I'm going to take is going to be some kind of political shenanigans, possibly not an assassination, some kind of kidnapping. Interesting. And we've got the when, the what. And the third question is, since such a long time since you've done one of these, the where.
00:05:16
Speaker
I'm not really sure it's not going to be Jupiter, but I really want to say Jupiter. I'm going to say Israel. So a kidnapping plot in Israel in the 20th century.
00:05:29
Speaker
Yeah, no, you're one out of three. 20th century, early 20th century. Okay. The USA. Do you understand how either World War I or World War II started? That would be good, but no. Because we're mostly in the USA. We'll take brief detours to Canada and Italy. But it's mostly where it takes place.
00:05:51
Speaker
Is this one of Robert Langdon's ancestors? Is it going to be a kind of symbology thing? Is it globe-tropping? Not quite, but sort of. Because what I want to talk to you about today is the Ponzi scheme.
Understanding Ponzi Schemes
00:06:14
Speaker
the Ponzi scheme, the scheme after which all other Ponzi schemes take their name. So I'm assuming you've heard of the term Ponzi scheme. I have, indeed. I'm assuming that, like me, you probably heard about it in 2008 when Bernie Madoff was convicted of running the biggest Ponzi scheme the world had ever seen, or had you heard it before that?
00:06:36
Speaker
I think almost every single person of recent note, I mean, presumably people in the early 20th century who, you know, before Bernie Madoff even existed knew about Ponti schemes. But for most modern people, Ponti schemes kind of entered the public consciousness with the Madoff scheme.
00:06:54
Speaker
Yeah, so that was that was he was arrested sort of late 2008 and the trial went all through 2009. So I think, yeah, that's that's where I'm pretty sure most of the modern world was introduced to the scheme. So do you actually know what a Ponzi scheme is? It's a scheme of Ponzis.
00:07:12
Speaker
So you know Fonzie from Happy Days. So his grandfather, Pa Fonzie, was Ponzie. And the Ponzie scheme was created by Fonzie's grandfather to be incredibly cool
00:07:30
Speaker
by basically hitting jukeboxes, although in those days they weren't really jukeboxes, they were more kind of gramophones. No, you just punched the servant who was playing the record player. So Ponzi basically punched a servant to make a song play whilst going cool. Right. Yes, no, interesting but also wrong.
00:07:51
Speaker
But wrong in a really, really fascinating way. Well, exactly, yes. Now that's the best kind of wrong. But in actuality, a Ponzi scheme is a kind of fraud. It's a fraudulent business scheme. And the central part of it is that it involves
00:08:08
Speaker
paying returns to investors from the money that you've gathered from other investors. So usually what happens is the person running the scheme... Yeah, which is basically what happened in the self-cantibri finance scandal in New Zealand about 10 years ago. Yeah. Yeah, where basically you promised people large numbers of returns, but you're basically borrowing against other people that you're also meant to be paying out. So if you get in early,
00:08:36
Speaker
then you get paid out. But if you come in late to the scheme, then it's basically just a paper trail with no actual cash in the background. Exactly. Yes. So usually it starts with someone saying, hey, look, I've got this business or I've got this scheme for making money, which will give you give you high returns, guaranteed, consistently low risk or sometimes, you know, no risk whatsoever.
00:09:02
Speaker
to attract investors in, but this either the business doesn't exist, the scheme doesn't exist, or they do exist, but couldn't actually possibly turn a profit or produce the level of returns that you're claiming.
00:09:16
Speaker
And so all that happens is rather than taking in money, investing it and then paying out returns, you take in money, keep it. And when someone asks to tell people they're getting big returns and when someone has to be paid out, you pay out. But otherwise, you just keep all the money for yourself. And yes, so it's basically the cliche of robbing Peter to pay Paul is essentially the the the central
00:09:41
Speaker
central mechanism of a Ponzi scheme. They're a bit like a pyramid scheme in that both Ponzi schemes and pyramid schemes only work if you can keep getting more and more investors coming in. But Ponzi's are a bit more stable, like a pyramid scheme pretty much requires exponential growth of investors to keep working. Whereas a Ponzi scheme, there's usually sort of, you know, all the money's coming into one central point, not trickling up.
00:10:11
Speaker
Also, if it's run well, a Ponzi scheme usually encourages the investors to keep their money in the scheme. You tell people, you've doubled your money, and rather than them saying, okay, good, give me my doubled money back, they'll say, oh, sweet, we'll keep it in the scheme and then double it again and again. On paper, you're telling these people they've made these massive returns, but of course, that's complete fiction.
00:10:36
Speaker
And of course, that was what was the downfall of the southern capital finance system, was people suddenly wanting to take money out of the system. And then finding that the people running it were going, oh, we can't release the funds just yet.
00:10:51
Speaker
If you can just give us a few weeks or a few months, we can release the funds. At which point people started to go, but isn't the money just in one bank account? Can't you just, you know, make a transaction? It almost sounds as if you're waiting for someone to put money in so that then you can take money out, which kind of indicates that maybe the bank balance is a little low. Maybe it's a little low. Yes, precisely.
00:11:15
Speaker
Yep.
Notable Ponzi Schemes: Bernie Madoff
00:11:16
Speaker
So I mean, in theory, a Ponzi scheme could be sustained for a good long while. And I mean, Bertie Madoff was at it for almost 20 years, I think, before his one failed. In theory, a Ponzi scheme could
00:11:31
Speaker
conceivably work out. If, say, you have a scheme that legitimately could produce good returns but isn't, but it's failing at the moment, you could run it as a Ponzi scheme until you get lucky and the scheme actually starts working and then at that point it could become legitimate. But usually they fail either
00:11:52
Speaker
because the person running it is invariably some sort of a con man fraudster who just takes the money and runs, or because too many people try to withdraw their money at once and it becomes obvious that you don't have the money to give them, or because people get suspicious of these miraculous returns you're promising and start investigating new, which can then lead to a bunch of people trying to withdraw all their funds and it collapses again.
00:12:19
Speaker
I think Bernie Madoff was interesting because he did actually have a business and I think in his case it was more that his business couldn't return, couldn't produce the returns that he promised but it was still making some money so he was able to last a long while. But anyway, we're not going to talk about Bernie Madoff.
Charles Ponzi: The Origin Story
00:12:38
Speaker
Even though possibly for our purposes he's a better example because his case is more overtly conspiratorial. But anyway, the more interesting fellow
00:12:49
Speaker
as an Italian man by the name of Charles Ponzi. Charles is not a very Italian name. Well, yeah, I don't know. Charles Ponzi is what I always read. I don't know. Is there an Italian version like like Giuseppe for Joseph or something? I don't know if that's an anglicized version of his birth name, but Charles Ponzi is what I've always read.
00:13:09
Speaker
A good friend of mine is Timothy, and he was born in Parma, and his parents just decided that they would give him an English name. So it could be a similar thing. Charles Ponzi really doesn't sound like a particularly Italian person. It sounds like an Italian fraudster, which of course, actually, Charles Ponzi turns out to be. So actually, it's the perfect name for the inventor of the Ponzi scheme.
00:13:30
Speaker
Also, well, his last name was Ponzi. Yeah, that did work out. I should say he's not the inventor of the Ponzi scheme. I mean, he's the person that came with the Ponzi scheme after. Yeah, the concept, I think, of the whole sort of Robin Peter to pay Paul thing has probably been around pretty much as long as there has been money. And there had been schemes that worked in this way and which failed in this way before Charles. But apparently, a couple of Charles Dickens' books from the mid-1800s
00:14:01
Speaker
involve, at various points, people getting involved in schemes that fit the definition of a Ponzi scheme. So he didn't invent it, but his was the first sort of big case that captured national attention, that made news headlines and what have you. So he's the one who gets the credit.
00:14:18
Speaker
And he's an interesting fellow, is Mr. Ponzi. He was born in 1882 in Italy to a formerly wealthy family that had sort of fallen on hard times. And so they sort of still had, from the sounds of things, they still had the social standing, I suppose, of a wealthy family, but without the actual wealth at that time.
00:14:39
Speaker
So he went to university like rich people did, and like most rich people in Italy at the time, apparently he spent his entire time at university just messing around, going to bars and cafes, not actually doing any work at all.
00:14:54
Speaker
which meant that by the end of it, he had spent what money he had and had no degree to show for it. So in 1903, he went off to the United States to find his fortune over there. And the more you read about him, the more it becomes apparent that he's just one of those born grifters, one of those natural fraudsters who's always looking for a way to make a quick buck, make some easy money.
00:15:22
Speaker
by fear means or foul. So he arrived in the US basically with just the shirt on his back. He had lost what money he had brought over with him gambling on the voyage over. So he immediately started looking for work into his credit, took basically whatever jobs he could find, although then apparently he sort of got a job in a restaurant, sleeping on the floor. Initially that wasn't his job. That's just what he did because he had nowhere to stay.
00:15:51
Speaker
graduated to being a waiter and was then fired when he was caught shortchanging customers and stealing. He worked a few more jobs, moved around the country, eventually moved up to Canada. And by the time he'd moved up to Canada, he could speak
00:16:06
Speaker
English and French in addition to his native Italian, so he could sort of, he had, and as you would expect from this sort of a conman type, he was a very smooth talker, he was very persuasive, very charismatic, and so he was sort of, he was always able to find work.
00:16:25
Speaker
The interesting thing is while he was in Quebec, he was working for a bank and it turned out that the bank he was working for, the manager was running a scheme which these days we would also call a Ponzi scheme. So it's not
00:16:42
Speaker
It's not certain that this is actually where he got the idea from, but it certainly doesn't seem like it could be a coincidence because, yeah, basically, the bank was running low on money, and so the manager was paying out interest by taking it directly from other customers' deposits. Eventually, he nicked a bunch of money and fled to Mexico and the bank folded.
00:17:05
Speaker
Ponzi was out of a job and so he kept wondering again. He went to Montreal, while visiting a business that I believe was a former customer of the bank he had been working for that folded. He happened to find an unattended cheque book in an empty office and immediately forged himself a large cheque from the company
00:17:28
Speaker
And then Kashtit started splashing his money around, immediately attracted the attention of the police, and got arrested and thrown in jail. I think we'll see. He's ambitious, but he doesn't have spectacular follow through, I think. So he doesn't really think his situation's through, does he?
00:17:46
Speaker
Yeah, yeah. More ambition than sense, perhaps. So at that point, so he did three years in prison then, and then eventually moved back to the US. At this stage of his life, there's this one interesting story where apparently at one point he was working as a nurse, which I assume in the early 1920s, nurse probably didn't quite mean what it does today. It's not like he had medical training or anything, but he was
00:18:14
Speaker
Working for an organization, and when he heard that another nurse working there had been badly burned and was in need of skin grafts, he volunteered to donate some of his own skin despite the fact that he didn't actually even know this nurse, which seems quite an out-of-character act of altruism, but maybe he was just sort of that impulsive kind of a guy.
00:18:36
Speaker
Well, maybe he just had a lot of flaky skin and went, look. Maybe he did. I need to get rid of some of the skin. I'll just give it away. Does anyone want to find some books? Oh, you've got some burns. Let's remove your skin and put my skin on top of it. Maybe he was a kind of Hannibal Lecter style character. Just wanted his skin everywhere. Well, it's possible and it doesn't come up again, but you could be right. Maybe he's the origin of Leatherface. Maybe he invented both the Ponzi skin and the Texas Chainsaw Massacre.
00:19:05
Speaker
Hmm, I'll have to look into that further. I don't have the material in front of me at the moment. What I can tell you is that after he got out of prison, went back to US, ended up in Boston. In Boston, he found a wife who married him despite having been told about his criminal past.
00:19:26
Speaker
and started working a bunch of jobs, in some cases working for companies owned by her family, where apparently he did not do very well. It sounds like he was pretty rubbish at managing companies, and they tended to fold. But he was still looking for that big idea, looking for that scheme that was going to make him rich.
00:19:52
Speaker
And so what he did was his latest idea to make some money was he set up a little company and his business model was basically he would come up with money making ideas and then try to pitch them to other people and they could sort of pay him
00:20:14
Speaker
for his good idea or something. And while he was doing that, he was sending letters around the world. He was sending letters back to people he knew in Europe to try and get them on board with some of his ideas. And one of the letters he received back to him contained a thing called an international reply coupon.
00:20:33
Speaker
Now, these still exist today, apparently, although I assume in this age of electronic communication, they don't get used very much. But an international reply coupon was a little coupon that you could send along with the letter, and it could be used to pay the return, pay the postage for a return letter. So, you know, if you sent something, sent a letter to someone, you wanted them to reply and you wanted to pay for them, pay for their reply.
00:20:58
Speaker
Instead of sending money, which would be, you know, you might not know exactly what the postage was and it wouldn't be the right currency and what have you, you could simply buy one of these international coupons, send it along with the letter, and then when the person wanted to send the letter back to you, they could just use that to pay for it. Now, I've used one of these. Well, there you go. When did you have to use one?
00:21:19
Speaker
Back in the day when I was trying to be a short fiction writer and you were submitting work overseas in physical copy because we're talking birth of the internet here, many magazines were still wanting physical submissions rather than electronic ones.
00:21:36
Speaker
If you were sending things to the US, you, as you say, you couldn't just send money along. What you'd do is you'd go to the post office and you'd buy one of these coupons, which was basically the equivalent of buying return postage home. So you would send a self addressed envelope, a coupon and your manuscript. And then that would then be used to return the manuscript to you, usually with a rejection letter.
00:22:01
Speaker
Well, Charles Ponzi had not encountered one of these before, and so he's quite interested to see this one. But unlike you, his mind immediately went to how can I make money out of this, because he found out that not only can you use an international reply coupon or IRC,
00:22:25
Speaker
to simply pay for a letter to be sent. You could also convert it to stamps, to the value of sending that letter, and then you could sell those stamps to people who wanted stamps. And so he realized what with currency exchange rates and so on, it would be possible to get someone to send you an IRC from a country with a weak currency, send it to the US,
00:22:49
Speaker
and then exchange it for stamps in the US, which would be worth more than the postage of sending it the other way, and then sell those stamps, and you could actually make a profit doing that.
00:23:03
Speaker
it's not illegal. That's that's basically arbitrage, I think they call it where you where you buy something and then immediately on sell it at a higher price to make a profit. So he basically saw this is this is a way of making money for nothing pretty much. And there's so many common thing that people try to do with foreign with foreign currency exchange. Well, we should be able to somehow gain the system by buying currency in a different country and then selling, which of course never works because
00:23:33
Speaker
currencies typically are indexed. But this sounds like it is a viable scheme. We should stop doing the podcast and indeed engage in an IRC scheme. We might make a fortune. Well, you might want to listen to the rest of the story first. No, no, I've made the decision. We're stopping the podcast. We are going to engage in our petition instead.
00:23:55
Speaker
Okay, well, I didn't write these notes for nothing, so I'm just going to get this out of my system anyway. Okay, but this is something that's been made. There's nothing to tell me which is going to change my mind. I can't imagine I could.
00:24:12
Speaker
Listen on and we'll see. So he thought, okay, this is it. This is the get rich scheme I've been waiting for. He went to banks to try and get a loan to say, you know, here's my plan. I want, give me a bunch of money and I'll make it, I'll get myself rich by trading in IRCs.
The Rise and Fall of Ponzi's Scheme
00:24:27
Speaker
And the bank said, no, don't be so stupid. No one would lend to him. So then he set up his own company called the securities exchange company.
00:24:36
Speaker
and went public. He started putting the word out that, you know, I've got the scheme for making money. He claimed I can double your investment in 90 days. And then when that didn't get enough attention, he said, I can double your investment in 45 days.
00:24:55
Speaker
And that started to bring in investors. He explained his scheme, he said he had agents ready and waiting, had contacted people all around the world who would be able to send him these IRCs from overseas and then they could do the exchange and make the money.
00:25:11
Speaker
And so they just need to invest their money with him and they'll see these big returns. And he took money from anyone and everyone. No investment was too big and no investment was too small. He'd take dollars off people or huge amounts either.
00:25:27
Speaker
And over the course of eight months, he brought in apparently about $15 million in 1920 odd. So which apparently a lot of money that's something like $180, $190 million, something like that today.
00:25:43
Speaker
And sure enough, his initial investors did get their big returns, just as he said, and he got a lot of positive coverage in the press. The newspapers, the Boston Post, I think is going to come up a bit, were printing stories about, look at this man, Ponzi, look at him, he's making all this money. He's this business genius, and look at this huge amounts of cash flowing into his scheme.
00:26:09
Speaker
But obviously this was all complete rubbish. Apparently at the time there were, and I assume still are, there were actually regulations in place around the purchasing of IRCs to prevent this sort of speculation. But even if that weren't the case, the thing is you can make a profit, say you could make a 10% profit, but that's 10% on the cost of posting a single letter.
00:26:36
Speaker
So the absolute amount you'd make off of each one of these IRCs is very small. So to be, say he's taken in his $15 million and claiming he's going to turn that into $30 million, to actually do that by trading in IRCs, even if you could, you'd need to be physically sending literal shiploads of these things across the Atlantic.
00:27:00
Speaker
just to be able to make that amount of money. So obviously what he was doing was he was he was ponsying it. He was ponsying the crap out of it. He was just keeping the money, sticking it all in his bank account. And when people wanted to be paid out, he paid them out from that pool of money. And for a time, as these things tend to do, it was working out very nicely for him indeed.
00:27:26
Speaker
But then it wasn't. So, I mean, people were suspicious from fairly early on, I think, just because it seemed too good to be true. They were suspicious of, you know, how did this guy go from being pretty much penniless to being a millionaire in the 1920s?
00:27:47
Speaker
in such a short amount of time. Now, he was able to allow his suspicions a bit when a financial writer there in Boston had basically said that, you know, he said, you know, I've done the maths and his scheme can't possibly, there's no way he could be producing the level of returns he's claiming. But Ponzi sued him for libel and won.
00:28:09
Speaker
I assume because of how the libel laws worked back then, which meant people then became a lot more reluctant to criticize him. The authorities, though, who wouldn't be so susceptible to libel charges, wanted to have a look at him as well, look into his scheme as well. But being the fast talker that he was, he sort of reassured them that everything was above board. But, okay, I'll tell you what I'll do, guys. I won't take any more money out of the scheme myself.
00:28:39
Speaker
while you're investigating is that you know will that will that soothe your suspicions which basically was his his faster way of making it so that they wouldn't actually demand to see his books which probably would have rumbled the scheme there and then.
00:28:55
Speaker
Quick question. I mean, quite specifically, I won't take any money out of the scheme myself. Now you mentioned a wife earlier. Was she going to take money out of the scheme on his behalf? I don't, I don't, I don't think so.
00:29:11
Speaker
It sounds like, I mean, first of all, this is the 1920s, so women were probably fairly firmly in the kitchen or the secretarial pool, but it sounds like he was sort of, he was cooking this up on his own, but I mean, certainly if that had occurred to him as a way around it, he probably, I mean, he may have just straight out lied to them anyway and kept taking money out, but
00:29:31
Speaker
He managed to allow suspicion for a while, but the Boston Post, who had been printing these glowing stories about him and his amazing success, which was one of the things that was bringing all these investors in, nevertheless, their editor was fairly suspicious of him and started directing his journalists to start digging into it and start asking the hard questions.
00:30:01
Speaker
went and talked to a fellow called Clarence Barron, who was also a final journalist who headed Dow Jones and company. And he did some sums and basically said, worked out that in order to cover all of the investments that people had been making in Ponzi's company, there would have to be around 160 million IRCs in circulation. And the actual figure was about 27,000.
00:30:25
Speaker
So that certainly is a discrepancy. Minor discrepancy, yes. And then on top of that, people eventually thought to go and talk to the US post office and say, hey, this Ponzi fellow who's been making all his money trading IRCs all over the place, I bet you've been seeing lots of people buying IRCs at the moment. And the US post office said, no, nobody's really been
00:30:50
Speaker
buying particularly large volumes of IRCs, not here and not overseas either, as far as we can see. So people who are in magazines hadn't been invented by that point, and it's actually not true. Well, yes. So people were starting to become sort of a groundswell of suspicion in amongst all the glowing press.
00:31:14
Speaker
Ponzi went and hired himself a publicist to try and improve his image or improve his schemes image at least. This publicist, a man who had worked for the Boston Post in the past, basically spent some time talking to Ponzi and working for him and figuring out and getting some insight into his company and quickly came to the conclusion that Charles Ponzi was a complete idiot who had no idea what he was doing and was completely full of it.
00:31:43
Speaker
and managed to find some documents that appeared to indicate that fraud was going on and immediately sold his story back to the post.
00:31:53
Speaker
And so due to the slow buildup of suspicion and bad press and accusation, eventually resulted in the thing that you tend to see where there would be a run on his company. Lots of investors started getting cold feet. Lots of people started asking to withdraw their funds from this scheme now. And eventually it became pretty obvious that the money just wasn't there. He had been depositing all his money in one bank. I think it was Hanover Finance.
00:32:23
Speaker
because he had designs on sort of taking control of the bank. I think his plan was he'd get all this money, he'd put it all in this one bank, and then as the bank's largest customer, that would give him a decent amount of sway over the bank, sort of, you know, you have to do what I say or I'll take all my millions of dollars and go deposit it in another bank. I think his
00:32:46
Speaker
real plan was to, if he could get made, then made bank manager, I guess he thought, you know, if he was then running the bank, then he'd be able to continue his his fraud much more easily. But that didn't happen. It all fell apart before then. So that bank collapsed, several other banks collapsed. All of the investors lost a large amount of their money. And Ponzi, realizing that the jig was up, basically handed himself in to the federal authorities who he knew were looking into him.
00:33:15
Speaker
So at that point, we're not done. We're not quite, we're almost done, but we're not quite done. He pleaded guilty to the federal charges, apparently at the urging of his wife, and was sentenced to five years in prison. He was released after three and a half years and immediately put on trial in Massachusetts on 22 state charges, which he believed he'd sort of, he thought that by pleading guilty to the federal charges,
00:33:39
Speaker
he then wouldn't be liable for any state charges, but apparently the state said no such deal was done, and he sort of went to the Supreme Court about that a bit, but eventually it was decided, no, no, you can still go on trial for these charges as well, so there were
00:33:54
Speaker
three separate trials to cover all 22 charges against him. He represented himself in court and apparently smooth talker that he was, he actually managed to get the juries to rule in his favour in two out of the three trials, but for the third one he was convicted and got another, was sentenced to seven to nine years.
00:34:16
Speaker
After three years, he was released on bail, and at this point you're probably thinking he'd be a changed man, who'd learned the error of his ways, and set out on the straight and narrow, wouldn't you? That's what you're thinking right now, isn't it? Admit it. That's what you're thinking. You fool! He didn't do anything of the sort. He was released from jail, immediately went down to Florida and started running a real estate scam, selling bits of packets of swamp land or something.
00:34:42
Speaker
and was fairly quickly caught again, sent back to prison to serve his full sentence, and was finally deported back to Italy. His wife stayed by him to this time, but stayed in the USA planning that once he would go back to Italy and find gainful employment and be able to support her, then she would move over to Italy to be with him.
00:35:05
Speaker
After a couple of years, there was no sign of him becoming gainfully employed and so she eventually divorced him, remarried and got on with her life.
00:35:15
Speaker
Whereas Ponzi lived out the rest of his life in Italy, I believe during World War II, by which time he would have been sort of late 50s, early 60s, so too old to be drafted. He just sat around, wrote his autobiography, and eventually died in 1944, unrepentant to the end.
00:35:37
Speaker
There's a quote that I've seen people keep bringing up from his autobiography where he said,
00:35:57
Speaker
And that basically is the story of the original Ponzi scheme. Kind of interesting his justification for what he did, which was, oh, but it was a great show. It was a really, really great show. So it doesn't really matter that I defrauded some people because they got a lot of entertainment out of what I provided them.
00:36:15
Speaker
He's almost doing the argument that, well, but you were paying for something that you knew couldn't really be true. So you were kind of complicit in it. So, you know, you put a couple of bucks in short, but you knew this was never going to eventuate. And yet it sounds like he started the scheme. He really did think it was going to be viable. And it was only after a while he realized, actually,
00:36:41
Speaker
No, money's coming in, but there's not actually money coming out. Yeah, well, that publicist who he hired and then who immediately turned home apparently was basically like, this guy's a complete fool. He doesn't understand basic finance or mathematics, really. And yes, it does sound like there's a fair amount of sort of a fantasist to him. But he does seem to be one of these born grifters who feels absolutely no shame whatsoever and who feels entitled to
00:37:10
Speaker
all the money he wants. But it's interesting you bring up the whole people must have known and kept quiet about it because I'm sort of doubly cheating because I don't really know how much this story counts as a conspiracy purely by the fact that it does kind of sound like it was Ponzi all alone. He said this, I haven't read anything about him having actual conspirators. That's why I asked the question about the wife. I wondered whether the wife was going to be someone who
00:37:39
Speaker
when he was ostensibly not doing anything, she was technically running things behind the scenes, because that would make it delightfully conspiratorial. Of course I won't touch the fun whatsoever. I have told you, I personally assure that I, Charles Ponty, will touch no money in the scheme
00:37:58
Speaker
Whatsoever. I will even send a document saying that I, Charles Pont-Ponzi, sole responsibility, will do nothing with Riguet's escape. Sorry, my wife has to go down to the bank to extract some money. Please, you know, just completely unrelated.
00:38:14
Speaker
I mean, she's got to buy some stamps. She's going off to buy some stamps. All she's going to do is just going to buy some stamps with money she's going to get from the bank. Now, what was it? Oh, yes. I'm Charles Pondy and I will not touch the money in my scheme whatsoever. Yes. The Bernie Madoff case, I think, is more overtly conspiratorial because he was running a company and he had people
00:38:36
Speaker
who were instructed specifically in the sort of dodgy accounting practices of how they'd write up. So anytime an investment would come in, the people who worked for him would write up these false things and so on. And I believe when he was arrested, there was a dozen or more co-conspirators, which always sounds a bit redundant to me. I mean, I guess
00:38:59
Speaker
I guess if they're a co-conspirator, that means that they're both conspirators in the same conspiracy. I suppose if you said he's a conspirator and she's a conspirator, they might be conspiring about different things. So maybe co-conspirator does make sense, but it always does sound a little bit... Yeah, it does sound like one of those terms, which is redundant, but no, you're quite right, because you could end up having two different conspiracies and two different conspirators between those conspiracies, but at the same time... And I think also, when we talk about co-conspirators in a kind of legal sense,
00:39:29
Speaker
We're often talking about people who may not have originated the scheme, but are people who aided and abetted the scheme and knew they were doing something wrong. So you might go, look, you didn't start the scheme and it wasn't your initial intent to cause harm.
00:39:44
Speaker
But then when you found out about it, you continued playing along, which makes you a co-conspirator in this grandiose game. Although in that case, I'd like to see a kind of legal definition between a conspirator and a co-conspirator, where the conspirators are the ones who know exactly what they were doing with forethought, and the co-conspirators are the people who came on board and aided and abetted. And I suspect it probably turns out to not be clear-cut along those lines.
00:40:11
Speaker
Yes, I mean, because because it is it is sort of, you know, a legal and actual criminal offenses conspiracy to commit fraud or what have you. So there are probably fairly strict legal definitions. But I did think
00:40:23
Speaker
Another interesting wrinkle along those lines is what do you say about the people who either knew or suspected but said nothing or sort of actively avoided finding out anything because they didn't want to find out that it wasn't, wasn't legit. I mean definitely with Madoff people had been raising red flags about him for
00:40:49
Speaker
ever since the late 90s, I think, and their words were ignored. And I'm pretty sure... Not ignored, there were people in the schemes who would deliberately go out there to sow discontent amongst people listening to the case of, oh no, they just made a bad investment elsewhere and they're just jealous of our good investment. So there were people who presumably were either trying to defend the fact that they weren't looking into the scheme.
00:41:15
Speaker
or people who were going actually I do think the scheme is slightly dodgy but at the same time so much of my wealth is now tied into that scheme that if that scheme were to collapse then other investments which are piggybacked off that scheme would also collapse so it's kind of in my interest to protect a portion of my wealth by pretending that the other portion of the wealth is perfectly fine and certainly not subject to a Ponti scheme
Legacy and Lessons of Ponzi Schemes
00:41:45
Speaker
But yes, it's an interesting case, I think, where you have people who are not actual conspirators, but are sort of enablers of the conspiracy because they don't want to know that they think something might be up, but they're personally benefiting from it, so they turn a blind eye.
00:42:10
Speaker
or even actively try to stop anyone including themselves from taking a closer look into it. It's a kind of willful ignorance.
00:42:21
Speaker
But anyway, that is the story of Charles Ponzi, a colourful character, I think you'll agree. With the most improbable Italian name, that was very interesting, a very interesting tale about not the first Ponzi scheme, but obviously the most notable Ponzi scheme at the time, given that it suddenly was given a name, the Ponzi scheme. And actually I only find this in the history of ideas all the time. No one denies that fake news has been a long phenomenon in media reporting.
00:42:51
Speaker
But we know that the term fake news is actually relatively new as a coinage that gets used en masse largely due to Donald Trump. And so we end up going, well, the term is new, but the actual phenomenon is actually quite old. And so policy schemes, as you point out, you know, there are examples of that in literature that date back well before Charles Ponzi. It's just that there was no one big case that people went, oh, you mean a scheme like that of Charles Ponzi?
00:43:20
Speaker
You know, one of those ones. Yes. Yeah. I think it's usually the the thing that lends its name to any particular phenomenon seems to be the most the most attention grabbing one, which isn't necessarily the first or the best. I mean, that was always the thing about fake news. Donald Trump.
00:43:39
Speaker
um sort of that was a that was an accusation leveled against Donald Trump that he I'm almost tempted to say quite skillfully sort of took and flipped around and made his own completely because the the first instances of fake news that I'm aware of were of Donald Trump's opponents saying what he said was fake news and then he just was just like right back at you no no I'm not fake news you're fake news and it actually worked yeah yeah depressing actually now I'm depressed
00:44:08
Speaker
I was thinking about wacky old Charles Ponzi and his massive, massive fraud. And then we have to bring it all back down. Given that we now know why this particular IRC scheme didn't work, how are we going to improve upon it so that ours does? Well, I think part of it, there were the regulations. So I think obviously we're going to have to take over some sort of government or international organization to remove any regulations around the trading of IRCs.
00:44:37
Speaker
Then there's the fact that people don't use physical correspondence so much anymore. So I think we're going to have to destroy the internet. And then there's the fact that not much of it is in circulation. So possibly once we have destroyed the internet and taken over the world government, we're going to have to require people to send IRCs with every bit of physical correspondence. And then, then I think we'll be in the money.
00:45:06
Speaker
I've got a good first step. We have to become sovereign citizens. No sovereign citizens. That's where we stand. We can say that the law of the land and thus the regulations do not apply to us.
00:45:18
Speaker
Right. And we can also say that the state, which we do not recognize the authority of, if they want to get in contact with us, must send us physical letters, which we have to reply to, and thus they all have to provide us with IRCs. Although it has to come from another country, that's the problem.
00:45:40
Speaker
Ah, but John, as sovereign citizens, we are not citizens, we are legally rich, and thus we can demand that they send postage to our foreign nation locations, which are of course actually within nation states themselves, where we will then have to use the IRC to purchase
00:45:59
Speaker
the postage of the nearby land to then send that correspondence back. I've worked this out. We just have to become sovereign citizens and the rest of us are powerful. Manipulate our own currency, yes. It's all clear to me now. Okay, well, I guess there's nothing to do other than just wind up this podcast and journey off into the sunset into our brand new life of financial domination.
00:46:23
Speaker
Now I have been doing some back of the envelope, excuse the pun, calculations for the kind of profit we're going to make on this, and I figure, given postage, conversion fees, and actually having to pay for things such as envelopes and the like, we can make 1% on every transaction.
00:46:42
Speaker
Excellent. So that means we only need to make 100 transactions and that's 100%. We have all the money. Yes, precisely. 100% of the money. That's not what. Let's get things in motion then. Should we
00:47:00
Speaker
should we just pull the plug instantly or should we should we bid these these pauper peasants listening to us farewell first we should probably give people an update on our richness and successness oh right yes they are going to want to know how well we're doing yeah okay yeah we find next week next week we should inform
00:47:17
Speaker
form the poor pitiful listeners of this podcast. Just how successful we have become in our Ponti scheme. Yeah, no, you're right. We should keep the podcast purely for gloating purposes. Yes, precisely. I mean, as you get richer and more famous, the people who are listening to this podcast can realize that they're pathetic
00:47:38
Speaker
unfinance lives, where they don't engage in IRC trading, and Aperture has made them into the fools they are today. And then they won't even need to become patrons by going to patreon.com and searching for the podcaster's guide to the conspiracy. Because they'll instead be investors by going to patreon.com and searching for the podcaster's guide to the conspiracy. And I'm pretty sure everything will work out marvelously for them if they do.
00:48:07
Speaker
Now, unfortunately, patreon.com is not taking IRCs at this point in time. So we need to take over them as well. Well, yes, precisely. I mean, surely in the same way that Ponzi wanted to take over Hanover Finance, we're going to use our arbitrage scheme to buy lots of shares in Patreon, and thus we will end up being the controllers of that system as well.
00:48:30
Speaker
OK, well, let's get on to it then. I guess before we do, it would be polite, I suppose, to say to our listeners goodbye one and all from me. And goodbye one and all from Josh. Ciao.
00:48:46
Speaker
Ciao bella. And we are started. Oh, one question. Can you hear the, the, the, the air con? No.
00:49:15
Speaker
That switch which does background noise removal has turned off the incredibly loud air conditioner because it is 32 degrees outside and if I turn it off for even a minute I turn into a puddle because it just warms up in this room like nothing on earth. It's very warm here.