The biggest Ponzi scheme of them all

After reading some more about Ponzi schemes and their inner workings it didn’t take me long to figure out that the recent financial crisis was the result of the exact same principle.

In a Ponzi scheme, the early investors get a return on their money and persuade others, usually people they know, to invest in the scheme as well. Even empirical cynics are convinced by the evidence shown to them by their acquaintance or friend, so they too invest. For the scheme to work however it requires an unlimited supply of gullible investors. The flaw here, is in the word, ‘unlimited’. Any fool can tell you that unlimited is a theoretical property which fails in this limited world.

So, what about the banks? Well, let’s take the best example, the sub prime fiasco. Look at it as a Ponzi scheme. Empirical cynics (usual cautious bankers) are convinced the scheme works because their own property has doubled or tripled in value in a ridiculously short space of time. It makes sense then to pivot investment vehicles around this phenomenon. As property prices rise, more investors pile in. But the flaw in this scheme is that it requires an unending rise in property values if it is to succeed at all. Any fool can tell you that unending is a theoretical property which fails in this finite world.

The mainstream media have always referred to the financial crisis as a bubble or boom that suddenly ended. It was never likened to a Ponzi scheme. But it was a Ponzi scheme plain and simple, run by the banks. In any other rational universe, these bankers would now be waiting for trial in a criminal court of law.

Footnote. As I was doing some research on the web to find a suitable link that explained the Ponzi scheme I found this article. It appears there are a couple more huge Ponzi schemes out there run by the government.

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