Looking at Ponzi Schemes

From The Economist, “In the spring of 1899 William Miller persuaded three members of his Brooklyn prayer group to invest their money with him, promising them unearthly returns. He would pay a dividend of 10% per week, plus a commission for each new investor they could recruit. Soon, William “520%” Miller was drawing throngs of depositors to his door. So “great was the crush”, by one account, his staircase eventually gave way. Miller attributed his success to “inside information”. But his real method was made famous 20 years later by the man who perfected it, Charles Ponzi.

Ponzi schemes like Miller’s pay a return to early investors with money raised from later ones. When they run short of new contributions, they collapse. A scheme as generous as Miller’s cannot last long.”

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