Bailout Watch 289: Is the Bailout a Ponzi Scheme?

by Robert Farago

Published: December 15th, 2008

bailout watch 289 is the bailout a ponzi scheme

John L. Perry’s column on Newsmax.com is way out there. But his comparison ‘twixt the Motown bailout and Charles Ponzi’s infamous con game (whereby the first in bilk the last out) isn’t entirely forced hot air (i.e. all heat and no light). “Under a Ponzi scheme, the sheep get fleeced because they want to play the game. They convince themselves they’ll get rich quickly. Otherwise why part with a single dollar? In fact, the crook running the Ponzi scheme has a hard time beating off the gullible, who can’t wait to be gulled. Under the Detroit scheme, every opinion poll taken — for whatever that’s worth — shows American taxpayers overwhelmingly do not want their tax dollars spent this way. Apparently, they don’t know what’s good for them.” In other words, no, the bailout is not a Ponzi scheme. It’s worse. “In a collapsed Ponzi scheme, the crook in the private sector can go to jail. In a collapsed Detroit scheme, no one in government goes to jail.”

Robert Farago

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AnalogKid on Dec 16, 2008

Geez, the misinformation here is staggering. Money paid into Social Security was never meant to be saved and paid back to you when you retire. The money you and I are paying in goes to current retirees right now. Many of these people rely on this income to survive. When the Baby Boomers start retiring there will be more money going out in benefits than coming in due to the smaller number of workers currently contributing. It doesn't help that the government has spent the previous surpluses on wars, weapons and tax cuts.

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Landcrusher on Dec 16, 2008

TINSTAFL. This Ponzi scheme goes back all the way to the 19th century. I think the author has a good point.

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CarnotCycle on Dec 16, 2008
Geez, the misinformation here is staggering. Money paid into Social Security was never meant to be saved and paid back to you when you retire. The money you and I are paying in goes to current retirees right now. Many of these people rely on this income to survive. When the Baby Boomers start retiring there will be more money going out in benefits than coming in due to the smaller number of workers currently contributing. It doesn’t help that the government has spent the previous surpluses on wars, weapons and tax cuts. What you just described is a Ponzi scheme. Like I said, the only difference really between a Ponzi (pyramid) scheme and an insurance or investment operation is you skim and pocket the "surplus" premiums instead of investing them, knowing you pay them out later some day. That sound an awful lot like the way you described Social Security, which is accurate. Contrast both the national pension (Social Security) as it operates, and even the pension scheme the Feds run for their own employees (which the Feds skim out of every year, just like Social Security) with something like CALPERS. For all the politicized administration of CALPERS, at least state employees for California have a flush pension fund. The Feds, unlike the States, get to make up their own accounting rules and so forth to get away with this fraud. Big national retirement pension schemes with mandated savings might be politically debatable, but operationally they can be made to work...with the caveat that you actually save and invest the money like a real pension. Social Security is a generational ponzi-pyramid scheme, not a pension. Unfortunately, I am at the ideal age (30-something) to be right on time to take a huge bath on my "retirement" savings in Social Security when its my turn to collect. I don't feel sorry for myself, I can see it coming. But that's another reason I don't need to pay for someone else's like dilemma right now. I've got my own retirement insolvency to deal with down the road, and don't intend on begging a bankrupt government to bail me out because that option will no longer be available.

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AnalogKid on Dec 16, 2008

Here's why Social Security is not a Ponzi scheme. The whole point of a Ponzi scheme is to get rich quick, right? That means that the amount that you get out of the scheme is designed to be far, far greater than the amount you put in. I don't think that anybody expects that they will get more out of Social Security than they put in. To the contrary, it is part of our social contract that a portion of the money that we contribute is also used as a financial safety net so that senior citizens do not fall into poverty. This safety net is supported by a significant majority of Americans. Describing Social Security as a Ponzi scheme is not just inaccurate, but worse, shallow.

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