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Ponzi Scheme

Charles Ponzi, is the origin of what we think of as the classic Ponzi scheme.

In 1917 Charles Ponzi in his mid-thirties was obsessed with money-making schemes. He had been involved in and thrown into jail for some of these schemes. He hit upon an idea to rob Peter to pay Paul in which he came up with a scheme that had the veneer of a legitimate business and economic rationality. Ponzi launched a new scheme with a new company, called the Securities Exchange Company, or SEC. Ponzi found a way in which he could buy up overseas postal stamps. Because of a fixed rate of exchange, he could cash the cheaper foreign bought stamps in the United States and make an arbitrage profit. This actually had some basis to it. The postal authorities had set up a scheme in which theoretically postal stamps could be bought in say, Italy, and the value that was paid in U.S. Dollars would be less than what the U.S. Postal service would sell them in the U.S.

The idea behind the policy was that if Americans had relatives in Italy, they could send them a letter with a postal stamp enclosed so that those relatives could easily send a reply mail. That's why there was a stamp exchange program. So there was an arbitrage opportunity.

Like all great Ponzi schemes, money rolls in by getting investors, rolling over their investments, while giving them pieces of paper that falsely declares that they are filthy rich and getting richer. There are books that reveal how extensive Charles Ponzi's knowledge of human psychology was.

He had a scheme in the end for even beating the state auditors who were pursuing him. Ponzi had to put all this money somewhere. When audited, he had this scheme that right before they counted all of his assets, he would scoop up the cash from an audited bank, and throw it up in front of the auditors. He would shuffle the money back and forth.

From the very beginning, Ponzi knew what he was doing. He always had a short-fall and had a negative position. But he eventually ended up losing 8 million in the late 20s.

There are franchisors out there that have absolutely the same mentality. If you can't hold onto your money, that is your fault. Like Ponzi, some franchisors and creators of business opportunities know exactly what scam they are doing.

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FuwaFuwaUsagi's picture

FDR took it to new level

Michael:

While Charles Ponzi may be credited for the origin of the Ponzi scheme, FDR is credited with the longest running implementation of it to the detriment of a nation.

p>FuwaFuwaUsagi

"Never underestimate the power of stupid people in large numbers." 

michael webster's picture

Social Security

For those unclear of the Fuwa's reference, he is claiming that the Social Security legislation signed by FDR is a ponzi scheme. 

The major difference between an illegal ponzi scheme and social security is that a ponzi scheme has no underlying economic benefit - all is charade.  Social Security depends on the proposition, which may be false, that the future workers will be more productive than the past in order to fund the latter's retirement.   If in the future, we should be all poorer, then the Social Security scheme would have turned out to be a ponzi scheme.  So far, however, we have seen increases in productivity.  No guarantee, of course.

Michael Webster, a franchisee attorney in Toronto, Ontario, who publishes a website on business opportunities and franchises, called "The BizOp News" 

FuwaFuwaUsagi's picture

The good Barrister made some interesting points...

Michael:

The cite below is from Wikipedia (footnote #1):

A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business.

My comment:

In the U.S. many, many people take out far more in SS then they ever contributed(abnormally high), even when adjusted for market returns. On the other hand many people are deprived of even a minimal return, while still others are deprived of any return.

The SS system in the U.S. is funded off the current earning of workers and paid to retirees and the disabled. That is why it is a Ponzi Scheme, current "investors" are funding the payout to previous "investors". There is nothing standing behind the scheme.

SS has had the unfortunate side effect of corroding the values of an entire nation; this was the plan of FDR. And his plan has worked.

FuwaFuwaUsagi

"Never underestimate the power of stupid people in large numbers." 

Footnote:

#1 Wikipedia should not be taken seriously - period. What it is useful for is colloquial understanding or spotting trends of sentiment or manipulation of the weak minded. In this case, the definition just happened to fit coincide with my sentiment. But please, do not take any wiki seriously.

Barbara Jorgensen's picture

On a serious note

Michael I always wondered where they got the name ponzi scheme. He was definitely brilliant. He studied human behavior and than developed his plans. That is where sells techniques come from. It makes sense that many studied Ponzi himself and copied him. Haven't you received e-mails about winning a South African Lottery? How about mail that tells you are destined to be wealthy and famous and part of a secret society? And there is mail from Las Vegas proclaiming you as a winner of over $700,000 for a processing fee of $20.00. Are we becoming a scam obsessed society or what?

RichardSolomon's picture

By that definition, giving money to any religious organization

is contributing to a Ponzi scheme, as there is no hope of earthly reward. I totally agree with that, by the way. God mongering is a very lucrative scam.

--

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

michael webster's picture

Robbing Paul to Pay Peter

Entirely agree with God mongering as a scam. 

The popular expression before Charles Ponzi was Robbing Paul to Pay Peter, which was  derived from a 12th-century Latin expression: "As it were that one would crucify Paul in order to redeem Peter.", though another supposed source is the use of funds from Westminster Abbey (The Collegiate Church of St Peter) to pay for the construction of St Paul's Cathedral.

I prefer the latter view. 

Michael Webster, a franchisee attorney in Toronto, Ontario, who publishes a website on business opportunities and franchises, called "The BizOp News" 

Paul Steinberg's picture

Peter pays Paul

The proper expression is "robbing Peter to pay Paul."

  1. It sounds better that way.
  2. Paul needs to get paid, and he ain't too particular as to how you get the funds.
michael webster's picture

Aha

Paul, as you see from the body of my post, I know the correct expression - I was hoping that it would be you, a "Paul", who would spot the error in the title and the first sentence.

But I was expecting a more through trashing.

Please meet the community standards, in future. 

Michael Webster, a franchisee attorney in Toronto, Ontario, who publishes a website on business opportunities and franchises, called "The BizOp News" 

FuwaFuwaUsagi's picture

Re: Aha

I myself, was disappointed that Paul invoked no derogatory reference toward Webster's nationality; as a result, I am not sure what this forum in becoming anymore.

FuwaFuwaUsagi

"Never underestimate the power of stupid people in large numbers." 

michael webster's picture

Very Sad

Unfortunately, Fuwa, Paul's favourite (yes with a "u") New York University has just revealed that it has been taken for about $100 million in the Madoff Ponzi.

We are feeling annoyed that none of that lovely money was spent on our due diligence program - which involves more than asking your best friend if you can get in, eh. 

Michael Webster, a franchisee attorney in Toronto, Ontario, who publishes a website on business opportunities and franchises, called "The BizOp News" 

Barbara Jorgensen's picture

Since Madoff is the King of scams

Maybe they should change it to Madoff schemes. Ponzi is small potatoes. $50 billion is alot of money.

Barbara Jorgensen's picture

What happens when someone signs an agreement

then finds out later he had serious mental disabilities? Is it still his fault?
I know in real estate they have laws against "elder abuse." A realtor tells someone who is elderly their house is worth $200,000 then many times the realtor will buy the house. Turn around and sell it for $450,000. If found out there are serious consquenses.

Barbara Jorgensen's picture

Please, to Morrill, Solomon, Steinberg or Webster

answer my question above. What happens when someone signs an agreement then finds out after he had serious mental disabilities. Is it his fault?
Did I say friend?

michael webster's picture

Competence

Do,

If you are saying that the person signed a contract without being mental competent to do so, then it is generally hard to hold the person to the obligations in the contract.  

But, proving mental incompetence is not easy either. 

I don't understand your phrase: "finds out after he had serious mental disabilities."  Are you suggesting that the person thought mistakenly that the were competent? 

Michael Webster, a franchisee attorney in Toronto, Ontario, who publishes a website on business opportunities and franchises, called "The BizOp News" 

Barbara Jorgensen's picture

I believe it can be proven

I just can't write the details. Yes he thought he was competent.
My statement "finds out after he had serious mental disabities." What I meant is he always had the disabilities. His brother and his brother's two son's have the same problem. Which is very rare that it showed up between his parents two only children. Now his brother's son's are showing signs of having the same problems. He is very soft spoken,quiet and a gentlemen. It has been apparent in the last 2 years.
That is why I told him to see a specialist. People like him don't know how to communicate. They are compliant. I already wrote what his actions are. It is sad.

RichardSolomon's picture

Considering what franchises people buy, it could reliably be

said that most franchisees have serious mental disabilities.

If he is just slow but had the money to buy the franchise, he would probably have a tough time showing incapacity to agree, That is a medical issue, and some doctor would have to testify that the person is in fact a retard.

How long after he signed up did he discover he was mentally deficient? If he raised it only after he was defaulted; after he ran out of money; or late in the game, the claim may not be credible no matter how much he drools on the witness stand.

--

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

Barbara Jorgensen's picture

There is much more to the story

I hope to tell the whole story one day. I don't believe most franchisees have serious mental disabiities. I believe they are uneducated and uninformed and many times do not know the right way to turn to get sound advice. The main reason why zees buy a franchise is for sound business advice and support.
By the way he was diagnozed about six months after signing the agreement. The doctor diagnozed him within an hour. Since then we have studied his problem. He is not a retard his brain is wired differently. Plus you do not know why he had the money. Now we have it pinned pointed that he does not know how to ask guestions and he is compliant. You don't think the zor could read him. Most business people can read other people. Many of his actions were illogical in the business and now we know why. If you believe everyone is blessed with a brilliant mind as most on BMM, it is not being reaistic.

Ray Borradale's picture

There you go Do

You finally got your answer. And a word from personal experience; it is psychically impossible to drool for any usable length of time and when it cannot be mainatined you lose credibility.  "Naked" doesn't work either but it is a hell of a lot more fun.

"It could be reliably said that most franchisees have serious mental disabilities" - too true - and it could be argued that those who dedicate their time to educating this deficient sector have serious masochistic issues.

Barbara Jorgensen's picture

Is BMM getting more comedians

or is discussing franchising making everyone go crazy?
Ray the last paragraph was a double whammy. Your funny.

RichardSolomon's picture

There are so many scam franchise offerings today

that it would come as no surprise that the prospect of fleecing someone with serious disabilities would be an absolute delight.

People have no appreciation of how absolutely unscrupulous these people can be.

--

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

Howard R. Morrill's picture

Competency to contract

I think that's the issue you're raising. If the person was not competent to contract, then I suppose you'd be talking about someone who also needs a guardian(?).

Paul Steinberg's picture

F'zee demographic not the elderly

If we are speaking of the typical franchisee, Howard Morrill's response is more on target that DoDil's since DD is speaking of elderly who (for various reasons) are easily taken advantage of.

Even in the case of the elderly, there is great reluctance on the part of society and the courts to have judges act in loco parentis, and in the case of the typical franchise purchaser the courts are not terribly sympathetic to people who wish to be rescued by an ex post judicial finding of incompetence.

HM cuts to the relevant discussion: at the time of purchasing the franchise, was the franchisee competent to contract?

The answer is almost always "Yes" and the analysis ends there.

Self-delusion, rose-colored glasses, and even gross stupidity are not legal grounds for rescission.

Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400

Barbara Jorgensen's picture

In many cases they do not need a guardian

They can work structured jobs. They do not have the ability to communicate because they don't know how to ask questions. They do not process information like the average person. They do not listen and many times you have to physically touch them and look them straight in the eyes. They cannot project in the future. They live in the moment. They avoid confrontation like the plague. Relationships are very difficult for them. They can fool you because they can appear very nice. In business they can easily be taken advantage of because they aren't able to ask questions. Many times when they get older it gets worst. Albert Eienstien is said to have this. They have no common sense at all. It is a growing problem in our society today. Those that know these symtoms will know what I am talking about. Many times they will not share important information with their spouse. Because of their confrontation issues.

FuwaFuwaUsagi's picture

Do writes: - They can work

Do writes:

- They can work structured jobs.
- They do not have the ability to communicate because they don't know how to ask questions.
- They do not process information like the average person.
- They do not listen and many times you have to physically touch them and look them straight in the eyes.
- They cannot project in the future.
- They live in the moment.

Uh, Do you just defined a woman :)

Love,

FuwaFuwaUsagi

Barbara Jorgensen's picture

Ha,Ha, Ha,Ha

Unbelievably funny.

You're asking this for a friend you know, right?

yeah, that's the ticket - a friend you know. That's right.

Barbara Jorgensen's picture
Barbara Jorgensen's picture
FuwaFuwaUsagi's picture

Do: It is an

Do:

It is an insult.

FuwaFuwaUsagi

Barbara Jorgensen's picture

It is not intended to be an insult

In the olden days many times people hid relatives from the public with mental problems. People need to confront their problems and give them the help they need.
We can go further back in history when it was the aristocrats and peasents. Many times the aristocrats if their wife gave birth to a defective child it was not acceptable. Many times they just got rid of the child.
It is just harsh reality.

Barbara Jorgensen's picture

It is not intended to be an insult

In the olden days many times people hid relatives from the public with mental problems. People need to confront their problems and give them the help they need.
We can go further back in history when it was the aristocrats and peasents. Many times the aristocrats if their wife gave birth to a defective child it was not acceptable. Many times they just got rid of the child.
It is just harsh reality.

FuwaFuwaUsagi's picture

Do: Your sentiments are spot

Do:

Your sentiments are spot on, and it is also in recent history. I know of it all too well.

However my comment was: you were being insulted.

FuwaFuwaUsagi

Ray Borradale's picture

I presume

Do, I presume you are talking about;

a franchise contract,

a zee wtih money [because I can only imagine a zor signing a disabled zee if he/she had money],

an interlecually disabled person where there is evidence of that disability and where the level of disability can be proven to have not allowed the zee to understand the contract.

If that is the situation they [or their guardian] get a lawyer and the contract would be attacked.  If they get a good lawyer you would expect the contract to be nullified.

Barbara Jorgensen's picture

Yes it is a franchise contract

It is incredible that when you look at this person he appears normal. They are normally quiet people but you have to watch very closely to see the signs. It took me a long time to see there was something wrong. In fact today I personally have coached him on communication skills. How, what, where, why and when? It doesn't sink in.
In fact many people think he is grounded. It makes me wonder how many people out there have this problem and never will know it. They are very compliant and people like him. Who would not like someone who always agrees or says yes all the time?

Ray Borradale's picture

Re: What happens when someone signs an agreement

In Aus that is about the only 'no brainer' protection for a franchisee. The trick is to get someone else to provide the evidence of your disability; apparently if you are smart enough to try it on yourself they won't accept it.  

I tried it and no matter how many times I took my clothes off our ACCC determined I wasn't a complete nut - since then they and the FCA tell everyone I am a complete nut.  It just ain't fair.

Barbara Jorgensen's picture

Taking your clothes off

does not mean you are mentally disabled. Heck in Seattle they had a whole group of people ride on bicycles butt naked. I'd dare them to do it today because it is freezing over here. (They did pass a law that they can't do that anymore,)

Ray Borradale's picture

Re: Taking your clothes off

Yeah; there are very serious consequences in Australia if you take your clothes off in public.

On the other hand if you scam millions from franchisees you are sent to the ACCC's Code Compliance School and you have to stand in the corner for 10 minutes.  We are in the process of developing a new startegy where we will encourage all our scumbag zors to take their clothes off in public.  We are thinking that if we can get a "celebrity" involved in a vigerous festive type campaign we might finally catch a few.

Paul Steinberg's picture

Great Moments in 1st Amendment Jurisprudence

Ray wrote: Yeah; there are very serious consequences in Australia if you take your clothes off in public.

Here in the great State of New York, the learned jurists of our high court have issued a ringing defense of female nipples being exposed in public. One would think this would be a natural market for an appropriate franchise , but alas in the 16 years since the court ruling there has been a marked paucity of nipple exposure, pierced and non-pierced alike.

BTW: Is that accent on the franchise video English or Aussie? It does make it sound classy and naughty at the same time.

Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400

michael webster's picture

Public Nakedness

Some many years ago, a University of Waterloo student who happened to be very cute, paraded around downtown Waterloo with her top off to protest what she called archaic laws.

Much publicity, loosening of public morals, and a change in the law.

All to no long term effect, much to the disappointment to a certain segment. 

Michael Webster, a franchisee attorney in Toronto, Ontario, who publishes a website on business opportunities and franchises, called "The BizOp News" 

Ray Borradale's picture

This has deteriorated

one mention of nakedness and off we go. 

Paul; that is the first time I have ever heard anyone other than an Australian suggest the Australian speech sounds classy.  Obviously we work hard to achieve this.  Bloody oath we do!  Maate - you got it roight!

My dear mum [Aus] was extremely religeous and so I refuse to side with my dad [Aus] and suggest that religion is not a wonderfuly full-filling franchise and cannot be likened to a Ponzie scheme.

Sometimes yous peoples ask for twuble.

Barbara Jorgensen's picture
Ray Borradale's picture

Our first trial failed

This was an initial trial that failed where we discovered that too much alcohol significantly decreased the time involved in the criminal act where that minor miscalculation, and due to injuries sustained, allowed this high profile Pool franchisor to escape prosecution.

2008 Test 1: Can a Zor be conned into getting naked?

In fact; his network grew following this event and the trial committee then needed to question how prospective zees will interpret anything a zor does or says.