Another Peek at Ponzi

When I first started this blog in 2010, I did a lengthy review of why I thought the social security system was not a Ponzi scheme.

 

It may boil down to an historical argument: that is, which came first, paygo or Ponzi, as well as, from whence did Charles Ponzi get his idea to begin with? I did not cover that part of it at the time, but since then I have come across some new information, and I felt an update was needed.

The history of pensions, particularly public sector pensions, cannot be easily separated from the history of pension finance. The creation of a pension plan coincides with the simultaneous creation of pension liabilities, and the parameters of the plan establish the size and the timing of those liabilities. U.S. Army pensions have always been funded on a "pay-as-you-go" basis from the general revenues of the U.S. Treasury. Thus army pensions have always been simply one more liability of the federal government.

In the United States, pensions have been around since the civil war; in fact, from a world-wide historical perspective, they go all the way back to the Romans, where they started in terms of funding out of the "general treasury"--in other words, they were pay-go from the start. The Ponzi scheme came along in response to Charles Ponzi who glorified it in the 1920's, and he got his idea for his scheme not from working for a pension system, but from a bank:  

In 1907, Ponzi moved to Montreal and became an assistant teller in the newly opened Banco Zarossi, a bank started by Luigi "Louis" Zarossi to service the influx of Italian immigrants arriving in the city. Zarossi paid 6% interest on bank deposits – double the going rate at the time – and was growing rapidly as a result. Ponzi eventually rose to bank manager. However, he found out that the bank was in serious financial trouble because of bad real estate loans, and that Zarossi was funding the interest payments not through profit on investments, but by using money deposited in newly opened accounts. The bank eventually failed and Zarossi fled to Mexico with a large portion of the bank's money.

It may be okay to refer to social security as a Ponzi in the same way many refer to the stock market as a casino; a pejorative: defined as "having a disparaging, belittling or derogatory effect or force." Certainly a Ponzi scheme, being an illegal swindle, is a negative, disparaging way to describe the part of social security that works as "pay-go." Or the stock market "casino", with even television announcers and internet articles regularly referring to investments as "bets." But we know realistically that the stock market is not a casino as much as we know that social security is not a Ponzi scheme. They just seem that way because certain aspects mimic fraudulent activities  (as we might even call insurance a "protection racket").

And of course, Ponzi can be re-applied as a pejorative in the same way towards those things "celebrated" by the right to those things "celebrated" by the left, such as climate change. Things go better with tu quoque?

Lil White Lies: How to Blow Up Blowing It (!)

!!!!!!!!!!!!!!

I’ve called Bryan White the Word Warden…..I’ve joked about his always having to have “more cowbell”—I’ve written about his “monolithic certitude”—but this one really takes the cake. Well, it just keeps confirming everything, in one orgy of narcissistic, unbending, not-so sublime bloviations.  I’m sure Bryan's aware of what happens when someone submits posts on Facebook; he’s “sharing” them.

Facebook Statement of Rights and Responsiblities: ...

This Statement of Rights and Responsibilities ("Statement") derives from the Facebook Principles, and governs our relationship with users and others who interact with Facebook. By using or accessing Facebook, you agree to this Statement.  ...

Sharing Your Content and Information

...

2.  When you publish content or information using the "everyone" setting, it means that you are allowing everyone, including people off of Facebook, to access and use that information, and to associate it with you (i.e., your name and profile picture).

When writing opinion letters to the editor of a newspaper in anticipation of their possibly being published, I assume that most all of them will tell you that your letter becomes its property and “may be edited”—

All submissions become the property of The Flint Journal; submissions may be edited and may be published or otherwise re-used in any medium.

So recently PolitiFact issued one of its occasional “mailbag” pieces, publishing comments from its Facebook fans and e-mailers, and entitled it “PolitiFact blew it again!” in what appeared to be a partial quote of a Facebook comment posted by Bryan. Of course, when he saw this he immediately went ape sh*t crazy over the fact that PolitiFact had “grafted an exclamation point on the end.”

Lil White Lies: Parsing Ponzi 2.0

Well here we go again with the social security system as a Ponzi, this time with Texas Governor Rick Perry of the “secessionist crowd”, just after PolitiFact scored him on his most recent book's tales of the indescribable horrors of the government holding a gun to your head and forcing you to buy a more efficient light bulb.

Social Security has a single similarity in common to Ponzi schemes: that is the “pay-go” or “zero balance” (ZBA) feature. As noted in the PolitiFact piece, many other journalists and pundits point to that single “Ponzi” identifier (emphasis added);

In a December 1995 op-ed article for The Washington Post, James K. Glassman (of late, executive director of the George W. Bush Institute at Southern Methodist University) wrote: "Workers think that they are investing for their own accounts, but actually their payroll taxes go straight to current retirees. … In a 1996 article posted on the Slate website, liberal commentator Michael Kinsley agreed that Social Security "is a Ponzi scheme. Payments from later customers finance payouts to earlier customers. The ratio of retirees taking money out to workers putting money in is rising, due to 1) people having fewer children, and 2) people living longer."

The pay-go feature was part of Social Security’s initial setup back in 1935. Other than that, nothing is the same. Consider these three most common “red flags” that a potential investment is a Ponzi scheme other than the fraud component:

Lil White Lies: Parsing Ponzi

The core argument of Bryan White’s analysis of the above PolitiFact "False" ruling (of the statement "Social Security is a Ponzi scheme" by candidate John Loughlin, Republican running for Congress in Rhode Island) is mostly found in these comments:

“Is fraud an absolutely critical component of a Ponzi scheme? The government, as noted above, can compel participation in the program. There's no need to dupe people into participation because they're forced to participate…Fraud is not an essential aspect to the Ponzi scheme. It is an optional element used by entities unable to force participation in their financial/insurance products. Regardless, the government has arguably misled its citizens about the financial soundness of their social insurance program.”

So let’s see if that holds up in court: “…uh, Judge, my client couldn’t force participation in his Ponzi scheme like the government does with social security, so he elected to use the optional element of duping them by promising exorbitant returns....therefore his using the funds for personal purposes, not being up front about the investment, and the plaintiff  losing everything invested, can't be fraud either.”