In December, 2008, Bernie Madoff was arrested for orchestrating and profiting from a large-scale Ponzi scheme. He is currently serving a 150-year sentence. Allen Stanford is in prison, serving a 110-year sentence for the same thing. Others include Nevin Shapiro, Edmundo Rubi, Mark Drucker, John C. Jeffers, Norman Adie and hundreds more.
What did they do wrong?
A Ponzi scheme uses new investor’s money to pay high rates of return to previous investors. When the new money dries up, the scheme implodes and everyone with money still in the pot loses their entire investment.
Why is this illegal?
One of the reason this is illegal is because the architect of the scheme – Mr. Shyster – never really “invests” in anything except his own back account. Another reason is Mr. Shyster promises high rates of return, knowing the system will collapse at some point. (An over-simplification, but hang with me a minute.)
Who created the longest-running Ponzi scheme in America?
Franklin Delano Roosevelt. Yep. FDR. During his term as President, FDR created a Ponzi scheme called Social Security.
What does Social Security do?
It takes money from new investors and uses it to pay returns to previous investors. It “invests” in nothing. The funds go to the Treasury’s General Fund (the pocket of Mr. Shyster.) Anybody who believes in the Social Security Trust Fund is sadly deluded. Put a tooth under a pillow and see if the Tooth Fairy comes; it’s the same principle. Social Security promises huge returns upon retirement, in excess of contributions.
“But wait,” you say. “It’s my money I’m taking out. I’ve paid in every working day of my life. I’m entitled to it.”
No, not all of it. At the time of this writing, you will receive benefits in excess of contributions. Don’t believe me? Check it out; I ain’t making this up. Guess where the extra money comes from? That’s right! New investors.
So why have we not tried and sentenced FDR to a Bernie Madoff-type prison term? In terms of raw dollars, Social Security has bilked hundreds of times more money from investors than Madoff ever did. Well, it’s because FDR is no longer available for prosecution, having gone to the Great New Deal in the Sky.
So what should we do?
Stop living in Fantasyland for one thing. If you’re over fifty, stop getting your panties bunched every time a conservative (Paul Ryan) mentions allowing younger people to opt-out of Social Security. Stop contributing to AARP. Stop whining and worrying about whether grandma’s checks will stop coming. (They won’t.)
Overall, stop insisting the government take care of you after retirement. That’s YOUR job. Look in the mirror. Take control of your life.
Right now, we pay 15% of our earnings every paycheck into Social Security. Half of that never makes it to our paycheck, because Mr. Shyster uses some strong arm goons called the IRS to insure your employer coughs that up every quarter.
If you put 15% of your money in a mattress every paycheck, you would at least break even. Stuff into CDs, money market accounts, a mutual fund, a REIT, a diversified portfolio of all the above, even (God help us) the stock market. Or do like Robert Wagner says and buy gold with it. Can you imagine what you – an intelligent and responsible human could do with that kind of money?
Final word: Let’s stop contributing to biggest Ponzi scheme ever invented. If we don’t, we’re going to get burned when the bottom drops out.