'Ponzi's History

Why is it called Ponzi?

PONZI comes from Charles Ponzi. This Italian guy was born in 1882 and died in 1949, so 62 years old, not bad in those times with the two World Wars in the middle. The scheme was based on "investing" in postal reply coupons.

A postal reply coupon was designed to allow people to send a letter from any country to another without having to buy local stamps. For example, you live in Australia and send a letter to your mom in Germany. You send her a postal reply coupon so she can redeem it for enough German stamps to send you a letter back.

In theory, the money would be made with the difference in costs between the cost of the coupon in one country and others. You would pay 5 Australian dollars, but the coupon in USA may be worth more because it is more expensive to send the letter from there. So you would get in the USA stamps for a value that is higher than those 5 AUS, thus making a profit.

But in reality the profit is not nearly enough to make this a real business, so Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi (full name of the guy) was paying old investors with money from new investors. That is, I will pay you with the money I get from the next guy. The question is until when can I keep the whole scheme going forward.

The most ridiculous thing about these schemes is that they are still happening. The most world-wide known recently has been the Bernard Madoff scheme. While Carlo "Ponzi" rised 20 million USD, Mr Madoff reached around 50 million. However, the former is much larger than the recent one, since 20 millions at that time were like 1000 today.