Friday, January 09, 2009

Governmental Ponzi Scheme?

John Stossel:
Bernard Madoff, who stands accused of bilking sophisticated investors out of $50 billion, is reported to have told two of his executives that his business was "a giant Ponzi scheme."

Perpetrators of Ponzi schemes lead clients to believe their money is invested and that their profits are the fruits of the money manager's savvy. But in fact, the "profits" are merely revenue provided by the next group of dupes. Eventually, when no more new dupes can be found, the scheme crashes.

Political leaders say Madoff's alleged crimes show what's wrong with the country. President-elect Obama said the "massive fraud that was made possible in part because the regulators who were assigned to oversee Wall Street dropped the ball." Senator Majority Leader Harry Reid added, "[R]egulators have been asleep at the wheel."

Politicians go on and on about Wall Street "greed" and "irresponsibility."

But Madoff's scam was small compared to Ponzi schemes the government itself runs: Social Security and Medicare.

For explanation and argument, read the whole thing.