what exactly is a Ponzi Scheme!?!
What: The term Ponzi scheme is used to describe any fraudulent investment scheme that does not generate any actual profit and which pays back investors either by using their own money or by using the money of subsequent investors. The modus operandi is simple— pay Peter by using the money invested by Paul and pay Paul by using the money invested by Mary.
It is obvious that such a scheme of paying back one investor by taking money from the other is, sooner or later, bound to fail.
Ponzi schemes do offer something that many investors, high on adrenalin, can’t refuse: a high rate of return matched with consistent performance. To add credibility to such a mouth-watering promise, Ponzi schemes may sound as if they have discovered some secret formula that is not yet publicly accessible.
Whom: The term Ponzi scheme owes its origin to Charles Ponzi, who operated a fraudulent scheme in the US.
Why: Ponzi schemes ultimately fail because they can’t keep on generating the ever-increasing flow of money required to sustain repayments.
The main problem is that it is really very difficult to identify a Ponzi scheme in advance. Otherwise, why would anybody knowingly put his hand in the mouth of a ferocious dog?
New Ponzi schemes are successful in attracting new investors because they always look different.
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