Giving folks benefits now whilst promising them still more benefits in the future even when though mathematically and logically those foreshadowed distributions are in fact impossible to pay must rely on the naivete of investors and the charisma of the schemer to persuade the gentle masses to reinvest their winnings.
Although often described as a Ponzi Scheme, the young immigrant Carlo Ponzi was merely following a well trodden path that had been forged by illustrious enterprises such as the Franklin Syndicate, the Dean Syndicate and the Storey Cotton Syndicate.
As Louis Guenther's Investment and Speculation(1916) tome states :
'It is a remarkable phase of human nature that prompts individuals to back with their money the claims of perfect strangers ... (these syndicates) were all blind pools, so to speak. They advertised that speculation could be conducted profitably and without loss. They secured some person in a community as a customer ... the result would be that the cupidity of others was aroused and they also fell victims.
Their schemes were simple. The dividends paid came from money their dupes sent ... luckily, such discretionary pools, as they are styled, have ceased to exist. The authorities are now too watchful.'
If perhaps a reader of today's headlines finds familiarity between a blind pool and the Federales refusing to disclose an accounting for ~ 2 trillion, similarity of 'distributions impossible to pay' versus a 100+trillion tabulation of future promises, a congruity of 'cupidity of others' with 'an ownership society' and a homogeneity between 'dividends paid came from money their dupes sent' and today's TARP and FDIC-backed bank debt - this blogger would suggest (facetiously) that such
correlations are most certainly coincidental.
'A bubble relies on suspension of disbelief and an expectation of large profits, but it is not the same as a Ponzi scheme. A bubble involves ever-rising (and unsustainable) prices in an open market (be that shares of a stock, housing prices, the price of tulip bulbs, or anything else). As long as buyers are willing to pay ever-increasing prices, sellers can get out with a profit. And there doesn't need to be a schemer behind a bubble. (In fact, a bubble can arise without any fraud at all - for example, housing prices in a local market that rise sharply but eventually drop sharply because of overbuilding.) Bubbles are often said to be based on "greater fool" theory. Although, according to the Austrian Business Cycle Theory, bubbles are caused by expanding the money supply beyond what genuine capital investment supports, and in this case would qualify as a Ponzi scheme, with expanded credit taking the place of an expanded pool of investors. '
Cognitive dissonance and learned helplessness leads to cognitive helplessness and learned dissonance.
And with that said...
Are you ready for some football?