Monday, December 5, 2011

A Very Subtle Form of Theft

Say what you want about him, but Bernie Madoff was a guy who knew how to keep the party going. For years, he ran one of the largest private-sector Ponzi schemes in history and always heeded the golden rule of financial scams: make sure your inflows are greater than your outflows.

He was finally done in when redemptions exceeded new investments. He didn’t have enough cash to pay out investors, and he wasn’t able to scam more people into paying in to the scheme. As a result, Madoff finally had to admit that the whole thing was a total fraud.

Governments around the world are in similar situations right now with their own public sector Ponzi schemes. Faced with failed auctions, declining demand, and rising yields, politicians are having to resort to desperate measures.

Like any good scam artist, they’re appealing to the masses first; all over Europe, governments are sponsoring new marketing campaigns suggesting that it’s people’s patriotic duty to buy government debt.
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