From the pockets of the many to those of a few, wealth and value is transferred in the open, but it is invisible to most:
1- There is no flow of money towards the final destination of the wealth; the transfer is made via the balance sheet, there is no movement to catch the eye, via the systematic destruction of the value of the Federal Reserve Note (abusively called Dollar).
2- This is made possible after nearly 100 years of Fed rule, coercion and “dumbing down” of Americans.

Where are the tar, feathers and pitchforks? The citizenry has been castrated, the ideals of your great-great-great-grandfathers that sent the Brits home violated… The Republic is an Empire and the “Dollar” is not worth a “Continental”!

“Ponzi Schemes would dry up if people understood the basic idea of making money… Money isn’t made with a checkbook… Money must be -made- through some sort of creative mechanism.”

May I respectfully disagree Shaun?

Money is born into existence first between the Treasury and the Fed: The Treasury (King Henry) writes a nice piece of paper that they call a USTBill or Bond that they give to the FED that will account for it as “reserves”; in exchange of that colored paper, the FED (Ben Burnthebank) writes a check (it is check kiting because there is no money in the account!) that the Treasury gives to congress to spend.

Second, the Fed writes another check, this time backed by the “reserves” (remember the TBills & Bonds issued by the Treasury?) to the commercial banks… These banks accept this check and account for it in “reserves” (remember, there is no money backing the Fed checkbook).
Then, you show up at the bank wanting a loan to purchase a house, (or whatever with a price on nowadays…) – the bank looks at its “reserves” and says sure, we have 1,000 in reserves, we can lend you 10,000 (please read that again!).
The bank prepares a nice loan document that you sign. AT THAT MOMENT, 9,000 have instantaneously, one would say “magically” been created into existence…

Of course, you must pay an interest on this loan… But WAIT A MINUTE! Only the principal of the loan has been created, where do I find the money to pay for the interest?
Well, that is called “scarcity by design” or control by competition, whatever – you are now on a treadmill where you must by wits, cunning, speed or whatever skills you may have, take MY money to repay your obligation to the bank!

No mystery here, one of us will go bust – by design.

…Don’t believe me? the whole process is called the “Mandrake Mechanism” – yes, like in Mandrake the magician (I wonder why?) – Check it out…

So, as you wrote Shaun Connell: “if people understood the basic idea of making money…”

I’m sure that that the majority of the elderly poor are happy to receive their Soc. Sec. checks. So are the majority of the elderly rich and the elderly middle class, most of whose checks are even bigger because they worked longer and at higher paying jobs.

My points are two:

1. It is a Ponzi scheme. That’s what the post was about, and just because you and Attagirl LIKE this particular Ponzi scheme, does not change its essential nature.

2. I am not saying that the elderly poor should be left to starve, but that it is inefficient to feed them by a system that gives most of its money to people who would do just fine without it.

The above are only required to spend 5% annually (most never exceed that), so Madoff knew they’d never ask for 100% redemptions.

That also lent him an air of credibility in soliciting business from private investors and financial institutions.

And as for Social Security – there were huge abuses from self-medicating getting disability for a very long time.

It also is a very expensive “insurance” policy, costing over 15% of your gross income for a meager cash annuity at nearly age 70 (for full benefits) and a medical benefits program not available until age 65.

Both of the above age limits are likely to increase.

The reality is as they operate today Social Security & Medicare are direct transfer (welfare) programs, nothing more than expensive federal entitlements.

You “hope never to have to rely on it.” Does that mean you’ll decline your checks when you qualify (assuming it’s still there)? I doubt it.

And what about the people who will need it, but for whom it won’t be there because it was used up first paying out to Bill Clinton and Bill Gates, along with millions of other wealthy or otherwise unneedy or undeserving (you can collect almost as much in benefits if you work 10 years as 40 years) Americans?

As a “safety net” aka welfare, Social Security is highly inefficient. It’s also dishonest, because it was and is sold to the American people as something other than what it is: A Ponzi scheme. And, like all Ponzi schemes it’s terribly unfair to the people at the end of the line, who will have paid in for decades only to get back a pittance, if anything.

Your comments do help me understand, however, why it is impossible for our politicians to reform Social Security, and why so many people are turning to gaming the system. A lot of people apparently would rather hide their heads in the sand that face reality.

For those larger investors who trusted Madoff, I would really like to understand the answer to one question. “Why didn’t you check out the firm that audited his financial statements?” To those who understand audits it seems obvious that this CPA firm didn’t have the resources to audit this enterprise.

With very little effort any one of those investors could have called the AICPA and inquired about the CPA’s membership and their peer review status. A peer review is an audit of the auditor and is required for AICPA members who do audits. At this point one would have discovered that the CPA had reported, in writing, to the AICPA that it didn’t perform audits. It would have been very difficult to rely on the information in those statements at that point.

The truth is that Mr Madoff used a sophisticated investing theory to keep people from asking questions. Very few people are willing to continue to ask reasonable questions to ensure that they fully understand something simply because they fear being seen as stupid.

Meanwhile, like any Ponzi scheme, it needs a growing pool of investors in order to succeed. We therefore need to open the border with Mexico. This is doubly powerful since illegal immigrant workers must pay into SS but cannot vote to abolish it.

It’s true there is an insurance element in Social Security in the disability and survivor benefit part of it, but even that is weak, because, whatever benefit levels are written into the law while you are paying your “premiums,” you are not guaranteed those levels when you put in your claim.

It is a Ponzi scheme because it takes the money you pay today based on what most people are convinced is a promise to pay benefits in the future, and gives it to the people who believed that promise in the past, whose money was taken to pay the ones who came before them. It makes NO provision for keeping its implied promise to you and has no – zero – chance of keeping its implied promise indefinitely. Classic Ponzi scheme, except that Ponzi’s promise was explicit, while anybody who wants to know that Social Security’s implied promise is false can read the fine print on their annual benefits statement.

A pension plan is required to invest toward its future obligations, not just give all its current receipts to current retirees and hope for the best in the future. An insurance company is required to maintain reserves to meet likely future claims. Intentional failure to do that is a crime. The Social Security system has no such obligations.

Most people believe they have a legal right to their benefits because of their contributions, but the U.S. Supreme Court disagrees. You have NO legal right to benefits at any specific level or at all, Congress has the ability to cancel the program.

When you retire, it will only pay you if it is politically feasible to collect the money from future workers. When 20 workers were paying for one retiree, that was no problem. At the inception of Social Security, the average life span after inception of benefits was less than two years. Now, even though the retirement age has been increased, it is more like 10-12 years (might even be more, don’t remember exactly).

When three workers are paying for one retiree, it won’t be pretty. Not to mention that abuses of the disability system are increasing dramatically, as well.

When health care is entirely controlled by the government, it will eventually become necessary and politically feasible to ration care for the elderly, and that may at least partially reverse the problem if it can bring life spans down. Also not a pretty picture.

You never responded to the assertion that it’s a ponzi scheme. Sure it’s a safety net. That doesn’t mean it’s not -also- a ponzi scheme. I’m not saying we should get rid of it (though I think my chances of ever seeing a check are next to nothing), but you have to realize that it meets the basic definition of a ponzi scheme. ::shrug::

@all: many jewish charities were tied up into this ponzi scheme, and as a result, these charities are making it very hard for alot of people in a tight knit community. Even if you don’t see the direct damages from this yourself, there are entire communities of people who live very different lifestyles than many readers here and many of you may never meet. still, there are many people whose lives revolved around these charities, and things have become more ‘interesting’.

(i don’t mean to make any one here feel excluded, when i talk about such communities. we still live in the same country, and are all affected by the same issues one way or another. it’s just a plain fact that someone from kentucky isn’t going to meet someone from colorado every day, and the same applies here. but who knows? maybe lots of orthodox jews are reading this blog and no one knows about it.)

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Now on to some comments on Trent’s advice:
“…if someone is promising you returns that blow away what can be found easily in the S&P 500, don’t believe it.”
That’s right, VERIFY it! It does not mean that someone is selling “something fishy”, it means that out of range returns are unlikely and need to be verified.
The corollary is also true: “in range” returns may be someone selling “something fishy”… VERIFY it!
Then you can make an informed decision to get in or walk away.

“That’s not to say you can’t earn returns higher than 10-15% or so – one certainly can. But a person is not going to find that return by investing in someone else’s investment package.”
Wrong! however unlikely to find these returns in retail packages.

“Similarly, if you don’t understand how an investment works, don’t invest in it. This is an investing rule I always follow.”
I disagree! the rule I abide by is: Don’t invest into it UNTIL YOU UNDERSTAND IT!

” The only stocks I purchase are very broad mutual funds that basically amount to investments in the idea of American business as a whole. Why? I understand how they work. I don’t invest in individual companies. Why? I don’t have enough information to truly understand how they work.”
……It is not a degree of information, but a degree of control. If you cannot understand how an individual company work, how can you understand how multiple individual companies put together into a bag will work? A mutual fund allows you to be lazy and not do the homework of understanding an individual company… it basically says:
“because we are unable to figure out who will go bust, we bought them all and averaged your returns down and will charge you fees for the sub-par result”

I don’t invest in anything I hear about from friends or acquaintances.
Mr Trent, maybe you want to change the friends and acquaintances you are hanging out with? …and swap them for people that can bring investment ideas you are comfortable with to the table…

A last thought… investing in the mutual fund company was a better idea than investing in the mutual fund… I wonder why? Who made the money?

Mpls is dealing with a huge ponzi schemer right now (not as big as Madoff, but big) named Tom Petters, who managed to cover the whole thing up for over 10 years. The feds had ZERO idea until someone went to the AUSA’s office and tattled in exchange for a deal.