Conservative
Type 40
What you are describing is a pyramid scheme...not a ponzi scheme.
It's the same thing, and I described it perfectly.
Here's the minute differences:
A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:
In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means no investment return.)
A Ponzi scheme claims to rely on some esoteric investment approach (insider connections, etc.) and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
A pyramid scheme is bound to collapse much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to "reinvest" their money, with a relatively small number of new participants.
I'm going to attempt to explain a ponzi scheme...no guarantee this will make sense.
I am the schemer.
I promise a guaranteed 15% return on investments.
You give me your money.
So does Elvis, Full-Auto, and DBS.
I invest most of the money, of course, I take some for myself (as does the government when they "borrow" from the S.S. "lockbox")
I am not getting a 15% return.
Elvis wants his money.
I pay Elvis his money plus the 15% I promised.
I do this by taking it from Full-Auto and DBS's investment.
Elvis, who got his money back plus 15% tells California Girl, Del, Conservative, Dabs, Newby and Annie about this great investment, guaranteed 15%..."no, not second hand, I got the return myself".
All of them invest with me.
Full Auto and DBS now want their money.
I pay them their initial investment plus 15% from the money CG, Del, Conservative, Dabs, Newby and Annie just gave me.
Full Auto and DBS tell all their friends...I get 25 more investors...
...whose money I use to pay my previous investors....
It is a scam that is dependent on growth of the base of investors.
Without growth, I don't have the money to pay the earlier investors.
That is the problem with Social Security...a baby boom in conjunction with a later reduced birth rate.
Dam*...I hope that makes sense.