Long-dead Swindler Plays a Role in US Presidential Politics

Posted September 12th, 2011 at 2:47 pm (UTC-5)
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As odd as it may seem, the name of a long-dead financial swindler named Charles Ponzi has worked its way into the U.S. political debate over who should be the Republican nominee in next year's election against President Barack Obama – a Democrat.

Ponzi was a 1903 Italian immigrant to the U.S., arriving on its shores, as he once said, with $2.50 in his pocket and $1 million in hopes. Now he is remembered for a fraudulent 1917 investment scheme that bears his name, one in which investors bought and sold international postal coupons on his promise of a 100 percent return on their money in 90 days. The scheme required an increasing number of new participants to pay off earlier investors.

To this day, every so often, swindlers in the U.S. end up in U.S. courts accused of running Ponzi schemes, where inevitably there are not enough new investors to keep the fraud going.

Now, one of the leading Republicans trying to win the party's presidential nomination, Texas Governor Rick Perry, has invoked the Ponzi name to provocatively describe the U.S. government's pension plan for retirees. Under the 76-year-old Social Security system, retirees get monthly checks funded by deductions from the paychecks of current workers, by design an inter-generational transfer of money.

Perry's contention is that Social Security amounts to a Ponzi scheme because eventually there won't be enough workers in the U.S. to fund the program for an even bigger number of retirees, who with better health care, are living longer than when the program started. The presidential contender says it is a “monstrous lie” for the government to tell younger workers that they will be able to collect Social Security payments when they retire decades from now.

His attack on the popular pension plan has quickly drawn criticism from others seeking the Republican presidential nomination, as well as Democrats who support Mr. Obama.

One expert on Ponzi, Mitchell Zuckoff, says Perry's description of Social Security as a Ponzi scheme is wrong as well. Zuckoff wrote a book called Ponzi's Scheme: The True Story of a Financial Legend.

He says Ponzi schemes “are, by definition, fraud.” In contrast, he says, the financing of Social Security is “above board.” He said U.S. lawmakers can argue whether it's a good plan, “but you can't call it fraud.”