Text by Michel Santi
“Give a million to Ponzi,” the Wall Street Journal said in an August 2, 1920 article, “and it will give you back 25,000,000 after one year, 657,000,000 after two years and 16,885,000. ‘000 after three years. The Allies would have to give him a million to pay off their war debts and Germany could pay off the phenomenal reparations owed to the victors in four years “!
This newspaper, then the absolute reference in financial matters, seemed to have found the solution to eliminate the immense debts generated by the First World War. This martingale was therefore called Charles Ponzi and promised its investors to double their capital every three months through arbitrage on coupons involving the greenback and the Italian lira through the transmission belt of the postal services. “Gigantic lines of investors throng from City Hall Annex, through City Hall Avenue and School Street to the entrance to the Niles Building along the corridors and up to my office” wrote Charles Ponzi … because there weren’t enough coupons on the global market to meet the insane demand of these greedy savers. It was, therefore, extremely tempting for Ponzi to create a chain where new deposits paid for the profits of previous investors.
That was a century ago, but the pattern is constantly being renewed and without anyone ever questioning the source of such easy profits, or anyone being intrigued by the magnitude and almost mathematical regularity of the profits. And why, moreover, check anything since only the juicy profits count? Finding of Charles Ponzi himself: “Hope and greed is detectable in everyone”. Subsequently, the losers – that is, those who did not withdraw in time – face a double penalty saying that they should have known that such benefits were too good to be true, while others console themselves as best they can by noting that they are not the only ones to have been cheated …
However, it would be wrong and naive to believe that a Ponzi is always synonymous with illegality. Speculative bubbles – innumerable since the modern era – characterized by soaring asset classes devoid of any rationality and disconnected from any economic justification are the direct heirs of Ponzi because new entrants always pay older ones. These fevers are certainly not the work of a person who has made a fraudulent assembly, but the result of a collective contamination seizing bankers, media, social networks and ordinary citizens. Charles Ponzi, in short, is everywhere: when a company borrows to pay the interest on its debt, and even when a state goes to the markets to get into debt in order to be able to afford the pensions of its citizens.