How a ponzi scheme works

Subprime the Musical- Series of light-hearted podcasts designed to explain the Subprime Mortgage Crisis. To learn more visit:
www.subprimethemusical.wordpress.com
In this podcast, I explain how a ponzi scheme works and why people fall for them.
E-mail: [e-mail]

[@skyboy123454321]

I got here by making a typo. i was just looking for a recipe for ponzu sauce

[@markgiroux3442]

I know its been 4 years, but how did the sauce turn out?

[@tahataha-vj8ij]

@@markgiroux3442 😂😂

[@kadeejaummu5821]

Jjjjjജഹ് ജെജെ ഹ്ഹഹ്ഹ jjjഹ് ജ്ജ്‌ ഹ്ഹ് jjjjjjjjജ്ജ്ജ്‌ jjjjjjjuju

[@tbee1575]

HA!!! 😂 😁 😂 😂 😂 😂 😂 😂 😂

[@Hyacinth600]

Lmao

[@MrRabidKiwi]

I knew a guy who did something similar in College. What he did was send multiple e-mails out to people he knew to exchange study guides for an upcoming exam. He basically talked to an individual and said they should swap study guides when he really was just giving the other guy a study guide from another person he talked to, did this many times, and as the intermediary, collected all the knowledge without looking it up. He now has a six-figure job.

[@rowanewiets]

I can't help but respect these people. Sure it's amoral but it's clever as fuck.

[@rowanewiets]

***** Yeah that could be true. Like a robin hood situation, going against the corrupt system but instead of handing it to the poor he keeps it to himself. Things is though, Madoff wasn't really a gangster, he was part of all the "bad" bankers and higherups.

[@ΟυρανίαΖώτου-η8η]

Rank Savage ´

[@saitejashulsoor6064]

@Axiz I don't think he exchanged his work. He exchanged guy A's work with guy B's work and guy C's work with guy D's work and so on.

[@FinnJohnson]

I did this in high school too, except not for money or for anything material. I didn’t know it was a Ponzi scheme until now. Jesus

[@__________Troll__________]

That sounds like what a bank does.

[@lionelhutz5137]

👆 This guy gets it

[@__________Troll__________]

@@lionelhutz5137 😮 *5 years ago, time flys*

[@lionelhutz5137]

@@__________Troll__________ LOL wow, didn't notice that

[@carultch]

@@lionelhutz5137 What ever happened to your character? Now Gil Gunderson is the underdog attorney to be opponent to the Blue Haired Lawyer.

[@carultch]

@@erik_arman I'm aware of that. I was hoping for Lionel Hutz to answer in character.

[@ianng4633]

In Econ class they call it "Fractional Reserve Banking".

[@MikeGreenwood51]

Sorry but FRB is different. The amount loaned is loaned secured to the value of an other property of worth. Such as a home, building or ability to pay back. Therefore the loanster has not lost his investment. He/still has the value albeit it is loaned out. The loanster retains the worth of the loan. He/she is not giving away free money, where as Ponzi was giving money away. Money he didn't own. So there is a clear difference. Admittedly loansters loaning using FRB are loaning out maybe 10 times that which they own. But they are not giving it away. So if they gave 100 loans of a thousand dollars they have given nothing away. They retain the value of the 100 times one thousand dollars.

[@iancrawford9658]

wooooosh

[@dostthouevenlogicbrethren1739]

No, they call it government pensions.

[@frederikbrandt424]

@@stuartpidassle7658 Banks also create money out of thin air. They can basically create inflation just like the central bank does

[@rammani7170]

@@frederikbrandt424 Yea banks create money when they create loan accounts but the principal gets destroyed when the loan is payed back. The banks earnings is only the interest. FRB also restricts the amount of money the banks can loan out too, they can’t just create infinite loans. If for instance central bank mandates 50% CRR to be maintained, the bank can only create loans that is 2x the amount of deposits that it holds in reserve. This is how credit in an economy is controlled by the central banks using CRR and the Repo rates. So yes, the only participant in an economy who has a seemingly infinite leverage is the Central bank, other banks operate and make money with limited leverage and interest rate margins.

[@Wanderlust1972]

No actually you explained it perfectly, you are very descriptive and thorough. Totally solid presentation, I give you an A+!

[@DaniaMihaela]

I'm quite new to this whole subject and I'm have some questions : 1.How does the schemer make profit if all he does is redistribute money from old investors to new ones ? 2.Are the first investors the lucky ones because they get paid ? Like do they have an win somehow ? 3.For how long does a Ponzi scheme can last ? 4.Is the person doing this a smart person or you can literally be fooled by anyone ?

[@whatsyourmessage1985]

1. He keeps the money and give away just a small portion of it (10% a year in the Madoff case), the interests. 2. Well, the lucky ones are just those who get their money back before the scheme collapses. 3. Years, this scheme usually crashes when a financial crisis occurs, so when investors get worried and decide to withdraw their money. 4. While the fraud is quite easy to implement, convincing people that you are a financial genius able to make steady profits for years is not that simple. I would say that you must be highly persuasive at least.

[@Superbustr]

1. Every time a new client makes an investment the schemer will skim off a small amount of the top and put it in his own pocket. 2. If the first investors get paid and withdraw their investment before the Ponzi scheme fails they win. if the first investors continue to invest more and more of their money and don't get out before the Ponzi scheme fails they lose. 3. A Ponzi scheme lasts as long as new investors continue to give their money to fund the scheme. This can be a long time or a short time but not forever. 4. I don't fully understand your last question. All I can say is that you can be swindled by anyone in business. So be careful and don't trust anyone.

[@jamesharrisindianspringshs1524]

1. Schemer makes money by keeping part of all that "redistributed" money. 2. No, even if they cash out before it falls apart they will probably be dragged into court since making money from a ponzi scheme is illegal (not a lawyer) 3. Rarely last more than 2-3 years though Bernie Madoff was an exception 4. generally, Yes. and also yes.

[@Toro_Da_Corsa]

You explained it wrong. The investors only get their percentage return back. Not their capital invested.

[@moneyandsociety]

M vD : You're absolutely right. They only get their percentage return back. But I was speaking from the scenario that an investor would call the Ponzi Schemer and say, please return all of my money with the capital invested. This is sort of what happened with Bernie Madoff. I made this a long time ago and I should have made it clearer.

[@REPORODGE]

+moneyandsociety So the idea is to get in fast and out faster.

[@robert0380]

+Roger Davis The idea is to try to avoid a Ponzi Scheme, not try to game one. lol

[@slightlyjamaicanman]

+M vD okay so, if i give my 6 dollars to the ponzi schemer, and i expect a one dollar return per year, he gives me that one dollar return but he keeps the original 6 (without me knowing)? So the only reason whereby the scheme would collapse is if the investors ask for their original capital back as well as their returns, in which case it cant be paid out, because said ponzi schemer has bought himself a nice car and suit with my original money?

[@abdurrazzak305]

+R. Lol nice reply

[@Kid_Ikaris]

Thanks for explaining. I'm starting to think that ponzi scheme is an overused term. A lot of the time it's used to describe business models that are unsustainable, or government entitlements like social security. But they're really not ponzi schemes. There is some kind of investment being made, sometimes an unsustainable one that will collapse. There also isn't someone running off and spending the money. There should be and maybe there is a term for ponzi-like systems.

[@dont_trust_any1_even_ur_waifu]

Banks take money created out of thin air from the federal reserve and then loan it out to other people. When the system collapses during an economic downturn its usually due to fed raising interest rates so banks cant get any more free money (new ponzi investors). Yes, its a ponzi.

[@morganjones8073]

I feel like the orange is actually yellow...

[@brannenb5993]

Morgan Jones lmao I don't think that's the point of the video. The internet got me fucked up

[@MikeGreenwood51]

Orange gave his investment to the Ponzi schemer (yellow). Which bit of Orange did you feel was actually yellow?

[@ricneil777]

Yikes! Hahahahaha,

[@NasciParaAdorar7]

Yeah, I saw yellow!

[@karkydoesgaming7022]

**coughs** Bitconnect **coughs**

[@ricneil777]

Is it sustainable if they we're actually connected in bitcoin?

[@Hellnation13]

Hex coin too

[@bram8333]

earth2

[@RUNDOLPHVIBESOFFICIAL]

KAPA brought me here. Charot!

[@arasseo_wakarimashita3904]

Di na natuto, dahil kasi sa pera, ngayon, STOP na sila...

[@irwincorazon9304]

Oy kabayan. Dito karin pala. Ano pay out nah?😅😅

[@fewdozenz8941]

Wtf me too

[@emilyfernandez576]

Hahahaha dami tapang dun sa kapa kasi d daw sila scam

[@mrjppizza6507]

Usual na ibabato ng bulag na KAPA members sa atin: 1) Nakatulong na ba kayo? 2) Naging KAPA member na ba kayo? 3) Samba pa kay Quiboloy! Patunay lang na mangmang at uto uto sila. Hindi na natuto. Comment this video's link to a KAPA supporter video or reply this vid to a comment of a member. Isa pa, pag tinakbuhan sila ng pastor na sinasamba nila sisisihin pa gobyerno... Hayys

[@silviavidal5131]

Thank you so much! I was looking for somthing like this, I'm a visual learner and needed a breakdown explanation! Please make more videos like this one! Many💗blessings

[@kiberenigestsebez6633]

you forgot to mention how ponzi himself get benfit, during the business of redistribution

[@Datboyylu]

Yeah this is the question I had. How do they get money from the scheme?

[@thanh6523]

@@Datboyylu They got money from the investors and pay them say 1$ per day, so after day 1 the schemer have 5$ to spare, rinse and repeat with new investors

[@syedsultan95]

This is what i'm going to start sooner or later in my country. InshAllah

[@simonh6371]

Haram

[@sychkid]

Authorities: "So, Madoff, where'd you get your idea to pay off old investors with money taken from new ones?" Bernie Madoff: "Uh...the social security system?"

[@tetamukadez5646]

Well thats not really fair, as social security was instated for a reason and has a very important purpose.

[@bluedancelilly]

Kinda true. Or could be if the funds implode eventually and newer workers don't get their money back. Some analysts have said its possible since people are living so much longer than when SS began.

[@datalysjr3339]

Playing a D&D game taking place in the 1920's and searched up 1920 schemes, and this thing popped up, ahhhh such knowledge I welcome.

[@MB-gl2bl]

I'm high on DXM and I just want to know what the fuck this is Holy shit I get it! Thank you!

[@razedbywolvs6348]

I think my Uncial Sam is running a ponzi scheme.

[@atrocchia]

Clear and simple explanation. Thank you.

[@G1ennbeckismyher0]

so basically social security.

[@carultch]

Is Social Security a Ponzi scheme? Stephen Crowder calls the SEC to find out.

[@kriss3d]

Enida Bonghit We have social security here in my contry. Basich health and education is free. And thats what we want it to be. Nomatter if youre rich or poor. Nobody has to wonder if they can afford getting a critical surgery. And you dont have to depend on your parents wealth to get the education you want or have skills for.

[@G1ennbeckismyher0]

kriss3d Nothing is free. Everyone will pay high taxes to cover it.

[@kriss3d]

Enida Bonghit Well obviously its not FREE as appearing by magic. But its free as in paid for by tax.

[@G1ennbeckismyher0]

kriss3d haha it's either free or it's not. It can't be both. What you mean to say is, it is complimentary. They steal the majority of your income through taxes and then provide you with mediocre services more expensively than the private sector would. Nothing in life is free. "free- Without cost or payment"- dictionary.com

[@chillinlikeavillin3]

sounds like the us economy

[@leejganderson7827]

Madoff what a name...cus. He "made off " ☘️👍🍀 with everybody's money.. obviously the name fit him and suited him..

[@rhakimtejedor2820]

KAPA left the group

[@moneyandsociety]

@VVarrio- I didn't explain it well, but the manager collects a commission off every transaction he gets. He's just basically re-distributing money.

[@MarcoRuoccoMRU]

we call ponzi scheme as: 6 T . in Milan, or the code of temporal (T) management (6 or business car drive).

[@ja-nl2lv]

So, a fairly sound counter scheme would be to be a vanguard investor in a Ponzi scheme, withdraw with the promised low-risk high-return, but not continue on to avoid the collapse?

[@C4LIBEE]

where have I seen this sort of thing before? oh yea, banks all over the world.

[@hubbyjose]

I was hoping you will recommend or suggest good investment platforms.

[@ryandoe11]

Whose here because of Ice Poseidon?? Cx... lol this is exactly as he described what hes doing.

[@xEazyC187x]

Here come the FED references! and you're damn right about it! How is network marketing and ponzi schemes in ANY way relevant?

[@MAMP]

@moneyandsociety I really appreciated this video. Thank you.

[@symlexbrn5396]

Some ponzi schemers give a compensation plan that is so difficult to fulfil such that greedy investors become aggressive in recruiting new investors.

[@chidiadiele]

Now I can stay safe out here.... It's crazy. I almost invested

[@frenkyb123]

Great explanation, thanks a lot.

[@skippy563]

It means that the cash flow stops and that higher investors don't get their return. These higher investors drop out and the next level up also doesn't get their money. In essence it just means the cash flow stops. Which is why MLMs reintroduce a new product or go to a new Asian or western European country or something like that.

[@woofwoofdoggo]

This is a great explanation. I thank you.

[@veilsideride]

Q:Whats a Ponzi scheme? A: it’s like a mlm but worse.

[@SabMCMLXIX]

clear examples. well done

[@FTVG_inc]

I dont know, once i did this to fund a small business that I would use to pay off the remaining unpaid new people in the end everyone was satisfied the first 4 months of it was all a ponzi scheme until i had enough to actually invest. Worked out pretty well

[@jasonkassa2204]

good basic description. Lacks believable 'mechanics'/complexity and the psychological drives/manipulation in the scheme.

[@GeneKim2314]

2:24 ponzi screams lol

[@shivastudio6142]

💀you heard that

[@WizLaudan73]

So later investors have their money passed on to the early investors to give the impression of a good return. Which attracts more investment and confidence in the organisers because they can see how well the early investors have done out of the said arrangement. Have i got that right?

[@MikeGreenwood51]

Apparently so! But funderment to the scheme is usually the conditional requirement that for the investor to get his/her interest return they have to get x number of like minded investors to invest also. Therefore the income could grow exponentially as a million try to get say the next rank of 10 million to invest. Then the 10 million try to get 100 million to invest. Then 1000 millillion, then a billion then there are no longer enough people on the planet and not enough money to pay.

[@dostthouevenlogicbrethren1739]

And now you also know how government pensions work.

[@checkma8s]

what if the money from ponzi scheme is invested by ponzi schemer to business or bitcoins and have a income out of it, is it still a ponzi scheme?

[@vantom6194]

yes its is still a scheme Bitcoin is the most volatile trading in business it means it rises and fall very fast that you can't even predict what would be its value...i know why you question this cause most of this ponzi schemes will reason out that there business came from bitcoin there no such thing as Bitcoin isn't an investment. It's an alternate means to store your wealth that is not under control of any centralized authority. ANYONE who says bitcoin is an "investment" is ignorant. Bitcoin simply allows oneself to be their own bank

[@sinisteroffroad8655]

How in ponzi scheme the investor return or double money of his first investor

[@kenrock6136]

i heard this on Black Monday

[@legendgames128]

2:26 ponzi screams sounds like a movie

[@moneyandsociety]

@cornbreaddd- apparently I didn't explain it very well. When I say that they were not actual investments what I mean is that the ponzi schemer is not taking it and investing in actual financial products (stocks, bonds, mutual funds, etc.). Instead he is just borrowing money from other clients and giving it to his new clients.

[@maralinemanahan9012]

Thank you for your explanation. Your excellent 🥰

[@Sporefiction]

Very nice and coherent video, thank you

[@jackdumanat49]

ahh right! i think i was thinking it in a liniar way instead of it growing exponentially. thanks man!

[@PushTheFat]

Thanks a lot! Really cleared it up for me.

[@wakeup7874]

so at what point do the investors realize they have been had? Is there a timeline for when they get money back

[@devinlaster371]

So It's basically stupid people giving their money to someone and trusting them?

[@thehouso]

the typical ponzi/pyramid scheme starts with you investing $200 and when 10 other people have also invested $200, you walk away with $2,000. There is usually another game where you invest the $2,000 and when 10 other investors who have just got their $2,000 invest also you walk away with $20,000. When the scheme first starts up you can make your $20,000 in 20 mins cause there are so many people wanting to make the same. This all usually happens in church halls, etc on a sunday night in Aust.

[@thecapequation490]

If you haven't had a chance to read Joe Buzzello​'s latest novel...Click and PREVIEW the first two chapters: drawingcirclesbook.com/?page_id=147

[@litete2512]

I know what a Ponzi Scheme, I was searching for Bonzi Buddy but realized Ponzi sounds similar to Bonzi so I was curious if a parody software / malware was made.

[@srm4196]

I think chit fund scandals in India r actually failure of Ponzi schemes!!! Can u make comparisions between this and share market...u explain well... even someone without basics could understand this... If u do so... please share d link here... this is not for educational purposes but just for curiosities... I came here because of a KZbin comment... seems it is a whirlpool of knowledge where u r dragged deeper n deeper

[@zigbo5659]

Superb video.

[@claytosrepublic7858]

Sounds like the fractional reserve banking system doesn't it?

[@josephsaeteurn9158]

So what’s in it for the scammer since he didn’t get any money? I don’t understand

[@josephsaeteurn9158]

@s ahhh

[@cash4sellers]

I pretty sure the picture on min 0:45 isn't Mr Ponzi. That is Argentinian Edoardo de Valfierno responsabile for another famous crime.

[@ThatOldGoose]

i understand the concept but where does the "3" dollars come from to give to green? there are no old investors to redistribute the money at this point if green is the first investor. where does that 3 dollars in return come from?

[@ethanw041]

Wait so when it collapses do they get the money? How do they profit if they give the money to other investors.

[@slightmoth]

this is a video is easy to fall asleep to

[@bitcoinski]

The FTX crypto exchange $8 Billion Dollar fiasco brought me here.

[@havingteawiththedevil]

Ok, nice way of breaking it down. But if he was just shifting money left and right, at star point was he keeping the money for himself? After it collapsed then he just took everybody’s money and ran?

[@CommandoJenkins]

Imagine giving people money and never getting a physical product.

[@za8cun]

umm actually - i dont understand the first investing principle. say i was the oldest investor in the ponzi scheme - i gave money to madoff to buy 6 blocks for $1 each,. with a promising investment return of $1 (a block) every month. after 6 month, i get all my capital back (6 block). then, after this point do i keep receiving $1 (a block) per month, or my investment term with him is already over because i already gained all my capital back? would like to request an explanation on this matter. thank you

[@moneyandsociety]

No th con artist continues to receive a profit as long as the scheme is able to last. What I forgot to add in the video is that the ponzi schemer receives a commission for taking care of the investments. In other words, it's not a direct transfer of money from new to old investors...the ponzi schemer makes a profit with every transaction.

[@littleshyboy6010]

This is what happening in Philippines right now.

[@philipmcdonald3967]

If your only redistributing the money, how do you make a profit ?

[@mattwhydoyoucare7740]

it's not properly explained, but the people aren't continually given back full amounts. instead they'll be given returns on that amount or even leave it in to gain more returns. some people will cash out, but the majority won't as they believe they are on to a good thing. the schemer will take money from the common pool to fund there own lifestyle. it is only when mass amounts of people want to withdraw full amounts, new investors dry up or the schemer disappears that the scheme will collapse. but it inevitably will collapse. :)

[@sh55555]

Hey, that looks like the way our banking system works!

[@calinm242]

The video explains the idea pretty well. The problem is that people confuse ponzi schemes/pyramid schemes with the industry called Network Marketing (companies such as Amway or Herbalife). There were many illegal schemes throughout the years, yet what needs to be highlighted is that not all are the same. The factual definition of a pyramid scheme is a business that only redistributes the money without offering any products or services. The key is that in order for a business to be legit is that most of the revenue needs to come from the sales of the respective products or services, not just by the represantive enrollment fees. In conclusion, when a friend of yours comes with a business opoortunity, listen to what they have to say before jumping to the conclusion that is a ponzi schemes. Many network marketing companies are actually legit, actually offer useful services and I’ve met many people that managed to earn their financial freedom and change their lives, simply because they were open minded enough to try something most people wouldn’t even wannna hear about. ‘Network Marketing is the business of the future’ - Robert Kiyosaki

[@DaintyLittleThings]

A great video, thank you for it 🙏

[@pencilrussell4711]

So is a bank; it lends to clients using the money of other clients

[@Saffrone221]

The word " collapse" could mean anything. When you said collapse, did it mean he took their funds, it was all gone during the recession, etc

[@ryanwilson9283]

excellent explanation, thank you !

[@nehashethia5641]

thank you

[@levozan]

this is a very helpful video thanks !

[@WorldNews92]

In the United Kingdom, we call this the pension system.

[@brunnys1]

If it's too good to be true, it generally is.

[@AllsoundRecruiting]

Now who is the nice man on the picture

[@sundayonesimusoka6689]

Very educative

[@mattthomas2078]

I'm still a bit confused, how does the schemer make any money himself?

[@joshladnow8929]

Cause he is spending your money and living off some one else money and robing peter to pay to Paul

[@MikeGreenwood51]

He doesn't make any money. Worse is he is giving money away which he/she doesn't own to create the fabicated illusion of sucess. They are confidence tricksters. Out to rob people. No money is being made there. Therefall when the system collapses millions lose out. That's why they are considered criminals. It like the illusion of the drug store robbers who tell people they are making hundreds of thousants at work. Yet the reality is they are not making any money. Even if you were a gang member and the crook told you he made fifty grand from his last store heist. He didn't because the fifty grand was stolen from the rightful owner. There fore all they earn is a conviction and their owings. So basically they are 'losers'. Losers endeavouring to make others losers.

[@d3admaub938]

Michael Greenwood oh my god shut the fuck up

[@davidi9625]

2:26 what the hell is a ponzi scream?

[@carultch]

A Ponzi Scream is what you do when you realize you were one of the defrauded victims of a Ponzi Scheme.

[@abinvarkey2331]

@@carultch 🤣🤣🤣🤣🤘

[@saiqwavioncoleman6812]

Helpful

[@jstone9741]

Hello what about Chartfords Art Gallery Opportunity if anybody knows is this Business a Ponzi Scheme.??

[@Concepcion30]

Why does this almost sound like social security and the fact that the money we are paying now is going to pay current retirees. A shifting of money indeed.

[@Cornbreadddd]

HELP! Someone please help me here. I've just been pitched a business offer with a company from an old friend. I'm young and don't know too much about this but have heard to be weary of pyramid scams. He says it's not a pyramid scam because it's based on "volume" ? What does that mean. When this lady says these investments are fraudulent and aren't actual investments, what does she mean by that? How are they not actual investments? Thanks in advance

[@billkillernic]

what you explained is not exactly a ponzi scheme (while quite similar) its the way bankers started their business :P

[@jeremystafford1037]

+Bill Killernic Exactly !

[@MikeGreenwood51]

BenjaminHeath, But bankers were lending money for interest. Ponzi was promising interest on money investors loaned to him. Theres a vast difference. Bankers lend for profit. They receive payment for their servive. Ponzi didn't earn. He spent to maintain a false fabicated illusion and paid out millions which he didn't own or have the rights to as he only held the money in trust. If Ponzi said he got his idea from bankers then it seems he got a half baked idea.

[@GRINDETHIKSMIXTAPESHOW]

that does not make that a scam when ppl who join the circle already know that .. your return depends on new members everyone knows that .. i would be concern is how would i know if there are new members investing

[@racheltindoy]

That was clear, thanks.

[@kevin9996661]

So what does banks do?

[@serafin0000000000000]

Hi can i repost this?

[@felipeperez4941]

And now we know, thank you.

[@GulliversFlo]

Madoff face at the thumbnail make me lol out loud

[@za8cun]

in min 3:57, i dont understand how economic downturn can collapse the ponzi scheme. (i understand that ponzi scheme can collapse when they couldnt found new investor to distribute money back to old investor ) can you explain more about the economic downturn? thank you

[@WildBillHickums]

za8cun Well economic downturn sort of goes hand in hand with finding investors. if your investors are caught in an bad financial position, they aren't gonna risk money as easily on a luxury opportunity.

[@za8cun]

Bill Hicks ahhh thnks!

[@lookatcha]

very goood explanation

[@versus2687]

Well informative