Nobody Plans The Path To Ruin

Another week, another Ponzi scheme. This time, it's a guy named William Parente, who as his investments started to unravel, shot his wife and two daughters in a Sheraton hotel. The scale's a lot smaller, but I'll submit that the end result does put Madoff into perspective: yes, there are far greater levels of evil out there.

One point this should underline is that the "Ponzi scheme" is not a distinct type of financial malfeasance. Hardly anyone sets out to create a "Ponzi scheme." Yes, Charles Ponzi himself is a rare exception. But in the main Ponzi schemes are merely investment vehicles of all sorts that have gone bad. The manager lies about the results, hoping that the next month or the next year he can turn things around. He can't, so he lies some more. The deeper in it, he is, the less likely things will ever turn around. Eventually some investors ask for their money back. The first ones get it back, and there is less and less money in the pot. Eventually the fund is broke and it all comes tumbling down. What keeps it going is not financial wizardy. It is merely desperation.