Ponzi Schemes Explained by FraudsandScams.com
April 13, 2017 Emailed to WSJ/NYT/DMN on April 13, 2017
The following is an Op-Ed to "The Wall Street Journal", "The New York Times", and "The Dallas Morning News" that explains how the U.S. Government is using a fraudulent fiscal policy and accounting system to dramatically enhance the lifestyle of Americans, to dramatically enrich the U.S. ruling class, to colossally enrich the U.S. upper class, to colossally cheat the Common Man, and to colossally cheat the rest of the planet.
This Op-Ed references a 1999 commentary from FraudsandScams.com that explains how Ponzi schemes work and how GAAP Accounting can expose a Ponzi scheme.
The "news media" has an ethical responsibility to inform the general public of how the U.S. Government is committing fiscal and accounting fraud to cheat the general public and the rest of the planet so they can "feather their own nests" and "dramatically feather the nests of their upper-class friends".
Ponzi Schemes Explained by FraudsandScams.com
April 13, 2017
The following commentary on Ponzi schemes comes from FraudsandScams.com.
This commentary explains why an independent audit of the U.S. Government's books would be a good idea! This audit cannot be done by the CBO (Congressional Budget Office)!
By: Bill E. Branscum
In turn of the century Boston, an Italian Immigrant named Carlo "Charles" Ponzi established the Securities Exchange Company. Ponzi offered investors a choice between a fifty percent return on a 45 day investment and a 100% return on a 90 day investment. Ponzi claimed that this return on investment was possible due to his unique understanding of the international postal reply coupon system; by international agreement, postal reply coupons were recognized by all countries but the cost of these coupons varied dramatically from country to country depending upon their economy.
Although true in principal (an IPRC that cost a penny in Germany cost a nickel in the US), Ponzi was fully aware that the scheme did not work in actual practice because of importation restrictions. Nevertheless, the story sounded good.
Investors did receive the interest on their investments that they were promised and the investments poured in. This was not a revenue generating business enterprise supported by investors; there was no underlying business whatsoever. This was an investment generating scheme that relied entirely upon today’s investors to meet the obligations due to those who had invested 45 days previously.
A Ponzi scheme’s indebtedness increases as a function of geometric progression; however, the enterprise generates income so long as the pool of investment capital increases faster than the debt accrued. The reason that these schemes are illegal is that, as is the case with their pyramid cousin, they are mathematically doomed to collapse.
Due to the fact that there is no source of revenue other than the investment pool used to pay debt, the “Classic Ponzi Scheme" will be immediately exposed in any audit. According to generally accepted accounting procedures (GAAP), any Ponzi scheme is insolvent from the moment of its inception and becomes increasingly insolvent each day that it is in operation.
The essence of a Ponzi Scheme is investment. The Ponzi operator typically represents that he has some sort of "system" that is either incredibly complex, or a proprietary secret. His system makes it possible for him to pay incredible rates of return. The elaborate office, exquisitely tailored suits, involvement with the church, and generosity toward charitable organizations are all classic window dressing.
Ponzi schemes do not decline and fall; they are typically hugely successful until they collapse. Everyone is making money, everyone who wants their money out gets paid, and everyone is happy until the regulators shut it down or something precipitates a run on the bank.
In closing, I want to alert you to the fact that it may not always be clear that a debtor was in fact operating a Ponzi Scheme and I have been involved in cases where over zealous prosecutors applied this label to legitimate businessmen who became hopelessly overextended, made poor business decisions and pursued fiscal strategies that were totally unrealistic in hindsight.
The reality is, in their efforts to stay afloat, people in this position often continue to borrow money, incur future obligations to meet today’s bills and use the funds invested today to satisfy today’s debts. Rather than give up, admit defeat and abandon their dreams, honest people with no intent to defraud may very well continue to borrow from Peter to pay Paul long after it should have been obvious that they were hopelessly insolvent. There is a profound difference between a desperate businessman who makes poor decisions and a Ponzi operator.
A Ponzi Scheme, by definition, is a scheme and artifice to defraud that was insolvent from its inception. See Scholes v. Lehmann, 56 F.3d at 755; Merrill v. Abbott (In re Independent Clearing House Co.), 77 B.R. 843, 871 (D. Utah 1987); In re Taubman, 160 B.R. 964, 978 (Bankr. S.D. Ohio 1993); Martino v. Edison Worldwide Capital (In re Randy), 189 B.R. 425, 441 (Bankr. N.D. Ill. 1995); Emerson v. Maples (In re Mark Benskin & Co.), 161 B.R. 644, 650 (Bankr. W.D. Tenn. 1993) and Dicello v. Jenkins (In re International Loan Network, Inc.), 160 B.R. 1, 12 n.15 (Bankr. D.C. 1993)
The Ponzi scheme fiscal policy, that I call USAPonzi, was insolvent on the date of its inception in January of 1968 when LBJ convinced Congress to adopt the "Unified Budget". The indebtedness of this scheme is now $105.8 Trillion and is increasing by $15.32 Billion every day.
This FraudsandScams.com commentary explains why the U.S. Government should be using GAAP Accounting. GAAP Accounting reports that the current U.S. Government fiscal policy (USAPonzi) is requiring that the future Americans pay an ever-increasing amount of public liabilities (US Unfunded Liabilities (GAAP)) that are currently $105.8 Trillion and increasing by $5.59 Trillion in FY2017. GAAP Accounting clearly shows that the USAPonzi fiscal policy is insolvent.
In the case of USAPonzi, the reason that the indebtedness of this scheme increases geometrically is because the U.S. Government must pay real interest on the National Debt and virtual interest on the US Unfunded Future Liabilities because these future liabilities are assessed by GAAP Accounting at present value. Present value is the value in the present of a sum of money, in contrast to some future value it will have when it has been invested at compound interest.
The U.S. upper class has been given $105.8 Trillion of imaginary-counterfeit private wealth simply because the U.S. Government has fraudulently assumed $105.8 Trillion of public liabilities.
It is nice to have criminal friends in Washington, DC.
|| $19.9 Trillion
|Cash Deficit in FY2017
|GAAP Deficit in FY2017
|US Unfunded Future Liabilities
|US Unfunded Liabilities (GAAP)
|Total National Assets
Source: www.usdebtclock.org April 13, 2017
This U.S. Government fraud can only be equitably eliminated by the adoption of GAAP Accounting and a commitment to a balanced GAAP basis budget by the U.S. Government.
I have published a website www.usaponzi.net that explains how this fraud works to create a massive global wealth and income gap between the haves and the have-nots and to create false wealth and prosperity for the current Americans.
This is the biggest ($105.8 Trillion) financial fraud ever perpetrated, I call it "USAPonzi: The Ultimate Government Fraud" and it is "The Biggest Ponzi Scheme on the Planet"!
John W. White