Bernie Madoff: Frauds, Swindles, and the Credit Cycle

Robert Z. Aliber and Charles P. Kindleberger
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Robert Z. Aliber: University of Chicago
Charles P. Kindleberger: Massachusetts Institute of Technology

Chapter 7 in Manias, Panics, and Crashes, 2015, pp 143-182 from Palgrave Macmillan

Abstract: Abstract Charlie Ponzi is the most famous banker in American history, immortalized in the term ‘Ponzi scheme’. Ponzi owned a small firm that sold its own IOUs, sometimes called deposits, in one of the Boston suburbs in the early 1920s; he promised to pay the buyers of his IOUs 45 percent interest a year at a time when the traditional banks were paying two or three percent. Ponzi’s operation was straightforward — he used the money that he received from the sale of deposits on Wednesday to pay the interest to those who had bought the deposits on Monday. The interest rate that Ponzi paid was so high that most of those who bought the deposits on Monday were happy to keep their money with Ponzi, so they could earn ‘interest on the interest’.

Date: 2015
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DOI: 10.1007/978-1-137-52574-1_8

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