The Ponzi scheme is named for Italian immigrant Charles Ponzi who gained notoriety in the 1920s, who enticed unsuspecting investors by the promise of amazing returns for arbitraging international reply coupons for postage stamps. Ponzi’s pledge that he could return a 50 percent profit within 45 days (or 100 percent profit within 90 days), just by exchanging international postal reply coupons, snared 40,000 people for the then-stunning amount of $15 million. In actuality, he quickly began siphoning money from later investors to pay early investors and kept the scam going as long as he could.
The Wall Street Psychologist’s Gyroscope espouses vigilance. First of all, we all possess this inherent belief that we are special and destined to have fantastic things occur in our lives.
The brilliance of Madoff was that he pushed the envelope far enough so that his returns were substantial, but not entirely beyond the realm of possibility. He was also consistent, regardless of market conditions, and as former chairman of the NASDAQ, he underpinned his fraud with impeccable credentials, lulling his victims into a false sense of security.
Describing away the Madoff phenomenon as another example of humanistic herd mentality barely scratches the surface. Ponzi schemes are simple, yet dynamic because they exploit so many different facets of the relationship between the mind and money.
We do not want to be denied the finer things in life and we all feel entitled. Like Ponzi before him, Madoff represented the vehicle to power through prosperity.
Madoff exploited every possible advantage, from his religious affiliations to plumbing elite societal relationships. At every turn, he offered the prospect of entry into his exclusive realm.
He told them what they wanted to hear. And they loved it.