All HYIPs are Ponzies

what is the difference between a Ponzi scheme and a Pyramid scheme?

"don't you just hate when people cut 'n' paste a whole page from wikipedia {not you futurama, at least your answer was concise and to-the-point} "



That's exactly what I was thinking

Public Comments

1. A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered. Pyramid schemes have existed for at least a century. Matrix schemes use the same fraudulent non-sustainable system as a pyramid; here, the victims pay to join a waiting list for a desirable product which only a fraction of them can ever receive.
   
   
   
   Ponzi received a letter in the mail from a company in Spain asking about the catalog. Inside the envelope was a postal reply coupon, which he had never seen before. He asked about it, and the Ponzi scheme was born. The basic idea behind the postal reply coupon was to allow the sender to buy stamps in the foreign country for reply mail, instead of requiring the recipient to pay for them. For instance, a lawyer could send a document to England for reading, including a coupon that would pay for English stamps to allow the recipient to send it back.
   
   
   
   The rates for the coupons had originally been fixed during an international postal union in 1907, setting the local price of each coupon to buy an equal amount of stamps in any country. For instance, one might pay 4 shillings in England for a coupon, or $1 in the US, the two amounts being equal at the time. When the war ended, many European currencies were massively devalued. However, because the exchange rate on the coupons was not changed, one could buy such a coupon for the original rate and exchange it for stamps at the current exchange rate.
   
   
   
   Ponzi noticed the postal coupon purchased in Europe for about one cent in American funds could be cashed in for about six American one-cent stamps. The first step was to convert his American money into a currency where the exchange rate was favorable. Ponzi's foreign agents would then use these funds to purchase postal coupons in countries with weak economies. The stamp coupons were then exchanged back into a favorable foreign currency and finally back into American funds. He claimed that his net profit on these transactions, after expenses and exchange rates, was in excess of 400%. This was a form of arbitrage, or currency trading--such a transaction is in itself legal.
   
   
   
   Ponzi began to canvass his friends and associates to get backing for his scheme. He offered them a 50% return on their money in 45 days, or a doubling of their money in 90 days. The great returns available from postal reply coupons, he explained to them, made such incredible profits easy. He started his own company, the Securities Exchange Company, to promote the scheme.
   
   
   
   Ponzi's sales pitch was smooth and low-key. He managed to get a few investors, and paid them off as he had promised. The word spread, and investors began to come in the door at an increasing rate. He hired agents and paid them generous commissions for every dollar they brought in. By February 1920, Ponzi's total take was $5,000 USD, a tidy sum for the time. That was just the beginning.
   
   
   
   By March, he was up to $30,000. A frenzy was building, and Ponzi began to hire agents to take in money from all over New England and New Jersey. If investors were doubtful, he would overwhelm them with his line of talk. By throwing his impressive pay-off rates at people, he could often persuade would-be investors.
   
   
   
   By May 1920, he was up to $420,000. He began depositing the money in the Hanover Trust Bank, in hopes that once his account was large enough he could impose his will on the bank or even be made its president. He in fact managed to get a controlling interest in the bank.
   
   
   
   By July 1920, he was up to millions. Widows were mortgaging their homes, people were taking their life savings to invest with the clever Ponzi. Most did not collect their interest, but reinvested.
   
   
   
   Ponzi was bringing in cash at a fantastic rate, but the simplest financial analysis showed that he wasn't making money, he was losing it rapidly. For every dollar he took in, he went more deeply into debt. As long as money kept flowing in, Ponzi would stay ahead of the eventual collapse.
   
   
   
   Ponzi lived luxuriously: he bought a mansion with air conditioning and a heated swimming pool, and brought his mother from Italy in a first-class stateroom on an ocean liner. He was a hero among the Italian community, and was cheered wherever he went.
2. from wikipedia:
   
   * A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish pyramid schemes from Ponzi schemes:
   
   
   
   * In a Ponzi scheme, the schemer acts as a “hub” for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means no investment return).
   
   
   
   * A Ponzi scheme relies on some esoteric investment approach, insider connections, etc., and often attracts well-to-do investors; pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
   
   
   
   * A pyramid scheme is bound to collapse a lot faster, simply because of the demand for exponential increases in participants to sustain it (Ponzi schemes can survive simply by getting most participants to "reinvest" their money, with a relatively small number of new participants).
3. don't you just hate when people cut 'n' paste a whole page from wikipedia {not you futurama, at least your answer was concise and to-the-point}