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The Alchemist (12/28/2008)
By Al Thomas

MADOFF AND SOCIAL SECURITY:TWO PONZI SCHEMES

The buzz all the week of 12/15 has been the multibillion dollar scam of Bernie Madoff. It has been labeled the biggest Ponzi scheme ever.

Let’s understand what that is. It is named after Charles Ponzi who lured thousands of small investors in 1920 to invest in what looked like a very safe and lucrative arbitrage using government stamps. In 1920 he made millions. People were mortgaging their homes to give him money for his “guaranteed” return. He was paying first investors with money from last investors. And keeping some for himself on each transaction.

The scheme was revealed when the same thing happened to him as has occurred with Mr. Madoff. More people wanted their money than there was money in the kitty. In Madoff’s case it was because of poor trading. He lost billions playing the market with OPM – Other Peoples Money.

That is why I don’t like to give my money to any money manager. If it is going to be lost I will be the one to do it, but so far I am ahead of the game. Take a look at your own managed fund statement. Most folks could have done better with darts and the stock page.

Wait a minute. Let me look in your wallet. It’s not all there. When you got your last paycheck there was a deduction for FICA otherwise know as Social Security. You and your employer are required to contribute (nice word, contribute) 7.5% of your pay to the Social Security Trust Fund. The money goes to Washington where in an account called a Trust Fund that is designated to be held for your retirement. Sounds good.

Wait.

Then along come Congress that has the Federal Government create a piece of paper called a Treasury Bond (that’s an IOU) and transfers the money into the General fund. Now all those wise men we voted for can access it for their favorite projects like Indian arrow factories and bridges to nowhere.

As long as there are more workers putting in money than is being taken out it seems like a great idea. Unfortunately, history has shown that there has never been a Ponzi scheme that has not gone broke.

If SS funds had been kept separate all these years since 1933 there would be plenty, but the greed of elected officials has set the stage for a future demise. Our Congressmen are putting off the “go broke” date by increasing the retirement age and adding to the amount paid required to be paid in. No one dares talk about what you will receive if hyperinflation kicks in.

We are all victims of the greatest Ponzi scheme ever created and we did it to ourselves .

You may receive Al Thomas’ investment letter at no charge for 3 months on the web site www.mutualfundmagic.com Never lose money in the stock market again. His book “IF IT DOESN’T GO UP, DON’T BUY IT!”has become a classic. Copyright 2008. Williamsburg Investment Co. All rights reserved.

 

 

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