Stock market ponzi

Does the stock market create any sort of value? - Personal Finance & Money Stack Exchange

Operators of Ponzi schemes can be either individuals or corporations, and grab the attention of new investors by offering short-term returns that are either abnormally high or unusually consistent. Companies that engage in Ponzi schemes focus all of their energy into attracting new clients to make investments.

Ponzi schemes rely on a constant flow of new investments to continue to provide returns to older investors. When this flow runs out, the scheme falls apart. The scheme is named after Charles Ponzi[3] who became notorious for using the technique in the s.

Ponzi's original scheme was based on the arbitrage of international reply coupons for postage stamps; however, he soon diverted investors' money to make payments to earlier investors and himself. Typically, Ponzi schemes require an initial investment and promise well-above-average returns.

It's common for the promoter to take advantage of a lack of investor knowledge or competence, or sometimes claim to use a proprietary, secret investment strategy in order to avoid giving information about the scheme.

Could the stock market be a Ponzi scheme?

Initially, the promoter will pay high returns to attract investors and entice current investors to invest more money. When other investors begin to participate, a cascade effect begins. The "return" to the initial investors is paid by the investments of new participants, rather than from profits of the product. Often, high returns encourage investors to leave their money within the scheme, so the operator does not actually have to pay very much to investors.

He simply sends statements showing how much they have earned, which maintains the deception that the scheme is an investment with high returns. Investors within a Ponzi scheme may even face dificulties when trying to get their money out of the investment. Promoters also try to minimize withdrawals by offering new plans to investors where money cannot be withdrawn for a certain period of time in exchange for higher returns. The promoter sees new cash flows as investors cannot transfer money.

If a few investors do wish to withdraw their money in accordance with the terms allowed, their requests are usually promptly processed, which gives the illusion to all other investors that the fund is solventor financially sound. Ponzi schemes sometimes commence operations as legitimate investment vehicles, such as hedge funds.

Stock Market is a Ponzi

Hedge funds can easily degenerate into a Ponzi-type scheme if they unexpectedly lose money or fail to legitimately earn the returns expected. If the promoters fabricate false returns or produce fraudulent audit reports instead of admitting their failure to meet expectations, the operation is a Ponzi scheme.

A wide variety of investment vehicles or michal stibor forex, typically legitimate, stock market ponzi become the basis of Ponzi schemes.

For instance, Allen Stanford used bank certificates of deposit to defraud tens of thousands of people. Certificates of deposit are usually low-risk and insured instruments, but the Stanford CDs were fraudulent.

If a Ponzi scheme is not stopped by authorities, it soon falls apart for one of the following reasons: From Wikipedia, the are binary options trades taxable in australia encyclopedia. Retrieved 17 May US Social Security Administration. Retrieved 24 December A True Financial ThrillerJohn Wiley and Sons, p.

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