Your Questions About Is The Stock Market A Ponzi Scheme

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Mark asks…

What’s the subprime crisis ?

What’s does that subprome crisis in usa?’
I can read on this every newspaper. but i still don’t understand what does that mean exactly. especially it influenced to Asia Stock Market, something…please let me know…

Justin answers:

It means no more cheap credit for consumers. This turns into higher interest on credit cards, home loans, car loans, lines of credit, etc…

Basically what started it was banks gave home loans of 100k and more to people that couldn’t handle a $500 limit on a credit card. People assumed that they could pay the debt with the equity in their house. Which unfortunately isn’t worth anything because to obtain the money in their home they (the owner) would have to sell the home.

Basically it was a modification on what is called in the scam industry as a Ponzi scheme. Only the first people in an out were the one to benefit. The rest of america, or the 7 million people left in the scheme are the ones getting the shaft. Because they get the shaft it means trillions of dollars in funds the banks can’t possibly afford to cover because now the banks own the homes and with no one paying for them it becomes a problem.

So what happened last week was the US govie and other govies created a buttload of money they didn’t have and poured it into the banking systems everywhere. It only delays the economic crash coming, some banks though weren’t so lucky and are in the middle of chapter 11 proceedings or trying to arrange bankruptcy protection.

If you lived in the early 90’s and late 80’s we were hit by massive unemployment and home loan interest rates in the 14-18% range. The entire building market fell flat and thanks to the guidance of the last VP and President Bush Sr, left the place in a total mess.

Surprised it’s happening again…I’m not.

Daniel asks…

Does SIPC insure foreign stock?

My broker is Interactive Brokers a US broker. They are a member of SIPC

Most of my investment is in Canadian, Australian or British stock.

If IB were to fail due to hyper-hypothecation as did MF Global (IB’s position is $14.5B) would my Canadian/Australian/British stock be covered by SIPC insurance?

Yes, MF Global was hyper-hypothecated at a about 6x their worth and IB appears to be at around 3x their net worth–there is less risk but I do not like this sicko repo Ponzi crap and at least in MFG it was indeed a Ponzi scheme with each purchase of debt becoming the collateral for the next purchase. Indeed MFG greed did them in and as I hear it, their investors are out everything. So naturally I wonder if IB was in the same boat, does SIPC protect me?


Justin answers:

First off, yes foreign stock is covered by SIPC the same way US stock is covered.

Second, leverage in repo markets is not a Ponzi scheme. It’s a very normal way of gaining leverage in the bond market. In the case of MFG investors are screwed because MFG commingled accounts and futures brokers aren’t covered by SIPC.

Hopefully, if IB blew up they would maintain the segregation of accounts and you would get your money back without involvement of SIPC. In the worst case, you are insured up to $500K by SIPC.

William asks…

Were you one of the people who let Enron rip them off or did you treat Wall Street like a Ponzi scheme and use?

stoplosses? As a reader of both of Nicolas Darvas’s Lyle Stuart Books titles, “How I Made $2,000,000 in the Stock Market” and “Wall Street: The Other Las Vegas,” I actually sold out of EOG (Enron Oil and Gas) at a modest PROFIT in 2001. So much for the “invisible hand” pickpocket of the market.
I didn’t say Enron was a Ponzi scheme. I was talking about Wall Street, and I have as low an opinion of you as a broker as you have of these books.
I sold a home in 2005 for almost double what it cost in 2001.

Justin answers:

No, I never let Enron rip me off. Whenever I buy gas, I try to buy Citgo, because it’s owned by Venezuela and I support Chavez and the Bolivarian Revolution.

George asks…

new to US economy: pension plan?

i will start a series of question about stuff I hear on radio but have no idea about it
# 1 how people choose a pension plan?is that agovernment controlled thing? is it better to be government controlled since some companies like ENRON may collapse taking all of its pension plans with it?
I will appreciate brief but comprehensive answer summarizing pension plan isues in few lines
& than you

Justin answers:

Social Security IS the national pension plan. Unfortunately, it is a Ponzi scheme, and would be illegal if a private corporation did it. And it will become mathematically unviable in the next 15 to 20 years.

The stock market, even in the depression and during WWII, had a higher return than Social Security.

There are a lot of productive and safe ways for citizens to invest; and they should. This country is improved by having many people own the means of production. A nation of socialist proletarians controlled by an elite “Vanguard” has always led to a crappy, undynamic, economy.

David asks…

Is the splc really out to help illegal aliens or to line their pockets?

SPLC loses $50 Million. Bad news: $PLC can afford it

Patrick Cleburne, VDARE.COM (April 8, 2009)

Those of us who know and love the Southern Poverty Law Center [SPLC, or more appropriately, in’s considered opinion, the $PLC] have been naturally intrigued to see if this wealthy operation would be a victim of Bernard Madoff’s Ponzi scheme

Immigration patriots are particularly interested in the $PLC [SPLC] because of its recent obsessive smearing of essentially every immigration reform group in sight. This includes naming as a “hate group” not merely VDARE.COM (which has responded by naming the $PLC a “Treason Group”) but also the Federation for American Immigration Reform (FAIR) which the $PLC has absurdly claimed is “at the nexus of the American nativist movement” along with FAIR’s equally harmless fellow Beltway herbivores, NumbersUSA and the Center For Immigration Studies.

This new $PLC obsession is obviously odd because the huge post-1965 influx of unskilled legal and illegal immigrants, whatever else can be said about it, has been an unmitigated disaster for low income blacks-allegedly the $PLC’s historic concern. Labor leader Cesar Chavez (ironically an $PLC hero) saw this dynamic clearly in the case of his farm workers, at that time largely native-born Hispanics. It’s why the Howard Industries blacks cheered last year’s ICE raid on their employer.

Complaints, even from the Left, about the $PLC’s [Southern Poverty Law Center] lack of interest in black and “Civil Rights” issues, and its extreme interest in money, date back at least to Ken Silverstein’s classic The Church of Morris Dees (Harper’s Magazine, November 2000) and JoAnn Wypijewski’s ferocious defense of her criticism of the $PLC for ignoring local Black causes in her Nation magazine article Back to the back of the Bus (December 2000).
The $PLC’s Form 990 (PDF), which tax-exempt charities must file the IRS, and its Audited Financial Statements (PDF) are now available for the fiscal year ending October 2008. And the answer to the Madoff matter-no such luck. Our friends apparently escaped unscathed.

But how did the $PLC manage to resist the allure of the so-called “Jewish T-Bill”-an operation which claimed to produce relatively moderate but extremely consistent returns over many years? Would that not be attractive to the $PLC as a prudent 501(c)(3) Charity-as it was tragically to so many others, and to so many Jewish retirees as well?
.Of course, this investment objective did cause the $PLC to sustain $51.2 million in “Investment” losses in the Fiscal year closing 10-31-08. But this left the $PLC with some $167.8 million in total portfolio assets at the end of the year.

And the implied approximately 30.5% FY 2008 loss is actually not exceptional. The S&P 500 lost 37.5% over the same period. (Of course, this makes the questionable assumption that it was prudent for the $PLC to be so exposed to stocks, rather than less volatile financial instruments like bonds or money market instruments). Essentially, the $PLC balance sheet looks similar to what one would imagine for a retired Goldman Sachs partner: property and working capital, plus a huge sophisticated investment portfolio.

As of 10-31-08, the $PLC showed $35.6 Million (18.5% of its assets) in a kind of current account, called the “operating fund”, which contains, curiously, all the physical assets including $16.9 million in depreciated real estate (to be fair- apparently no yacht!) This “operating fund” includes an investment pool of $11.6 million, on which losses of $1.2 million were sustained in FY ’08. Presumably this is the management’s dabbling/fun account.

The balance consists of an investment portfolio, which stood at $156.2 million at 10-31 08. This is termed the “Endowment Fund”.

It is important to understand that, according to the $PLC’s own Financial Statements, there are essentially no restrictions on this fund. In the Charity world, this is not what is commonly understood by an “endowment”, which is usually dedicated to specific purposes, and often confined to spending income only. As Daniel Borochoff, President of the American Institute of Philanthropy, told Bill O’Reilly in 2001:

“They want to build up their reserves just like you’d probably like to be a multimillionaire so you could live off the interest… It’s not really an endowment [just] because the board called it that.” (See NPI/SPLC Report II, Pp17-18)

Proof of Borochoff’s view of the $PLC strategy arose in 2008. Endowments are usually tapped in poor years, for operating expenses. But the $PLC transferred $4 million from its “Operating Fund” to its “Endowment Fund” last year-a clear demonstration of the management’s Scrooge-like priorities.

It is when one examines the details of this “Endowment Fund” that the $PLC’s heroic dedication to money-making becomes glaring. P14 of the Financial Statements reveals that of the $156.2 million:

$20.7Million (13.3%) was in “

Justin answers:

They are a lobby group. They can be retained by anyone who walks in the door, and in the past, strange people walked in their doors and hired them. I do not doubt a moment that the SPLC was hired by the Mexican Government to slander and victimize those who were NOT receiving money from the Mexican Government.

BUT.. The VDare article is delicious to read.
Has anyone else noticed the bad guys are still around. The diddle with my posts rather frequently, and don’t allow some posts to go up until a couple of hours have passed by. It is a mark of their countries processes.

Paul asks…

Can someone explain to me how Madoff scammed all those people? I’m dumb and don’t quite get it..?

So I get that he stole people’s money but I’m an economic moron.

Justin answers:

Well here is a quick and simple explanation. Lets say Im Madoff and you have $100,000 that you would like to invest in the stock market. You come to me, I take the money and I invest your money. Well, not really. What happens is that I take your money and not invest your money, but I keep it and use it to pay other investors. To make you believe that your money is safe I send you statements that show where your money has been allocated and showing losses and earnings. By now you believe your money is safe. Another investor comes along and gives me another $100,000. At this time you decide to withdraw say $10,000. So from the $100,00 that the other investor gave me I take $10 and send them to you. So you feel even better knowing that you can get your money out at anytime and do you decide to give me more money. That´s the basics, he simply took money from one investor to pay another, because he was known by many people and banks trusted him is that he was able to get so many people to give him money to invest. This is called a Ponzi Scheme or a pyramid. The name Ponzi comes from the first man that is know to have done this, his name was Charles Ponzi.

I just gave you my opinion, but read the articles on wikipedia to give you a better insight.

Michael asks…

Why can’t we privatize social security?

Social security is already insecure by Government.

Because the market is down the naive are out in abundance with statements about how lucky everyone is to not be able to invest their own money…but let me remind you, while the markets may be down, it is the Social Security fund that is teetering on bankruptcy.

Also, there has never been a 30 year period in the history of Social Security where the S&P didn’t completely blow away the returns on Social Securuty (look it up)…even if you were 100% in stocks today, having started 30 years ago you would have more money than Social Security delivers.

No one would have lost all their money. Its Always been conventional wisdom to convert most of your investments into safe stocks and bonds 5-10 years prior to retiring, so if you were invested 100% in the market and prepared like everyone else for retirement, you would be just fine.

Low cost, no load index funds such as Vanguard and Fidelity have excellent retirement funds that beat social security hands down.

If we privatize social security, we balance the budget.

Don’t let the naive, uneducated, or down right ignorant people fool you, a guaranteed 2% return built on a Ponzi scheme is not a good deal.

Justin answers:

The problem with privatizing social security is that we would be unable to pay benefits to the people who have already paid into the system. They essentially have nothing in their mythical “social security lockbox.”

Thomas asks…

How is the Stock market and investment banking really any different than “Ponzi Schemes”?

example..Bear Stears investment bank’s “failure” during early 2008…was really due to aPonzi Scheme“? all the money went to another bank? and was that bank responsible really too?

how anyone would know which bank to put their money?

example..Bear Stears investment bank’s “failure” during early 2008…was really due to aPonzi Scheme“? all the money went to another bank? and was that bank responsible really too?

how anyone would know which bank to put their money?


Justin answers:

When you get right down to it there really aint any difference as far as the investor goes

In both some will make money and others will lose money. And those that make money get it from those that lose money.

The only difference is that.the stock market promises nothing, but the ponzi scheme promises loads

To make money in a ponzi scheme, you get in early and leave before it crashes, (which is a mathematical certainty)
To lose money you dont get it out before the crash.
To make money in the stockmarket you put money in when it starts to rise and take it out when it starts to fall. (and neither direction is a certainty)
To lose money you put the money in at the top then take it out at the bottom

In both systems its a mathematical certainty that some people will lose money, ALL the money that people make from the schemes comes from people in them, nowhere else. So for somebody to make a profit. SOMEBODY has to make a loss.

The only difference is that when a ponzi scheme begins to fall its a one way trip – downwards
With the stock market there are ups and downs, and the down is never a complete collapse. So SOME degree of skill its know when to get out.

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