Your Questions About The Stock Market Is A Ponzi Scheme

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Steven asks…

Whats a Ponzi scheme?

plz use simple non overcomplicated words… Im not the shrpest tool in the shed x)

Justin answers:

Both of the other answers are wrong. Let’s use Bernie Madoff, the most recent well known example of a Ponzi scheme. He took money from investors and promised a huge return, 12% to 15% year in and year out – a return on investment that his competitors could not come close to matching. As a result, people were flocking to him with their money. What he did was take the “new” money, from the more recent investors, and use it to pay off any withdrawals made by older investors. And of course he kept hundreds of millions for himself. The whole thing fell apart when the stock market crashed, and lots of people got nervous and wanted their money. He didn’t have their money, he had counted on taking new money to pay off people making withdrawals but when there were too many withdrawals and no new money coming in, that was the end.

George asks…

Bernard Madoff and the Ponzi Scheme…?

What is the story? What happened, how and why?

Thanks

Justin answers:

The story is that he took money from his newest clients to pay returns to his long-time clients. It worked so long as the stock market was strong. However, the whole scheme fell apart last year when the market effectively crashed.

If you want more detail, I suggest doing a search for Bernard Madoff. There is a lot more info out there than I can provide in one answer.

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