Richie, Ralph and Ponzi

What is Ponzi I asked myself? Is it an acronym?

What's interesting to me about this kind of greed is that Bernie Madoff and Ken Lay and the Tyco guy and Ted Stevens ET AL are people who are generally bright and well-educated, completely aware of the thing they are doing and how the ripple will stretch out from the center. It's not like some person embroiled in poverty for a lifetime who steals a TV from WalMart.

I have just been shocked at the unscrupulousness of Americans in general; like people who buy a house they absolutely know they can't afford, or the woman on 60 Minutes the other night in Miami who is a successful acupuncturist but got involved in real estate on the side. Rula Giosmas. The acupuncturist. The real estate speculator. This woman/prototype has brought our financial system to its knees.

This idiot woman bought 6 properties - some of them apartment complexes and multi-family homes - and now has them financed with adjustable rate mortgages which she cannot afford to pay. When asked by Scott Pelley if she'd read the paperwork, if she'd understood that the interest rate was ADJUSTABLE, she looked unblinking back at him and said, I KID YOU NOT, 'I was very busy. ' As if that is some sort of reason or answer. As if we care that she was busy. Or that since she was busy it was clearly incumbent upon someone else to understand her financial wheeling and dealing.

Here's the story:

Asked what she understood about the loans, Giosmas says, "Well, unfortunately, I didn't ask too many questions. I mean in the old days, I would shop around. But because of the frenzy, and I was so busy looking to buy other properties, I didn't really focus on shopping around for mortgage brokers."

"But if you're investing in real estate, you're buying multiple properties, you should be asking a lot of questions," Pelley remarks. "Why didn't you ask?"

"I was busy. I was really busy looking at property all the time, all day long," she replies. She also acknowledges that she didn't read the paperwork. Now she’s losing money on every property.

I want homeowners to get help and Main Street to get help, but this kind of stupidity should experience the Darwinian result of its actions.

Here's what wikipedia says about Ponzi Schemes:

A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business. It is named after Charles Ponzi.[1] The term "Ponzi scheme" is used primarily in the United States, while other English-speaking countries do not distinguish verbally between this scheme and other forms of pyramid scheme.[2]
The scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises (and pays) requires an ever-increasing flow of money from investors in order to keep the scheme going.
The system is destined to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities
increases.
The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted later investors' money to support payments to earlier investors and Ponzi's personal wealth. Today's schemes are often considerably more sophisticated than Ponzi's, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit investor naïveté. However, it has been shown that entering a Ponzi scheme can be rational even at the last round of the scheme if a government will likely bail out those participating in the Ponzi scheme.[3]