Sunday, September 10, 2017

Anatomy of a Ponzi: Scams Past and Present by Colleen Cross

I am a huge fan of Paul Hindemith.  Not everyone is, I know.  I accept that.  But I have also learned not to apologize when I tell people I'm performing a work by Hindemith.  Everyone assumes that because the piano part is a beast to play that I must hate playing it.  No, I love playing everything by Hindemith.  I, in fact, know what I am getting into when I decide to learn a Hindemith piece.  Music that requires several hours of practice is what I signed up for when I became a professional musician.

The piece I am listening to now is Symphonic Metamorphosis.

Anatomy of a Ponzi: Scams Past and PresentAnatomy of a Ponzi: Scams Past and Present by Colleen Cross

My rating: 3 of 5 stars

" My game was simple. It was the old game of robbing Peter to pay Paul." -Charles Ponzi

In anatomy of a Ponzi, Colleen Cross endeavors to expose the world of investment scams to protect future victims and also hopefully create laws that provide more than a slap on the wrist to scammers.

The first section of the book is a general overview of the sort of mind that creates Ponzi scams. They share ten characteristics with psychopaths. In fact she calls them financial psychopaths:

1. Superficial Charm.
2. Grandiose Self-worth
3. Need for Stimulation, easily bored
4. Pathological liar
5. Manipulative
6. Lack of remorse
7. No emotional depth
8. No empathy for others suffering
9. Parasitic Lifestyle- lives off others money
10. Poor self-control

Hmm...reminds me of a man I once dated...

After giving the general description of Ponzi schemers she gives us the history of several from the past century, starting with the one who gave his name to the fraud, Charles Ponzi.

In 1920, Charles Ponzi discovered that the United States would redeem stamps from around the world at the US rate, even if the stamps were purchased more cheaply in European countries, like Ponzi's home country Italy.

He sold stamps to thousands of people leading them to believe that they could get great returns. He bought the stamps from relatives, then sold them to Americans, assuring them that they could then redeem them with profit.

The problem was that there were no where near enough stamps to accommodate all the thousands that wanted in on the deal. Ponzi did not want his clients to know that so he would pay out the initial investors with the money later investors gave him and hoped nobody would ask for a redemption.

As eventually happens with Ponzi schemes, people want their returns. Often this is provoked by a financial crises that has everybody running to get their money. Of course in a Ponzi scam, there is no money because the scammer was actually spending the money on a lavish lifestyle, giving back just enough to make people believe their investments were making money.

In the end Charles Ponzi defrauded investors of 20 million dollars (225 million in today's dollars).

His prison sentence? 12 years.

Cross devotes several chapters each to other scammers ending with the biggest, Bernie Madoff who defrauded his investors of 65 billion dollars.

Each chapter is a case study of the scammer, his particular investment, how he carried out the scam and his final fate. With the exception of Madoff who got a life sentence because of the publicity, most only got a few years in prison, even though they scammed people out of their life savings.

Ms. Cross also lists the signs of a scam and how they can be avoided. To simplify, if it's too good to be true, it is not true. Any investment that promises unrealistically high returns that over shadow any other investment is probably a scam. She admonishes investors to do their research and provides resources that help to learn the integrity of professional investors and also where to turn if you suspect that you have been the victim of an investment scam.

All of the book was highly informative and if she had stopped with what she knew it would have been a highly instructive book. Unfortunately she felt she had to make her dig against the capital market, pointing out the such scams can only happen where there is free enterprise because countries where governments control business, one will be free of fraud.

Right. Because socialist governments are comprised of people with sterling morals and capitalist governments produce politicians that are greedy goons. Human nature is apparently determined by government structure.

The final mistake Cross made was to predict the next big Ponzi scheme. She asserts that a 100-plus billion dollar Ponzi scam will take place during the next presidential election, on a Monday to be exact, November 14, 2016 to be even more exact in a New York hedge fund. It will be exposed by a rival hedge fund. He will be a highly respected man in his fifties, a lawyer or an accountant. And he'll be driving a Bentley.

Most of her prediction is unimpressive because with the exception of one woman, all the Ponzi scammers in her book meet her description so all she has done is create an amalgamation. The same goes for the type of investment fund.

Ms. Cross took her own gamble and lost. She wrote this book in 2013, and 2016 has come and gone. But hey, it could still happen.

At least I learned a lot about hedge funds, reverse engineering, and how former communist countries are the most vunurable to scams. Ioan Stoica defrauded 4 million Romanians out of 1 billion dollars in 1994 with his Caritas Company, mutual aid scheme. He even had commercials on TV promoting his wonderful "investment". One out of every five Romanians were greedy for high returns on their newly acquired money.

If one doesn't quibble over Ms. Cross' presumption over economic systems or her own fortune telling; if you are interested in the design of a Ponzi scheme and the sort of criminal minds that create them or if you'd like to understand how to avoid them, I would recommend this book.

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  1. Hi Sharon.

    This is a fascinating topic.

    Cross's incorrect prediction sounds glaring. Folks are sometimes so sure of themselves as to create future embarrassment.

    I need to give Paul Hindemith listen.

    Have a great week!

    1. Hi Brian. I thought Cross did a good job giving character studies of the different scam artist but it does seem she got a little full of herself at the end.

      Have a great week! I'm sure you're enjoying a beautiful autumn.

  2. some of H is okay; but a lot of it is like watching traffic; boring after awhile... but i defend your right to like it...
    the book sounds like one that might fill a need... with all our money, we bought cans of tunafish and buried it in the back yard... (not really, but we're very leery re investment of any sort...)

    1. Hi Mudpuddle. Josh and I have been thinking of how to invest our money but after reading the book, we are going to be extremely careful how to go about it.

      The book does have some specific warning signs to look for at least.

      I know Hindemith is not for everyone. In fact, I think he's not for most people. I've just always liked that style of music. I don't know does one justify an aesthetic response? If I tried to it would probably take away what enjoyment I have.

    2. no justification... only something in the genes, i guess; just like my love of Vivaldi and Rossini...

    3. I love Vivaldi and Rossini too. I really love 20th music, always have. Something about the atonality resonates with me.

      I also have different times in my life when I focus on a certain era. As a teenager I loved Romantic, especially Brahms and Schumann, Chopin and Liszt. In college it was Baroque, mostly Bach. But always I enjoyed 20th century and especially now because I pay with so many wind instruments.

    4. it sounds like great fun... and it's wonderful that you have a career that you enjoy and that helps others, also...

    5. Thanks, Mudpuddle. I do feel extremely fortunate to be able to do what I love for a living.

  3. waoo nice post about "Anatomy of a Ponzi: Scams Past and Present by Colleen Cross"


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    1. You're welcome! I hope you will continue to visit.

  4. Sounds like a worthwhile book and another great music choice, as well!

    1. Thanks Marica. Of course now I'm afraid to invest. I'll just leave that to my husband.


I welcome comments from anyone with a mutual interest in the subjects I written about.