Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
June 14, 1999 01:00 AM

CARL PONZI RETURNS: THE PRIVATIZATION OF SOCIAL SECURITY HARKENS BACK TO AN OLD SCHEME

David Langer
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    While reading in the December Smithsonian about Carlos Ponzi, the man who invented the "Ponzi scheme" back in 1920, it occurred to me that those who wish to privatize Social Security might be operating in much the same manner as Ponzi did. While the parallel isn't 100%, there are key similarities that should give pause to all.

    The Ponzi scheme has wide appeal because it is sold as a way to become rich with little effort. The idea of sizable gains can be irresistible to even sophisticated investors. The scheme, of course, omits critical details. In Ponzi's case, his claim that the investment he would make with the money would provide outlandish yields to investors was so persuasive that he made a fortune in a short time. His upending came when doubts about the viability of such high yields began to surface, but he had a grand time spending his spectacular gains till then.

    The siren song of the privatizers has alluring claims, too: average families can expect to retire with $1 million or more, and low-income families with at least $500,000; they can "choose a privately invested system structured for average, unsophisticated investors . . ." Workers will benefit from the economic growth that can be expected because of the great sums that will pour into the private market, with more new jobs and expanded opportunity.

    (Look at Chile's privatized program, say the privatizers. While Chilean workers earn little, they can expect to have more savings than the average American worker.)

    Privatization also will solve Social Security's financial problem and give workers more control of their money. Moreover, they declare, Social Security is a Ponzi scheme. As with the Ponzi scheme, there is much that is omitted from this sales pitch. There is no mention of the self-interest of the privatizers: the enrichment of the privatizers more than Ponzi imagined.

    As with the Ponzi scheme, it will be necessary for new investors and new money to keep coming in forever to prop up past gains and ensure future capital gains; otherwise, the system collapses. The expenses will be far greater than under Social Security. As stock prices rise, the financial institutions will benefit from increased merger and acquisition activity, which will cause many jobs to be lost. The excessive amount of capital available will cause yields to drop and lead to greater investment risk taking and probable economic collapse (e.g., Southeast Asia).

    Privatization differs from a Ponzi scheme in that at least initially there might be some real value, so long as there are above-average gains in corporate income. As stock prices continue to rise beyond a reasonable valuation, however, buyers of stocks need to beware. Another difference is that some of the spokesmen for privatization are trusted names from the top echelon of the financial world. Thus, they appear to the public to be more believable when giving their public testimony on behalf of privatization, and thus have a quasi-fiduciary responsibility to provide complete information, that is, the risks and the opportunities of privatization, just as they do for their regular clients.

    David Langer is president and consulting actuary of David Langer Co., New York.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Can Sustainable Labeling of Financial Products Prevent Greenwashing?
    Hedge Funds 2.0: Back to the future
    Is there a mid-cap gap in your DC plan?
    Why pursue direct lending in the core middle market?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit