It’s A Ponzi Scheme!

Certain sorts of people are quite angry that GOP hopeful, Gov. Rick Perry called Social Security (SSI) a Ponzi scheme. Yet, despite their claims, SSI bears a great resemblance to a Ponzi scheme.

Madoff on SSI
It’s Not Illegal When The Government Does It?

Most, though not all, of the arguments against Gov. Perry’s characterization of Social Security as a Ponzi scheme have their only objective basis in legalism and semantics, not factual analysis of the systems in question or their respective function.

The Securities & Exchange Commission (SEC) defines a Ponzi scheme as:

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.


Fraud is by definition wrongful or criminal deception. Since the creation of SSI and all the changes to it since its inception were done through the law’s fiat, it can’t be fraudulent from a legalistic standpoint. There’s been a great deal of deception and disinformation about SSI’s solvency, independence from the government’s general fund, and trust fund operations over the years though.

As a matter of legality and semantics SSI doesn’t meet the fraud requirement of being a Ponzi scheme.  From an ethical standpoint however, the matter is in some doubt.

Promise Of High Returns

This is one point where SSI absolutely fails to meet the standards for being a Ponzi scheme. Social security doesn’t claim to generate high returns for it’s “investors” because the government doesn’t need to lure in new investors. Participation is mandatory and the rate of “investment” is completely controlled through force of law. The government has absolutely no need to lure anyone in.

Payment Structure

While SSI has “investments” they’re of limited return and 100% of them are in IOUs from the federal government, meaning that each new generation of forced investor is paying for the returns for the previous generation and all the taxpayers are making up the difference as needed.

Given that returns to existing investors are from funds contributed by new investors and there’s a certain lack of honesty in how SSI’s trust fund interaction with the federal government’s general fund is portrayed, there’s little functional difference on this point between SSI and a Ponzi scheme.


What it boils down to is that SSI is what the average private sector fraudster wishes that they could turn a Ponzi scheme into. The real differences between the two things are all a result of the government being the promoter of the scheme in case of Social Security.

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Liberal Dose Of Irony

It was reported by CNN on January 5, 2010 that Congress was going to investigate the Bernard Madoff ponzi scheme.

NEW YORK ( — Lawmakers took a hard look Monday at the alleged $50 billion investment scam engineered by Bernard Madoff that has sent shock waves across the nation’s already fragile financial system.

At a hearing held by a House Financial Services subcommittee, lawmakers largely focused on how Madoff managed to evade detection for so long and whether gaps in regulation allowed him to carry out his alleged multi-billion Ponzi scheme.

“Before we act we need to understand how Mr. Madoff organized his many business operations and how he perpetrated his alleged fraudulent acts,” said Paul Kanjorski, D-Penn, the chairman of the subcommittee.

The irony of this should not be lost on the American people. The man who made $50 billion disappear is now being investigated by the people who have made over $750 billion disappear so far!

Of course the current Liberal regime may be just looking for clues on how Madoff did it so that they can use those methods themselves. After all, ObamaCare is going to need of the “creative” funding help it can get or fabricate. 😉

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