Ponzi scheme is an investment argument in which investors are promised low risk and high return. Ponzi scheme aren’t actually investments. They are just a redistribution of money from old investors to new investors. When new investors can’t support the returns of old investors, the scheme is collapse (Bhattacharya, 2003). For example, investor such as American Business Man Bernie Madoff are able to get a wide array of clients, because of their reputation, not because of their investing ability. Thus they were able to fool many people. It has no any legal obligation. We can discuss on Ponzi scheme through example, Ram gets a few people to invest their money with him. At the end of the year he gives those clients amazing returns that beats every other investors in the market. Needless to say the investors are thrilled. In fact they’re so excited about all the money they’re making that they tell all their friends and family about it too, who tell their friends, who tell their family. In the stock market most investors make money some years and lose money others. But Ram’s Ponzi’s scheme, yeah it never loses money. In fact it always beats the market by a huge margin. But the return he pays to these people aren’t from actual profits. He just takes the money these new guys invest and gives it to these guys. But as soon as you can’t get encourage new money from this group to pay these people the whole pyramid starts to crumble because they’re not getting paid anymore.
Other interesting example is, lets a person starts with his business from 6 blocks and each blocks carry $1, the total investment value is $6. Any ways the client goes to what he thinks is field investor in reality these investor is Ponzi scheme and he says I have $6 the investor says if you give me your $6 and invest with me then I will $9 of return. So the new client give him $6 to investor client is ready for the money the investor gives him back $9 with $3 return of his/her promise. Satisfied client who gets extra $3 benefit goes with his/her friends and finally. Share his/her wonderful investment experience and their 3 of other investor are ready to invest $6, for the Ponzi scheme. Then Ponzi scheme also able to generate high investment and give back to $9 for each. Similarly these 3 also satisfies and motivate for other 5 of each then they also invest $6 each for Ponzi scheme and this time the Ponzi scheme is enable to generate the high return. So that, at this situation Ponzi scheme fails and the schemer does not give the return for his new investor. So that this scheme are not legal. If government always try to catch the Ponzi scheme for putting them in jail because Ponzi scheme is illegal system (Blas, 2009).
Ponzi scheme has a following disadvantage:
These investment are fraudulent.
They are not "actual” investments.
They eventually collapse.
Investors lose a lot of money.
References
Bhattacharya, U. (2003). The optimal design of Ponzi schemes in finite economies. Journal of Financial Intermediation 12, , 2-24.
Blas, J. (2009). Watchdog fears market '‘Ponzimonium’. Financial Times .
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Ponzi scheme is an investment argument in which investors are promised low risk and high return. Ponzi scheme aren’t actually investments. They are just a redistribution of money from old investors to new investors. When new investors can’t support the returns of old investors, the scheme is collapse (Bhattacharya, 2003). For example, investor such as American Business Man Bernie Madoff are able to get a wide array of clients, because of their reputation, not because of their investing ability. Thus they were able to fool many people. It has no any legal obligation. We can discuss on Ponzi scheme through example, Ram gets a few people to invest their money with him. At the end of the year he gives those clients amazing returns that beats every other investors in the market. Needless to say the investors are thrilled. In fact they’re so excited about all the money they’re making that they tell all their friends and family about it too, who tell their friends, who tell their family. In the stock market most investors make money some years and lose money others. But Ram’s Ponzi’s scheme, yeah it never loses money. In fact it always beats the market by a huge margin. But the return he pays to these people aren’t from actual profits. He just takes the money these new guys invest and gives it to these guys. But as soon as you can’t get encourage new money from this group to pay these people the whole pyramid starts to crumble because they’re not getting paid anymore.
Other interesting example is, lets a person starts with his business from 6 blocks and each blocks carry $1, the total investment value is $6. Any ways the client goes to what he thinks is field investor in reality these investor is Ponzi scheme and he says I have $6 the investor says if you give me your $6 and invest with me then I will $9 of return. So the new client give him $6 to investor client is ready for the money the investor gives him back $9 with $3 return of his/her promise. Satisfied client who gets extra $3 benefit goes with his/her friends and finally. Share his/her wonderful investment experience and their 3 of other investor are ready to invest $6, for the Ponzi scheme. Then Ponzi scheme also able to generate high investment and give back to $9 for each. Similarly these 3 also satisfies and motivate for other 5 of each then they also invest $6 each for Ponzi scheme and this time the Ponzi scheme is enable to generate the high return. So that, at this situation Ponzi scheme fails and the schemer does not give the return for his new investor. So that this scheme are not legal. If government always try to catch the Ponzi scheme for putting them in jail because Ponzi scheme is illegal system (Blas, 2009).
Ponzi scheme has a following disadvantage:
These investment are fraudulent.
They are not "actual” investments.
They eventually collapse.
Investors lose a lot of money.
References
Bhattacharya, U. (2003). The optimal design of Ponzi schemes in finite economies. Journal of Financial Intermediation 12, , 2-24.
Blas, J. (2009). Watchdog fears market '‘Ponzimonium’. Financial Times .