securities exchange company (13. 865)

Though somewhat versed in the confidence trick and the underpinnings of grift and scam that cause them to work until they don’t like an audience primed and receptive to get rich quick peddlers, inscrutable investment instruments and FOMO, we realised that we knew very little about the individual behind the eponym, one Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi from Emilia-Romagna, going by Charles after immigrating to Boston in 1903. After a string of odd jobs working up and down the Eastern Seaboard, Ponzi felt he had acquired a business acumen for import-export arrangements and tried to attract companies in Europe attempting to recover after WWI though found no takers. Registering his small office in the city as a corporation with the titular name in 1919—ironic and a full fifteen years before the establishment of the US SEC (Securities and Exchange Commission) in response to the stock market crash and Great Depression charged with the enforcement of laws against markets manipulation—Ponzi was inspired to game the system after receiving a letter from a company in Spain inquiring about his proposed business listing service, which included an international reply coupon—sort of like a self-addressed stamped envelope that was honoured among member countries of the Universal Postal Union for return postage, facilitating writing back since the respondent would not be liable for the fee and one could not use foreign stamps domestically. Recognising the opportunity for arbitrage, inflation having depreciated the cost of postage in Europe and the coupons were not tethered to the exchange rate, Ponzi schemed that he could skim some money off the difference, trading the coupons for higher value American postage. 1. Step One 2. Step Two 3: ??????? 4. Profit Ponzi never quite figured out how it would work since neither the stamps nor the coupons were exactly fungible and could not be redeemed for cash on demand, but it did not matter as he had financial backers who believed in the return on investment. Infeasible as it would have taken, in theory, a cargo load of some forty million international reply coupons to cover the interest payments of just his initial investors, Ponzi realised he could pay out dividends to the older backers using the money coming in from newer ones as more learned of his scheme—even for those due outlays, most re-invested their profits. Much more from Planet Money at the link above—including a fraud that hits at the heart of the podcast.