This is not original work and I do not know the author to whom to give credit. Whoever it was, they did a good job comparing how Madoff made off with investors money and how the government has made off with our contributions for Social Security.
Why did Bernie Madoff go to prison? To make it simple, he talked people into investing with him. Then he didn’t invest their money. He simply took the money from the new investors to pay off the old investors. Finally there were not enough new investors coming in to keep the payments going. Now Madoff is one of the most hated men in America.
Madoff did to his investors what the government has been doing to us with Social Security. There is no meaningful difference between the two schemes except that one was operated by a private individual who is now in jail, and the other is operated by politicians.
Here is a side-by-side comparison.
|BERNIE MADOFF||SOCIAL SECURITY|
|Takes money from investors with the promise that the money will be invested and made available to them later||Takes money from wage earners with the promise that the money will be invested in a “Trust Fund” and made available later.|
|Instead of investing the money Madoff spends it on nice homes in the Hamptons and yachts.||Instead of depositing money in a Trust Fund the politicians use it for general spending and vote buying.|
|When the time comes to pay the investors back Madoff simply uses some of the new funds from newer investors to pay back the older investors.||When benefits for older investors become due the politicians pay them with money taken from younger and newer wage earners to pay the geezers.|
|When Madoff’s scheme is discovered all hell breaks loose. New investors won’t give him any more cash.||When Social Security runs out of money they simply force the taxpayers to send them some more.|
|Bernie Madoff is in jail.||Politicians remain in Washington.|
In a corporate pension plan the corporation makes a pension promise to employees then backs it up with annual cash contributions into a trust fund. The fund then invests in a broad spectrum of securities. If the trust fund managers were to give the money back to the corporation and call it a loan it would be an abuse. The trust would be a sham. But that is exactly how Social Security works.
Funds are withheld from our wages. Our employer matches the amount taken from us and sends the total to the Social Security division. The Social Security division sends it to a trust fund. The trust fund uses it first to pay current retirees then gives the balance to the federal government to do with as it pleases. The federal government thanks the Social Security division and gives them an IOU called a bond. No investments are made. There is no money in the trust fund, only IOU’s.
Our Social Security scheme is indeed a Ponzi scheme.