Thursday, September 3rd, 2026
Bill Bonner, from Poitou, France
“My business was simple. It was the old game of robbing Peter to pay Paul.”
—Carlo Ponzi
Today we give credit where credit is due: to Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi — master of fraud, titan of the rip-off, and unheralded pioneer of modern state finance. His face should be on the $20 bill, not Andrew Jackson’s.
Ponzi was born in Italy in 1882 and landed in Boston in November 1903 with $2.50 in his pocket. He was deported thirty-one years later, back to Italy, with roughly the same amount of money. In between, he worked out the swindle that bears his name and that now serves as the operating system of the United States government. Few men accomplish as much with so little starting capital.
The trick was so simple, so blindingly obvious, that the wonder is it took so long for Ponzi to think of it — and longer still for his investors to think it through. He promised 50% in forty-five days. Guaranteed.
Depositors were, at the time, earning four or five percent on their savings. They took the bait.
How could he offer such returns? Ponzi had spotted an arbitrage. International postal conventions permitted a man to buy a reply coupon in one country and redeem it for stamps in another, at fixed rates that had not kept up with the currencies. So, a coupon bought for the equivalent of a penny in Italy might be exchanged for six cents’ worth of American postage. Buy low in Rome, redeem high in Boston, pocket the difference.
The scheme was unworkable on its face. Yes, you might clear five cents. But Ponzi was taking in money by the sackful — a quarter of a million dollars on a good day, and on one memorable day he paid out better than a million. To cover that with postal coupons you would have had to load a liner stem to stern with the things and float them across the Atlantic. And then what? The coupons could not be turned into cash. They could only be turned into stamps. Even a triumphant arbitrage left you sitting on a mountain of postage stamps.
As it turned out, Ponzi never bought any coupons at all. And almost none of his investors asked. So long as the money kept flowing, all was well.
Here we pause to salute Mr. Ponzi’s remarkably cheerful disposition. It must have been plain to him that robbing Peter to pay Paul is not a durable line of work. Peter put in his money, but only in hope of a return that did not exist. Sooner or later, he would want it back.
He might have forgiven Ponzi for failing to hit the advertised rate — no good investment lasts forever, and investors are wonderfully understanding about that. What Peter would not forgive was learning that his money was gone entirely. Spent. Handed over to Paul.
You would think this might have troubled the man’s sleep. Would he not close his eyes at night and see a whole army of Peters coming down School Street in Boston — deposit slips waving, a few stout fellows with ropes, others with pistols, and somewhere at the back a cauldron of pitch coming nicely to the boil?
Apparently not. He slept like an infant, and spent his days shopping. He bought properties, took stock in several banks, and arranged a takeover of Hanover Trust — the very institution that had earlier declined his application for a loan. He thought he might earn enough money honestly to pay off his depositors. But no bank in Boston was ever going to make enough money to keep pace with Ponzi’s promises.
Later inquiries suggested that Ponzi was not much good at arithmetic. Perhaps he had never noticed that the numbers did not add up — not remotely. His investors certainly hadn’t. Happy as clams with their paper gains, most of them declined to cash out and rolled the winnings into larger piles instead. A man who put in $1,000 in January of 1920 was looking at five or six thousand by the time the thing came apart in August.
Another pause, for the point that matters. Not only was the underlying plan unfeasible — if it had worked, Ponzi would never have breathed a word of it to anybody.
That is the rub with every too-good-to-be-true offer. Were it actually true, you would never hear about it. There is an inverse relation between the size of a promise and the likelihood of its fulfillment, and the mechanism is not mysterious: the more profitable a venture, the less it needs money from strangers, and the less reason its promoters have to go looking for any.
Had Ponzi truly been able to double his money every ninety days, he would have had no use for a staff, a bank, a room full of clerks, or the participation of thousands of Bostonians and all the headaches they bring. Starting alone with $1,000, he would have been a billionaire inside five years, and nobody in Massachusetts would have known his name.
Which is the whole lesson, and it fits on a matchbook: a really good investment is one nobody tells you about. A really bad one is well advertised.
And so, we return to poor Carlo. Deported in 1934, he tried other schemes; none worked half so well as the one that bore his name. He died in 1949 in a charity hospital in Rio de Janeiro, penniless.
But from the grave, like cyclamen in November, rose the financial model of every modern European and American government. They take enormous sums from their citizens. In exchange, they offer protection — largely illusory — and insurance-like arrangements for medicine and old age. And because the system runs on popular elections, it systematically advances the candidate who, like Ponzi, promises more than he can deliver. It is not a flaw in the machine. It is what the machine selects for.
The model was perfected by the shift to fake money in 1971, which allowed the elite to take more and more — not merely from the voters at hand, but from generations not yet born, who are wonderfully easy to negotiate with.
Even so, the arithmetic waits. And the calendar. Eventually a year arrives in which current income will not cover current expenses plus all the past expenses that were shoved forward into it. You can ‘print’ all you want; the public decides how much it is worth.
That is when Peter comes looking for you.
Regards,
Bill Bonner
Paul votes for the thief who promises to steal more. Peter votes for the thief who promises to steal less. And only thieves are on the ballot.
Great article Bill, one of the best of many. I’ll be passing this on to many others. Obviously Ponzi and all like him never read or heeded the lessons of the book of Proverbs in the Bible.Or any other part of the Bible for that matter, especially the parables told by Jesus Christ.