madof scandal generating new material surrounding social security as ‘ponzi scheme’

The Real “Mother Of All Ponzi Schemes”: Social Security
Posted By: Cliff Mason | Senior Writer, Mad Money
| 15 Dec 2008 | 04:44 PM ET

In the all the coverage of alleged con-man Bernie Madoff’s $50 billion Ponzi scheme, I keep hearing that this could be the biggest swindle of its kind in history. That’s just plain wrong.

The largest Ponzi scheme in history is run by the U.S. government and it’s called Social Security. Now I’m not one of those people who wants to privatize social security or thinks it’s definitely going to go bust.

But I can’t deny the similarities between how social security operates and what Bernie Madoff was allegedly doing with his investors, or should we call them marks?

With the Social Security system workers pay 12.4% of their salaries into the system to cover payments to retirees, who themselves paid into the system when they were working. Except the original recipients of social security in the depression never had to pay

payroll taxes because the system didn’t exist when they were working.

Now look at the definition of a Ponzi scheme courtesy of wikipedia: “A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business.”

Hmm, returns to investors come from the money paid in by subsequent investors. That does sound a lot like social security. It’s true there’s no promise of abnormally high returns, and social security isn’t an investment scheme at all, it’s a form of social insurance, but the similarities are pretty jarring.

But the big question is whether social security is essentially fraudulent for younger workers paying into the system right now. Will the demographics of America 40 years from now allow people my age to collect the same kind of benefits that retirees are collecting today? If not, then reforming social security so it’s not a big giveaway from the young to the old should be the second biggest political priority of anyone under the age of 30, right after dealing with this recession.

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We feel bad for the people who came late in investing with Bernie Madoff and got burned when his Ponzi scheme fell apart. Now, I don’t begrudge anyone their social security benefits, but I also don’t want my generation to be feeling sorry for itself when our time to collect comes around and the money isn’t there.

I think most of the worries about the insolvency of social security are overblown, but if we have to reduce benefits or raise the age at which workers can collect at some point in the future, then that hurts my generation. So if you’re young and you think what Bernie Madoff did was wrong, you might want to mobilize and prevent the U.S. government from doing the exact same thing to you. I don’t think this is a left-wing vs. right-wing issue. This is about the young vs. the old; the potential victims and the current beneficiaries.


2 Responses to “madof scandal generating new material surrounding social security as ‘ponzi scheme’”

  1. 1 exichsmeach
    March 8, 2009 at 1:10 am

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  2. 2 stephen
    March 14, 2009 at 5:44 am

    Actually if you would consider that by gov.reports, appeoximately 50% of those who receive social security are non citizens( hint-hint…hmmmmm) This is attested by the General Acounting Ofice as recently as 5 years ago.
    Also, those who are older, were not able to make a high rate on their salries as many who began to receive wages at the beginning of this program were making less than 2.50 and hour. I know this,as a member of my family started out only thirty years ago at a Goodyear plant at this hourly pay rate. This certainly would not allow them to “put away” alot of dough for retirement until the latter part of the 1980’s to the late 1990’s.
    There are all kinds of social programs today that help the young get a leg up that just were not there during the 1920’s-1940’s. Social security today has been weakened not by genuine recepients that have paid in for years, but by crooked politicians that have manipulated the money’s that have flowed into Social security, diverted tax dollars to pork projects in their own states as a reward to those who supported them instead of using it to add in fixing the problems in this program, and refused to “man-up” by not allowing millions of illegals to benefit from social programs(health, housing etc..) that would be used to, again, help keep Social Security solvent.

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