Who Was Ponzi & What Was His Scheme?

What is a Ponzi scheme? And why does it bear this name? First, you need to know a little bit about its namesake, Charles Ponzi.

Anyone can work a simple swindle, but you have to be a special kind of con man to have your name become synonymous with "fraud." Ponzi pulled it off, though. After arriving in the U.S. from Italy in 1903, Ponzi knocked around in a variety of unskilled jobs that usually ended when he got into trouble for theft or cheating customers. A few years later, he moved to Canada, where he spent a hitch in prison for passing a forged check. When he eventually drifted back down to the U.S., he needed a way to make some quick cash.

Making Money via Mail

Ponzi eventually found his way to get rich quick using a vagary of the postal system. At the time, it was common for letters abroad to include an international reply coupon "“ a voucher that could be exchanged for minimum postage back to the country from which the letter was sent. Thus, if you sent your buddy in France a letter, you could include a coupon so he could respond. (This practice still exists but is less common.) As exchange and postal rates fluctuated, though, there was an opportunity to make a profit. You only had to purchase postal reply coupons cheaply in some foreign country, send them back to the U.S. to swap them out for American stamps of a higher value, then sell these stamps. This arrangement was perfectly legal; it was just cleverly gaming the system. Ponzi started buying and selling postal reply coupons using agents in his native Italy, and he was making a good living doing it.

Unfortunately, whatever defect made Ponzi steal from his employers and pass bad checks prompted him to get greedy here, too. He started to recruit investors into his system with the promise of 50% returns in just a few days. Investors would pay their cash in, and sure enough, Ponzi would get them the promised return. Everyone was happy with the results, and word started to spread about this Italian financial wizard. Within two years, he had employees all over the country recruiting new takers for this foolproof investment strategy.

Ponzi was pocketing millions, and he enjoyed a sumptuous life outside of Boston. At his peak, Ponzi was raking in $250,000 a day, which enabled him to collect such necessities as gold-handled canes. He became a celebrity investor, almost like the Warren Buffett of his day.

The Scheme

Why is it hard to think of Ponzi's name without affixing "scheme" to the end of it, then? Ponzi's underlying "business" — the arbitrage on the postal coupons — wasn't actually as sound as he claimed. In fact, there wasn't even really a business. However, since so much money was flowing in from new investors, he could just pay off the returns for the old ones from the new cash. In fact, Ponzi didn't even need to pay off the old investors, since many of them wanted to reinvest their returns in this wonderful business. Ponzi's charms made it easy for him to placate any worried customers, and his con looked unstoppable.

Fuzzy Math

Eventually, though, smarter financial heads started looking at Ponzi's business. Clarence Barron, owner of the Wall Street Journal and founder of the financial magazine that bears his name, realized Ponzi must have been a huckster and went on the offensive. While Barron conceded that there probably was a way for a person to make a small amount of quick cash on the postal reply coupon scheme, he figured that Ponzi would have to be moving 160 million coupons around to raise the cash he needed to support the business. Since there were only 27,000 postal reply coupons circulating in the world, Ponzi's story didn't check out. (Things only got worse when the Postal Service reported that there wasn't a huge flow of the coupons from one country to the other.)

On top of that, Barron noted that Ponzi told newspapers he invested his own cash in real estate, stocks, and bonds like any normal investor. Barron pointed out the obvious question here: if Ponzi had this failsafe scheme in which he could make a 50% profit, why was he putting his own money into plain old investment instruments that would give him (maybe) a 5% return? Those certainly didn't sound like the actions of a financial genius.

Barron's conclusions ran as front-page news in the Boston Post in July 1920, which would have been damning for most cons. Ponzi was such a charismatic force of nature, though, that many people chose not to believe the paper's report. Few believed that their hero, the man who had "tripled" their life savings, was anything less than 100% legitimate. In fact, the morning that the Post ran Barron's report, investors lined up around the block outside of his office in an attempt to give him more money "“ even after they'd been told that they'd been scammed. Ponzi later boasted that he'd taken in a million dollars in new investments the day the report ran.

The Unraveling

Things were starting to look less rosy for the scammer, though. Although he'd largely placated his investors after Barron's report, Ponzi must have realized his window of opportunity was closing. He hired a publicist, William McMasters, but the PR man saw through Ponzi's lies and renounced his client in the press. James Walsh reprints part of McMasters' slam of Ponzi in his book, You Can't Cheat An Honest Man. Of Ponzi, McMasters said, "The man is a financial idiot. He can hardly add"¦He sits with his feet on the desk smoking expensive cigars in a diamond holder and talking complete gibberish about postal coupons."

The next month, regulators raided Ponzi's office and discovered that he didn't have a huge quantity of postal reply coupons. Since Ponzi had used the mail to notify his marks of how their "investments" were performing, he faced serious mail fraud charges; in total, the government brought 86 charges against him in two separate indictments. Ponzi pled guilty to one of these charges in exchange for a light sentence of five years.

He served around three and a half years, then got his release to face state charges, for which he received a sentence of nine more years. But before he could go back to jail, he jumped bail and tried to start new scams in Florida and Texas. (You'd think the government would have learned their lesson about trusting this guy.) Eventually, though, his time on the lam ran out, and he served his whole sentence.

Upon his release, Ponzi was deported to Italy and spent the rest of his life in poverty before dying in 1949 in Rio de Janeiro, where he's buried in a pauper's grave.

Why Do Supreme Court Justices Serve for Life?

Alex Wong, Getty Images
Alex Wong, Getty Images

There are few political appointments quite as important as a nomination to the U.S. Supreme Court. Unlike a cabinet secretary or an ambassador, justices serve for life. In the modern era, that often means more than three decades on the court—thanks to increased lifespans, justices appointed in the next century are expected to sit on the Supreme Court for an average of 35 years, compared to the average of around 16 years that judges served in the past. Because of this shift, some scholars have begun to question whether lifetime appointments are still appropriate, as the definition of “for life” has changed so much since the constitution was written. But why do justices serve for life, anyway?

Well, for one thing, the U.S. Constitution doesn’t exactly specify that justices and the court are in a “’til death do us part” relationship. Article III says that judges (of both the Supreme Court and lower federal courts) “shall hold their offices during good behavior.” So technically, a judge could be removed if they no longer meet the “good behavior” part of the clause, but there are otherwise no limits on their term. In practice, this means they have their seat for life, unless they are impeached and removed by Congress. Only 15 federal judges in U.S. history have ever been impeached by Congress—all lower court judges—and only eight have been removed from office, though some have resigned before their inevitable removal.

The only Supreme Court justice Congress has tried to impeach was Samuel Chase, who was appointed by George Washington in 1796. Chase was an openly partisan Federalist vehemently opposed to Thomas Jefferson’s Democratic-Republican policies, and he wasn’t afraid to say so, either in his role as a lower court judge or once he was appointed to the Supreme Court. In 1804, the House of Representatives, at then-president Jefferson’s urging, voted to impeach Chase, accusing him, among other things, of promoting his political views from the bench instead of ruling as a non-partisan judge. However, he was acquitted of all counts in the Senate, and went on to serve as a Supreme Court justice until his death in 1811.

The point of giving justices a seat on the bench for the rest of their lives (or, more commonly nowadays, until they decide to retire) is to shield the nation’s highest court from the kind of partisan fighting the Chase impeachment exemplified. The Supreme Court acts as a check against the power of Congress and the president. The lifetime appointment is designed to ensure that the justices are insulated from political pressure and that the court can serve as a truly independent branch of government.

Justices can’t be fired if they make unpopular decisions, in theory allowing them to focus on the law rather than politics. Justices might be nominated because a president sees them as a political or ideological ally, but once they’re on the bench, they can’t be recalled, even if their ideology shifts. Some data, for instance, suggests that many justices actually drift leftward as they age, no doubt infuriating the conservative presidents that appointed them.

The lack of term limits “is the best expedient which can be devised in any government, to secure a steady, upright and impartial administration of the laws,” Alexander Hamilton wrote in the Federalist No. 78. The judiciary, he believed, “is in continual jeopardy of being overpowered, awed, or influenced by its coordinate branches,” and “nothing can contribute so much to its firmness and independence, as permanency in office.” Without lifetime job security, he argued, judges might feel obligated to bow to the wishes of the president, Congress, or the public, rather than confining their work strictly to questions of the Constitution.

While lifetime appointments may be a longstanding tradition in the U.S., this approach isn’t the norm in other countries. Most other democracies in the world have mandatory retirement ages if not hard-and-fast term limits for high court judges. UK Supreme Court justices face mandatory retirement at age 70 (or 75 if they were appointed before 1995), as do judges on Australia’s High Court. Canadian Supreme Court justices have a mandatory retirement age of 75, while the 31 justices of India’s Supreme Court must retire by the age of 65. Meanwhile, the oldest justice now on the U.S. Supreme Court, Ruth Bader Ginsburg, is currently 85 and kicking. Oliver Wendell Holmes Jr., the oldest justice in U.S. history, retired in 1932 at age 90.

Though the U.S. Supreme Court has never had term limits before, there have recently been serious proposals to implement them. Term limits, advocates argue, could combat partisan imbalances on the court. Presidents wouldn’t get to appoint justices purely based on whether someone died while they were in office, and the stakes for political parties nominating a justice would be slightly lower, possibly leading presidents and Congress to compromise more on appointments. One popular suggestion among political analysts and scholars is to impose an 18-year term limit, though critics note that that particular plan does bring up the potential that at some point, a single president could end up appointing the majority of the justices on the court.

In any case, considering such a change would likely require a constitutional amendment, which means it’s probably not going to happen anytime soon. For the foreseeable future, being on the Supreme Court will continue to be a lifetime commitment.

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How Often Should You Poop?

iStock
iStock

When it comes to No. 2, plenty of people aren’t really sure what’s normal. Are you supposed to go every day? What if you go 10 times a day? Is that a sign that you’re dying? What about once every three days? Short of asking everyone you know for their personal poop statistics, how do you know how often you’re supposed to hit the head?

Everyone’s system is a little different, and according to experts, regularity is more important than how often you do the deed. Though some lucky people might think of having a bowel movement as an integral part of their morning routine, most people don’t poop every day, as Lifehacker informs us. In fact, if you go anywhere between three times a day and three times a week, you’re within the normal range.

It’s when things change that you need to pay attention. If you typically go twice a day and you suddenly find yourself becoming a once-every-three-days person, something is wrong. The same thing goes if you normally go once every few days but suddenly start running to the toilet every day.

There are a number of factors that can influence how often you go, including your travel schedule, your medications, your exercise routine, your coffee habit, your stress levels, your hangover, and, of course, your diet. (You should be eating at least 25 to 30 grams of fiber a day, a goal that most Americans fall significantly short of.)

If you do experience a sudden change in how often you take a seat on the porcelain throne, you should probably see a doctor. It could be something serious, like celiac disease, cancer, or inflammatory bowel disease. Or perhaps you just need to eat a lot more kale. Only a doctor can tell you.

However, if you do have trouble going, please, don’t spend your whole day sitting on the toilet. It’s terrible for your butt. You shouldn’t spend more than 10 to 15 minutes on the toilet, as one expert told Men’s Health, or you’ll probably give yourself hemorrhoids.

But if you have a steady routine of pooping three times a day, by all means, keep doing what you’re doing. Just maybe get yourself a bidet.

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