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.

What's the Difference Between a College and a University?

Chinnapong/iStock via Getty Images
Chinnapong/iStock via Getty Images

Going off to college is a milestone in any young adult’s life. The phrase itself conjures up images of newfound independence, exposure to new perspectives, knowledge, and possibly even one or more sips of alcohol.

In America, however, few people use the phrase “going off to university,” or “headed to university,” even if they are indeed about to set off for, say, Harvard University. Why did college become the predominant term for postsecondary education? And is there any difference between the two institutions?

While university appears to be the older of the two terms, dating as far back as the 13th century, schools and students in North America have embraced college to describe most places of higher learning. There is no rigid definition of the words, but there are some general attributes for each. A college is typically a four-year school that offers undergraduate degrees like an associate or a bachelor’s. (Community colleges are often two-year schools.) They don’t typically offer master’s or doctorates, and the size of their student body is typically the smaller of the two.

Universities, on the other hand, tend to offer both undergraduate and graduate programs leading to advanced degrees for a larger group of students. They can also be comprised of several schools—referred to as colleges—under their umbrella. A university could offer both a school of arts and sciences and a school of business. The University of Michigan has a College of Engineering, for example.

While many of these traits are common, they’re not guaranteed. Some colleges can be bigger than universities, some might offer master’s degrees, and so on. To complicate matters further, an institution that fits the criteria of a university might choose to call itself a college. Both Dartmouth College and Boston College qualify as universities but use the college label owing to tradition. Schools may begin as colleges, grow into universities, but retain the original name.

People tend to think of a university as being more prestigious or harder to get into, but there are too many variables to make that determination at a glance. Some colleges might ask more of applicants than universities. Some universities might be smaller than certain colleges. Either one can be public or private.

Things get a little more convoluted abroad. In the UK, students go off to university (or uni) instead of college. The British version of college is typically a two-year program where students either focus on learning one particular skill set (much like a vocational school) or use the time to prepare for exams so that they can advance to university. Language matters, too; in Spanish, colegio usually refers to high school.

While the terms aren’t strictly interchangeable, there is enough of a difference between the two to try and make the distinction. Keep in mind that some states, like New Jersey, have rules about how institutions label themselves. There, a university has to have at least three fields of graduate study leading to advanced degrees.

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Why Do We Eat Candy on Halloween?

Jupiterimages/iStock via Getty Images
Jupiterimages/iStock via Getty Images

On October 31, hordes of children armed with Jack-o'-lantern-shaped buckets and pillow cases will take to the streets in search of sugar. Trick-or-treating for candy is synonymous with Halloween, but the tradition had to go through a centuries-long evolution to arrive at the place it is today. So how did the holiday become an opportunity for kids to get free sweets? You can blame pagans, Catholics, and candy companies.

Historians agree that a Celtic autumn festival called Samhain was the precursor to modern Halloween. Samhain was a time to celebrate the last harvest of the year and the approach of the winter season. It was also a festival for honoring the dead. One way Celtics may have appeased the spirits they believed still walked the Earth was by leaving treats on their doorsteps.

When Catholics infiltrated Ireland in the 1st century CE, they rebranded many pagan holidays to fit their religion. November 1 became the “feasts of All Saints and All Souls," and the day before it was dubbed "All-Hallows'-Eve." The new holidays looked a lot different from the original Celtic festival, but many traditions stuck around, including the practice of honoring the dead with food. The food of choice for Christians became "soul cakes," small pastries usually baked with expensive ingredients and spices like currants and saffron.

Instead of leaving them outside for passing ghosts, soul cakes were distributed to beggars who went door-to-door promising to pray for souls of the deceased in exchange for something to eat. Sometimes they wore costumes to honor the saints—something pagans originally did to avoid being harassed by evil spirits. The ritual, known as souling, is believed to have planted the seeds for modern-day trick-or-treating.

Souling didn't survive the holiday's migration from Europe to the United States. In America, the first Halloween celebrations were a way to mark the end-of-year harvest season, and the food that was served mainly consisted of homemade seasonal treats like caramel apples and mixed nuts. There were no soul cakes—or candies, for that matter—to be found.

It wasn't until the 1950s that trick-or-treating gained popularity in the U.S. Following the Great Depression and World War II, the suburbs were booming, and people were looking for excuses to have fun and get to know their neighbors. The old practice of souling was resurrected and made into an excuse for kids to dress up in costumes and roam their neighborhoods. Common trick-or-treat offerings included nuts, coins, and homemade baked goods ("treats" that most kids would turn their noses up at today).

That changed when the candy companies got their hands on the holiday. They had already convinced consumers that they needed candy on Christmas and Easter, and they were looking for an equally lucrative opportunity to market candy in the fall. The new practice of trick-or-treating was almost too good to be true. Manufacturers downsized candies into smaller, bite-sized packages and began marketing them as treats for Halloween. Adults were grateful to have a convenient alternative to baking, kids loved the sweet treats, and the candy companies made billions.

Today, it's hard to imagine Halloween without Skittles, chocolate bars, and the perennial candy corn debates. But when you're digging through a bag or bowl of Halloween candy this October, remember that you could have been having eating soul cakes instead.

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