Ponzis : The Science and Mystique of a Class of Financial Frauds

Ponzis are among the most ubiquitous and least understood phenomena of economic life. They acquired a certain salience with the global financial crisis of 2008 and the crash of Bernie Madoff s celebrated Ponzi scheme. This paper explains the structure of Ponzi schemes and goes on to argue that what makes this such a troubling phenomenon is its ability to be camouflaged amidst legitimate practices. It is shown, for instance, that the common practice of giving stock options to employees could be a potential Ponzi that allows corporations to flourish for a while by borrowing from its own future. The paper goes on to discuss the need for intelligent regulation to incise harmful Ponzis (not all Ponzis are harmful) while taking care not to damage other legitimate activities that surround them.

Bibliographic Details

Main Author:	Basu, Kaushik
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014-07
Subjects:	BANKRUPTCY, BIDS, BORROWER, BORROWING, CAPITAL GAINS, CENTRAL BANKS, COLLATERAL, CONSUMERS, CORPORATE DEFAULT, CORPORATE SOCIAL RESPONSIBILITY, CURRENCY, DEBT, DEBT CRISIS, DEFLATION, DEPOSITORS, DEPOSITS, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DIVIDEND, ECONOMIC LIFE, ECONOMIC THEORY, EMPLOYEE, ENTREPRENEUR, EXCHANGE BOARD, EXCHANGE COMMISSION, FAMILIES, FINANCIAL COMPANIES, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL FRAUD, FINANCIAL FRAUDS, FINANCIAL MARKETS, FINANCIAL PRODUCT, FINANCIAL PRODUCTS, FIXED SHARE, FRAUD, FRAUDS, GOLD PRICES, GOVERNMENT POLICY, HOLDING, HOME MORTGAGE, INCOME, INCOMES, INTERNATIONAL BANK, INVESTING, IRRATIONAL EXUBERANCE, LENDER, LIQUIDITY, LOAN, LOTTERIES, MARKET FORCES, MARKETING, PRICE FLUCTUATIONS, RECESSION, REPUTATION, RETURN, RETURNS, SALES, SECURITIES, SOCIAL RESPONSIBILITY, SPECULATIVE BUBBLE, SPREAD, STARTUP, STOCK OPTION, STOCK OPTIONS, TAX, TRANSACTIONS COST, TRANSACTIONS COSTS, UNEMPLOYMENT, WAGES, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2014/07/19795533/ponzis-science-mystique-class-financial-frauds https://hdl.handle.net/10986/19358
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