Social Security

Bernard Madoff's mugshot

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Social Security is not a Ponzi scheme. There are some superficial similarities, but the differences are substantial. If you want to read about a real Ponzi scheme, there are several books about Bernie Madoff. I recommend No One Would Listen by Harry Markopolos.

In a true Ponzi scheme, a crook takes money for his/her own use while promising investors a high rate of return. The scheme will collapse if steadily increasing amounts are not invested by increasing numbers of investors. Social Security is administered by the Federal government, which is not a crook, and it is administered at a low overhead cost for the benefit of retirees, not for the benefit of the US government.

I am a Social Security recipient and I hope that it will be there for my son who is now 29 years old. I tell my younger friends that they will determine if Social Security will still be there when they retire at age 70 or thereabouts. If they believe that it will still be there for them, they will elect members of Congress who will ensure that Social Security survives. If they do not, they will elect members of Congress who will ensure that it does not survive. The choice is theirs.

Contrary to false information on Fox and other like sources, Social Security is solvent and likely to stay that way for the next 75 years with some small adjustments. Medicare and Medicaid are the two programs facing more immediate problems, and that is because they address health care costs, not retirement income. The only connection between Social Security and Medicare/Medicaid is that the elderly use both programs.

Please see No One Would Listen | Double Social Security

No One Would Listen

Charles Ponzi (March 3, 1882–January 18, 1949)...

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No One Would Listen, A True Financial Thriller by Harry Markopolos. The Bernie Madoff story written by the whistle blower who brought him down and sent him to prison. Seldom do I read a true life tale as good as this one is, that I hated to see it end because I learned so much.

Harry Markopolos worked for a firm on Wall Street that competed with Bernie Madoff in the hedge fund business. His co-workers and superiors asked him to design a product that they could sell to compete with Madoff. After months and years of trying, he decided that he could not design a legal product that would show the consistency and the high returns that Madoff claimed. Markopolos and a small team worked on their own time for no compensation to discover how Madoff operated. They concluded either that he was violating the law by front-running, which is insider trading, or more likely that he was operating a Ponzi scheme.

Markopolos approached the SEC repeatedly over the years and was ignored. It took the Great Recession to bring down Madoff when redemptions outran new deposits in his scheme. The total losses will never be known because some of the victims don’t want their losses know. It is estimated that the losses exceeded $65 billion dollars. Markopolos lists in great detail the flaws in the SEC with suggestions for improvement. Mary Schapiro, the current head of the SEC, is trying to improve the performance of the agency. It would informative to get Markopolos’s opinion on how she is progressing.

Harry caught the fraud investigating bug and has devoted himself to it full time since the Madoff case. He devotes his time to discovering fraud in the financial world and in health care, by which I think he is referring to the pharmaceutical industry. Here is a paragraph from the book.

“…from the pharmaceutical world, which I had discovered was ripe with fraud. As I had learned in my investigations, the health care industry makes Wall Street look honest. It’s a $2-trillion-a-year business with no controls and with limited auditing. On Wall Street the crooks at least have the decency to try to hide their frauds, but those people cheating Medicare don’t even bother doing that. Wall Street is only taking your life savings, but in health care they may be stealing your life. I was surprised to discover how little ‘care’ there is in health care. It’s obviously no surprise that the pharmaceutical industry is a completely profit-driven business, but the methods companies devised to earn some of the profits were surprising—and in the case I discovered, illegal.”