Definition Of Trouble: Champagne Tastes And Beer Budget


I can remember three very odd newspaper stories from the days of my youth. Each of them left a lasting memory, and each taught me something, but none of them taught me anything more practical than a short article in the New London Day halfway through my last year of high school.

It was a short article. It just said that a man called Carlo Ponzi had died, and reminded people that he was the one who had given his name to “Ponzi schemes.” Such things were not as common back then as now, so I had to look up what the term meant.

My! Did I get an education!

Carlo Ponzi was a crook from day one. He arrived in Boston from Italy in 1903 with two bucks in his pocket and — so he later told the New York Times — “a million dollars in hopes.” That he was bright there is no doubt. He wandered the East Coast doing odd jobs at first, but it was no time before he was fluent in English, or before he had worked his way up from lowly dishwasher to high-class waiter in a nice restaurant. But being Ponzi he blew that job the same way he blew jobs all his life: He was fired for shortchanging customers.

In 1907, Ponzi moved to Montreal and learned something he later put to use making a few million. An immigrant name Luigi Zarossi started the Banco Zarossi, a bank set up for the Italian immigrants pouring into the city. Ponzi, always glib, talked his way into a job as assistant teller. Ponzi in a bank was like a fox in a henhouse, but soon he was also the bank manager.

However, Zarossi was no more honest than Ponzi. He had opened his bank and made it a success by doing the impossible: paying out more than he was taking in. He paid 6 percent on bank deposits while everyone else in town paid 3 percent. People flocked to his bank, but the end was inevitable. Zarossi was paying the interest with the money deposited in new accounts. The bank failed, but not before Zarossi bolted for Mexico — along with a large chunk of the deposits.

It was never proven that Ponzi was in on the scheme. Feeling sorry for the Zarossi family, but broke, he came up with a uniquely Ponzi way of doing it. He walked into the offices of a former bank customer, saw no one there, wrote himself a check for $423.58 in a checkbook, and cashed it. When the police caught up with him he just smiled, put up his hands, said, “I’m guilty,” went to prison, and wrote to his mother back in Italy from his prison address, telling her that he was now a “special assistant” to the warden.

You gotta give the guy credit for nerve.

By 1911, Ponzi, having only been in the New World for eight years, was back in prison; this time for smuggling illegals across the border. By 1918 he was out again, back in Boston, married, working in his father-in-law’s grocery store, and still dreaming up get-rich schemes, which failed with regularity. Then something happened which both changed his life and gave birth to the schemes that bear his name. He received a letter from Spain asking for a catalog for one of his failed schemes. In it was an international reply coupon (IRC), which allows someone to pay postage for a reply to another country.

Always the schemer, he noticed that post war instability in currencies made it possible for someone to buy an IRC in some countries, mail it to the United States, exchange it at its face value for U.S. stamps, sell the stamps, and come out ahead. It was perfectly legal, but it would have required a ton of stamps to make any real profit. However, Ponzi’s crookedly fertile mind came up with the idea of claiming to have devised a way of working the system. He began taking investments from people and paying them back 50 percent profit in 90 days, becoming the financial wonder of the 1920s as people stood in long lines to put money into his scheme.

Naturally the bubble burst. His investors lost $225 million in 2013 dollars. Off to jail again went Ponzi. In 1934 Uncle Sam shipped him home to Italy.

Ponzi lived another 15 years, but his name will live forever. Though he wasn’t the first person who ever thought of paying early investors with the money paid in by new investors, he seems to have been the only one who didn’t know when it was time to run off with the loot.

And so at the tender age of 17 I learned something that has kept me out of trouble my entire life:

If it’s too good to believe, Johnny, don’t believe it!

One of these days I’ll tell you about the other two articles. You’ll hardly believe your eyes.


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