Thursday, October 6, 2011

Bernie Madoff's Ponzi Scheme.

Explained using marbles.

Pretend you have a lot of marbles, but you still want even more. Your dad promises that if you give him 100 marbles, he can get you a 5% return back in 1 week, which means you would have 105 marbles by the end of the week. Your mom offers 7% and your brother offers 50%. Well obviously you're going to go with your brother because you would be getting way more marbles. So you and all your friends give all your marbles to your brother.

Your brother isn't actually doing anything with the marbles. He's just taking them and waiting for more people to give him more marbles. Then he would give you their marbles.

So you gave him 100 marbles, then the next two guys gave him 100 marbles each, so 200 from those two guys. He gives you your 150 marbles and keeps the other 50. So now your brother owes those two guys, so he gets 300 marbles from the next three guys. Pays those two guys, but now he has to pay those three guys. And this goes on and on.

This is illegal because you can't keep doing that forever. Eventually people won't be giving your brother marbles anymore and the last guys that gave him marbles will lose them all.

Your brother was playing the role of Madoff.


  1. pretty explanatn. well understood. anoder way of sayin, u dont rub Peter to pay paul.