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Charles Ponzi And His Scheme Live Again!
by Troy Patton, CPA - Finance Geek
 Charles
Ponzi was an Italian immigrant who came over to the U.S.A. in the early 1900’s.
It was soon after he
grabbed a position as a bank teller in Canada with another Italian immigrant who
opened a bank and paid 6% interest on new Italian immigrants.
This was twice the
going rate at the time. Soon after, Ponzi figured out the bank was in dire
trouble and he learned the owner was in trouble due to many bad real estate
loans.
Sounds familiar does
it not. In addition, the owner was using new deposits to pay part of the 6%
interest while pocketing much of the cash. Later Ponzi used a similar scheme to
create what is today known as a Ponzi Scheme.
Today, the sub prime
real estate crisis has been brewing for a while. It is not until mid 2007, when
signs of the latest Ponzi scheme came to light. Bankers were loaning money from
investors as the promise of higher payouts grabbed their attention.
As more and more real
estate loans went bad, folks stopped throwing money at the sub prime loans and
the banks could not securitize the loans in the open market. (turn loans into
cash as investors paid for higher interest rates.)
In my latest email
postings, I have warned we may test the lows once again as consumer confidence
has hit a 26 year low. Over the last 40 years, when the consumer confidence has
seen these levels, it has usually been followed by a bounce in the market in
excess of 20% over the next 12 months. This time may be no different.
Currently, fear has gripped the markets as I write this article at the end of
June. Warren Buffet has made quite a bit of money by stating, "be fearful when
others are greedy and greedy when others are fearful."
The fear
in today’s markets is tremendous. Many are looking at the markets and think they
should sit on the sidelines until the storm clouds pass. However, to get a
rainbow, flowers, and green grass, we need some rain and heat.
Last
quarter I warned the treasury yields were too low. Well, they have since risen,
even in light of the market falling, the treasury yields have not dropped back
down. This tells me folks are starting to realize inflation is a higher risk
than the professionals expected.
I now
believe real estate will stay in a recession for the next 24 months. It is not
with pride I say this, but the number of delinquent loans will continue to rise
over the next 12 months. In next months article I will explain why the market
will rebound.
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The opinions written within this publications are
the opinions of Troy Patton and are not intended as investment advice or an
offer or solicitation to buy or sell any securities. If you would like to
contact Troy Patton, he can be reached directly at 800-671-5872
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