Much has been made of the current and planned use of government funding as part of the economic "recovery or bailout" process. I would like to submit the following might be a good use of funds for the new administration to consider.

Here is the definition of a Ponzi scheme:

From Wikipedia, the free encyclopedia

A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business. It is named after Charles Ponzi.^[1] A Ponzi scheme has similarities with a pyramid scheme though the two types of fraud are different.

It usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises (and pays) requires an ever-increasing flow of money from investors in order to keep the scheme going.

The system is destined to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitrating international reply coupons for postage stamps, but soon diverted later investors' money to support payments to earlier investors and Ponzi's personal wealth. Today's schemes are often considerably more sophisticated than Ponzi's, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit investor naïveté.

After reading the article below visit the Madoff web site and then ask yourself:

1)Where were our government regulators?

2)How much did they know?

3) Why did they not step in sooner?

NEW YORK (Reuters) - Bernard Madoff, a long-time fixture and powerful adviser on Wall Street, was arrested and charged on Thursday with allegedly running a $50 billion Ponzi scheme, U.S. authorities said.

The former chairman of the Nasdaq Stock Market who remains a member of Nasdaq OMX Group Inc’s nominating committee, is best known as the founder of Bernard L. Madoff Investment Securities LLC, the closely-held market-making firm he founded in 1960.

But the alleged fraud involved a hedge fund he ran from a separate floor of the building where his brokerage is based.

Madoff told senior employees of his firm on Wednesday that “it’s all just one big lie” and that it was “basically, a giant Ponzi scheme,” with estimated investor losses of about $50 billion, according to a criminal complaint against him.

A Ponzi scheme is a pyramid-type swindle in which very high returns are promised to early investors, who are paid off with money put up by later ones.

The $50 billion allegedly lost to investors would make Madoff’s fund one of the biggest frauds in history. When Enron filed for bankruptcy in 2001, one of the largest at the time, it had $63.4 billion in assets.

Prosecutors charged Madoff, 70, with a single count of securities fraud. They said he faces up to 20 years in prison and a fine of up to $5 million.

“Madoff stated that the business was insolvent, and that it had been for years,” Lev Dassin, acting United States Attorney for the Southern District of New York, said in a statement.

Authorities said that, according to a document filed by Madoff with the U.S. Securities and Exchange Commission (SEC) on January 7, 2008, Madoff’s investment advisory business served between 11 and 25 clients and had a total of about $17.1 billion in assets under management.

‘UNFORTUNATE SET OF EVENTS’

“Bernard Madoff is a longstanding leader in the financial services industry,” his lawyer Dan Horwitz told reporters outside a downtown Manhattan courtroom where he was charged. “We will fight to get through this unfortunate set of events.”

A shaken Madoff stared at the ground as reporters peppered him with questions. He was released after posting a $10 million bond secured by his Manhattan apartment.

The SEC filed separate civil charges.

“Our complaint alleges a stunning fraud — both in terms of scope and duration,” said Scott Friestad, the SEC’s deputy enforcer. “We are moving quickly and decisively to stop the scheme and protect the remaining assets for investors.”

The SEC said it appeared that virtually all of the assets of his hedge fund business were missing.

Madoff had long kept the financial statements for his hedge fund business under “lock and key,” according to prosecutors, and was “cryptic” about the firm.

Bernard L. Madoff Investment Securities has more than $700 million in capital, according to its website. It is a market maker for about 350 Nasdaq stocks, including Apple, EBay and Dell, according to the website.

The website also states that Madoff himself has “a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark.”

The company’s web site may be found here: www.madoff.com/

ARDSTRAND (VG): Mary was a newlywed and ready to move to Norway, but was stopped at the airport because she didn't have enough money for the trip. Then a stranger turned up and paid for her Mary Menth Andersen was 31 years old at the time and had just married Norwegian Dag Andersen. She was looking forward to starting a new life in and in Vestfold with him. But first she had to get all of her belongings across to Norway. The date was November 2nd, 1988. At the airport in Miami things were hectic as usual, with long lines at the check-in counters. When it was finally Mary's turn and she had placed her luggage on the baggage line, she got the message that would crush her bubbling feeling of happiness: You'll have to pay a 103 dollar surcharge if you want to bring both those suitcases to Norway, the man behind the counter said. Mary had no money. Her new husband had travelled ahead of her to Norway, and she had no one else to call. I was completely desperate and tried to think which of my things I could manage without. But I had already made such a careful selection of my most prized possessions, says Mary. Although she explained the situation to the man behind the counter, he showed no signs of mercy. I started to cry, tears were pouring down my face and I had no idea what to do. Then I heard a gentle and friendly voice behind me saying, OK, l willl pay for her. Mary turned around to see a tall man whom she had never seen before. He had a gentle and kind voice that was still firm and decisive. The first thing I thought was, Who is this man. Although this happened 20 years ago, Mary still remembers the authority that radiated from the man. He was nicely dressed, fashionably dressed with brown leather shoes, a cotton shirt open at the throat and khaki pants She was thrilled to be able to bring both her suitcases to Norway and assured the stranger that he would get his money back. The man wrote his name and address on a piece of paper that he gave to Mary. She thanked him repeatedly. When she finally walked off towards the security checkpoint, he waved goodbye to her. The piece of paper said Barack Obama and his address in Kansas, which is the state where his mother comes from. Mary carried the slip of paper around in her wallet for years, before it was thrown out. He was my knight in shining armor, says Mary, smiling. She paid the 103 dollars back to Obama the day after she arrived in Norway. At that time he had just finished his job as a poorly paid community worker in Chicago, and had started his law studies at prestigious Harvard universityIn the spring of 2006 Mary's parents had heard that Obama was considering a run for president, but that he had still not decided. They chose to write a letter in which they told him that he would receive their votes. At the same time, they thanked Obama for helping their daughter 18 years earlier Mary's parents dated May 4th, 2006 and stamped United States Senate, Washington DC, Barack Obama writes: "I want to thank you for the lovely things you wrote about me and for reminding me of what happened at Miami airport. I'm happy I could help back then, and I'm delighted to hear that your daughter is happy in Norway. Please send her my best wishes. Sincerely, Barack Obama, United States Senator. The parents sent the letter on to Mary. This week [we] met her and her husband in the cafe that she runs with her friend Lisbeth Tollefsrud in Ardstrand, "Its amazing to think that the man who helped me 20 years ago could become the next US president" said Mary. Originally printed in VG newspaper in Norway; translated by Leisha Camden.

The financial mice that are at the root of the US financial system collapse are the unregulated "credit default swaps" that are linked to collateralized mortgage obligations that provided the liquidity for the US housing market and investors around the world. AIG was one of the largest holder and seller of credit default swaps which in good times generated 44% annualized returns to the investors. However, due to the debt to equity ratio when the market was growing and foreclosures stayed within the normal range all was well, but when the foreclosure and default rate exceeded the terms of the guaranteed investment contracts providing the guarantees the cash collateral requirements exceeded the ability of the sellers to meet those requirements. These highly leveraged financial mice triggered the massive stampede of investment banks and secondary market mortgage holders on Wall Street running for the out door all at the same time.