Once upon a time three liberal government officials (I'll call them F, D and R) schemed to develop a plan with several characteristics. F insisted that the plan redistribute wealth. D argued that it had to have the appearance (not necessarily the reality) of helping the people especially the working and middle classes. R insisted that it had to provide a big cache of money they could use for whatever purposes they wished. 

After spending much time (and money) they managed to combine these requirements. They would set up a retirement investment program (or actually one that would seem to be such) whereby working people would contribute money to this "investment" program and, upon retirement, would withdraw the money they had "invested" along with the capital gains achieved to meet their needs. A noble endeavor to be sure except that this is not what really happens.

The actual mechanism employed is that the money collected from those working is used to pay those retired-a pure wealth redistribution scheme. When private companies or individuals employ these tactics it's called a Ponzi scheme and is illegal. A Ponzi scheme entices people to invest money and receive considerable returns. The apparent investment returns, however, are actually monies extracted from new arrivals to the scheme. As long as there are enough new arrivals the scheme continues to pay off. But eventually the stream of new arrivals dries up and the scheme collapses.

There is absolutely nothing of an investment nature about this sort of scam. "Investment" implies buying or otherwise acquiring something that (hopefully) increases in value and/or provides interest or dividends or both along the way. The interest and dividends may be collected immediately on being declared or (and usually preferably) may be re-entered into the investment thereby increasing the size of the investment and also increasing the interest/dividend payments - the so-called miracle of compounding.

Now to anyone who says "if you don't like it send back the money you've collected," pardon me while I laugh in your face. Then again, perhaps I made the wrong choice from among the myriad investment opportunities offered to me.

PHIL MEMBURY

Coeur d'Alene

RETIREMENT: More like a Ponzi scheme

Once upon a time three liberal government officials (I'll call them F, D and R) schemed to develop a plan with several characteristics. F insisted that the plan redistribute wealth. D argued that it had to have the appearance (not necessarily the reality) of helping the people especially the working and middle classes. R insisted that it had to provide a big cache of money they could use for whatever purposes they wished.

After spending much time (and money) they managed to combine these requirements. They would set up a retirement investment program (or actually one that would seem to be such) whereby working people would contribute money to this "investment" program and, upon retirement, would withdraw the money they had "invested" along with the capital gains achieved to meet their needs. A noble endeavor to be sure except that this is not what really happens.

The actual mechanism employed is that the money collected from those working is used to pay those retired-a pure wealth redistribution scheme. When private companies or individuals employ these tactics it's called a Ponzi scheme and is illegal. A Ponzi scheme entices people to invest money and receive considerable returns. The apparent investment returns, however, are actually monies extracted from new arrivals to the scheme. As long as there are enough new arrivals the scheme continues to pay off. But eventually the stream of new arrivals dries up and the scheme collapses.

There is absolutely nothing of an investment nature about this sort of scam. "Investment" implies buying or otherwise acquiring something that (hopefully) increases in value and/or provides interest or dividends or both along the way. The interest and dividends may be collected immediately on being declared or (and usually preferably) may be re-entered into the investment thereby increasing the size of the investment and also increasing the interest/dividend payments - the so-called miracle of compounding.

Now to anyone who says "if you don't like it send back the money you've collected," pardon me while I laugh in your face. Then again, perhaps I made the wrong choice from among the myriad investment opportunities offered to me.

PHIL MEMBURY

Coeur d'Alene