Ponzis: The Science and Mystique of a Class of Financial Frauds

15 Pages Posted: 20 Apr 2016

See all articles by Kaushik Basu

Kaushik Basu

Cornell University - Department of Economics; Harvard University - Harvard Institute of Economic Research; IZA Institute of Labor Economics; World Bank

Date Written: July 1, 2014

Abstract

Ponzis are among the most ubiquitous and least understood phenomena of economic life. They acquired a certain salience with the global financial crisis of 2008 and the crash of Bernie Madoff?s celebrated Ponzi scheme. This paper explains the structure of Ponzi schemes and goes on to argue that what makes this such a troubling phenomenon is its ability to be camouflaged amidst legitimate practices. It is shown, for instance, that the common practice of giving stock options to employees could be a potential Ponzi that allows corporations to flourish for a while by borrowing from its own future. The paper goes on to discuss the need for intelligent regulation to incise harmful Ponzis (not all Ponzis are harmful) while taking care not to damage other legitimate activities that surround them.

Keywords: National Governance, Non Bank Financial Institutions, Judicial System Reform, Social Funds and Pensions, Social Policy, Corruption and Anti-Corruption (Superceded), Legislation, Capital Markets and Capital Flows, Government Policies, Legal Products, Corruption & Anticorruption Law, Public Sector Economics, Public Finance Decentralization and Poverty Reduction, Youth and Governance, Legal Reform, Regulatory Regimes, Capital Flows

Suggested Citation

Basu, Kaushik, Ponzis: The Science and Mystique of a Class of Financial Frauds (July 1, 2014). World Bank Policy Research Working Paper No. 6967. Available at SSRN: https://ssrn.com/abstract=2466780

Kaushik Basu (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-2525 (Phone)
607-255-2818 (Fax)

Harvard University - Harvard Institute of Economic Research ( email )

Department of Economics
200 Littauer Center
Cambridge, MA 02138
United States
617-495-8161 (Phone)
617-495-8570 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

World Bank

1818 H Street NW
Washington, DC 20433
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
246
Abstract Views
935
rank
123,247
PlumX Metrics