According to the Securities and Exchange Commission (SEC) who is charged with prosecuting such things, “a Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.”

The social security “fraudsters” assure an increasing flow of money by legally requiring most U.S. workers and the self-employed people (there are a few political exemptions, like Congress, federal employees, railroad workers, Amish, etc.)  to pay the FICA contribution. To be accurate, the federal government has at times called the FICA payment a tax and sometimes an insurance premium depending upon the case. Like a Ponzi scheme, social security is very popular among the earlier investors (current retirees) who receive benefits much in excess of what they contributed or a similar private investment could have made on average.

With little or no legitimate earnings, private Ponzi schemes require a increasing flow of money from new participants to continue distribute to earlier participants to perpetuate the allusion of the scam. Private Ponzi schemes tend to collapse when it becomes too difficult to recruit an expanding pyramid of new investors (participants) and when a number of participants (retirees) begin cashing out or begin to suspect the scam.

Proponents say that Social Security is different because it has enough money (including current and future contributors who are forced to participate) to payout for another 15 years or so.  Even then, they say, all that needs to be done is raising the contribution (by making more income subject to the tax) and raising the cash out age. Yep, social security is a Ponzi scheme clearly.  In essence, a Ponzi scheme is not a scam unless it collapses.

The social security Ponzi scheme is just currently legal. It is just a compassionate, giant transfer of wealth from the productive generation to an older unproductive, but voting, older one. Unfortunately, declining birth rates and the aging Baby Boom generation means the forced burden falls on fewer and fewer productive workers.  

The schemes are named after Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. At a time when the annual interest rate for bank accounts was five percent, Ponzi promised investors that he could provide a 50% return in just 90 days. Ponzi initially bought a small number of international mail coupons in support of his scheme, but quickly switched to using incoming funds to pay off earlier investors. Charles Ponzi was convicted of fraud and sent to prison.

It is unlikely that current or past administrators and trustees of Social Security will face the same sentence as Charles Ponzi. After all, we who are worried most will soon age and reap our grand reward. We got ours, let future generations bite the bullet.

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An you thought having a car wreck is bad for your auto insurance!

From the USDA-Risk Management Agency website:

Make those last 40 planted acres (actually two 20s) of corn or soybeans count!

by Steve Griffin

This has been a difficult planting season for many, particularly in the eastern Cornbelt and the Northern Plains.  The final planting date (for full coverage) has arrived in some areas or will arrive very soon in others.  “For those farmers who chose the enterprise unit (EU) discount, it is very important that at least 20 acres are planted in two different sections (i.e., in tracts eligible for optional units) in order to preserve the enterprise unit discount,” recommends Steve Griffin, a West Des Moines-based crop insurance consultant.  “If you do not have planted acres in two separate sections, your enterprise discount will be disqualified and your crop insurance premium will approximately double.” advises Griffin.

In order to qualify for the enterprise unit, two or more “optional” units of at lease 20 acres for each crop must be pooled together.  Prevented planting acres do not meet this “planted” requirement.  "Some farmers might be wise to late-plant enough acres of corn in qualifying locations in order to keep the keep the discount, which may be worth thousands of dollars to them in the fall," Griffin concludes.

IN MY OPINION:

Lucky is Better than Smart, but you can't count on always being Lucky

If you could choose to be lucky or smart, lucky is always the best choice. Being smart does not guarantee success. But, being smart does improve the odds that may seem to be against you.

People who are lucky can fall into the trap of thinking they are smart. One of my least rewarded jobs was telling senior managers of a crop insurance company that they had been lucky, not smart, in their previous successes. They wanted to stay the course with even bigger bets. The luck soon ran its course and no one was left to reward the "I told you so." including me.

But good odds aren't the only criteria. You have to be able to stay in the game long enough for the odds to work in your favor. That means you can only make bets you can survive the worst possible outcome (not the average).  Russian roulette can be a very profitable game, if you survive that one bad outcome. Had I been a better teacher of that principle, a great company with wonderful people would not have crashed and burned.

Aggiexpert consultants provide expertise in negotiating the ways and means of managing the risks of production agriculture--either on the farm or beyond the farm gate. We can also diagnose what went wrong when the outcome of these strategies fail or project what can happen both good and bad.

Years of experience, education, and hands-on application make us a valuable partner in evaluating whatever problem you may have or whatever challenge you have to master.

Initial consultations are free.  Call us.

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