Property an even bigger con
Forget Madoff. The biggest ponzi scheme of recent years has been the world housing market.
If a ponzi scheme only allows early investors to get out at high values if new investors come in. That’s exactly what housing markets did until the bubble burst.
Owners could sell only if someone lower down the ladder wanted to buy - and if that buyer was an owner too, he needed a buyer on an even lower rung.
That’s why a steady supply of first-time buyers was so important to put new money into the housing market. But while the returns were appranently so high, would-be owners lined up to buy and banks, eager to lend against collateral rising in value so quickly, provided first-timers with funds.
As with a ponzi scheme, owners who sold were happy to to accumulate their gains even without realising them. Many were so happy at the apparent return they sold and re-invested more in bigger homes.
And as with a ponzi scheme, it exploded when not enough new money came in to support those already in. Once first-time buyers stopped buying, those one step up the housing ladder had no-one to sell to and could not move further up or get out.
As with a ponzi scheme there were eventually not enough investors in the market. That’s why banks tried to entice in unsuitable buyers with sub-prime loans.
And without support the housing bubble burst. Just as Madoff now has.
