What is a Ponzi scheme? How to interpret it in the most popular words?

Ponzi scheme is the operation of investors or subsequent investors to pay back the money, not the actual profit. It usually attracts new investors with ridiculously high return on investment. These returns are either unusually high or persistently abnormal. No matter how the market changes, their income will not be affected.

Ponzi scheme is characterized by:

1, their returns are not based on actual profits, but on growing cash flow.

2. The debtor deliberately concealed the actual situation and lied about the operating income and the source of repayment funds.

"Ponzi" in Ponzi scheme refers to Charles Ponzi (1882- 1949). He was an Italian-born speculator who lived in 19 and the 20th century. 1903 immigrated to the United States. 19 19, he began to plan a conspiracy to cheat people out with a fictitious investment and promised investors a high return. This plot lasted for a year and was later called "Ponzi scheme".

Because Ponzi scheme is not maintained by its own profit, but by the cash flow of the latecomers, it is doomed to failure. Once people participate in Ponzi scheme, it is easy to change from the role of victim to the role of perpetrator. The entrant may see the situation clearly, but most of them are silent for fear of collapse. Without recipients, their investment will never come back. Therefore, Ponzi schemes often rely on external forces, such as the government, to end the schemes.

So, how to distinguish Ponzi scheme from reasonable lending and investment behavior?

We need to know:

1, the loan itself is not a scam.

2. Investment failure itself does not constitute Ponzi scheme. As long as the borrower does not intentionally conceal or cheat, and does not violate the promised use of funds when borrowing, even if he loses all his money, it does not constitute a scam.

3, the return on investment is extremely high, which does not constitute a Ponzi scheme. As long as the high return comes from normal business income, then the high return does not constitute a Ponzi scheme.

4. Borrowing new debts to pay off old debts does not constitute a Ponzi scheme. As long as the borrower reports the loss truthfully, and subsequent lenders or investors still expect to turn losses on the basis of business losses, instead of borrowing new debts, it does not constitute a Ponzi scheme.

There are two differences between Ponzi scheme and reasonable financing:

1, whether the return comes from actual operating profits or new loans.

2. Whether the borrower intentionally conceals the actual operating conditions of the company when borrowing money, and whether there is any situation of concealing or deceiving new investors.