How Is a Ponzi Scheme Different Than Insurance?

Posted 4 Feb 2009

If you think about it, a Ponzi scheme is pretty similar to insurance. Both require you to pay into this mysterious vault, both only offer payouts under strict conditions, and both, given a lack of liquidity, can have their reserves completely erased, and the enterprise go up in smoke.

This was an interesting note following the Madoff whistleblower testifying in Congress today.

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So what can we do to protect ourselves from the Bernie Madoffs?

First of all, don’t invest in anything you don’t understand. That applies to investing in startups that you have no idea how they operate to 401ks that have complicated rules and regulations.

Talk with a professional, and do your own research. As we’ve seen, it’s important that you self-educate and find out all the information you can, because even the people we would expect to help us, actually are pulling over a Ponzi scheme.