Ponzi Scheme Calculator: When will it Collapse?


 

A ponzi schemer would follow these rules in order to keep the scheme going for as long as possible:

  1. Encourage “reinvestment” of income. The less income the schemer pays out, the longer the scheme will last.
  2. Moderate the amount stolen each year. If he steals a smaller amount each year, the scheme will last longer and he will likely be able to steal more money overall.
  3. Discourage redemptions. Paying out principal to investors at a high rate will crash the scheme quickly. Therefore institute a large penalty for early redemptions or promise an even higher Rate of Return if the principal is reinvested instead of withdrawn.
  4. The Rate of Return promised should be higher than alternatives but not so high that paying out income will quickly bankrupt the scheme.
  5. Recruit new money. New money is key to maintaining a scheme for an extended period.

 

The calculator above demonstrates the impact of different factors on the life-span of a ponzi scheme. It assumes that that Promised Rate of Return, Yearly Dollars Stolen, Percentage of Income Reinvested, and Net Redemptions/Contributions are the same every year. These numbers would likely fluctuate each year in real-life. It also assumes that there were no actual investments.The Ponzi Scheme Calculator was developed by Dynamic Securities Analytics, Inc.