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Social Security and Madoff – Both Pyramid Schemes December 30, 2008

Posted by tkcollier in Economy & Business, Politics.
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madof121820081. Legitimate investment vehicles take investor funds and invest them in businesses, real estate, and other assets. These investments are intend to generate returns for shareholders. Madoff didn’t do this. He paid off early investors with cash from subsequent investors. Investment assets were never purchased.

Similarly, Social Security has no investments. It pays retirees benefits with cash deposited by younger workers. What’s worse is that Social Security has taken in a surplus of funds over the years. Instead of investing the extra funds legitimately, the government spent it on other programs. Now Social Security is completely unfunded — something that’s illegal for companies to do but not the government.

2. Madoff’s early investors received excellent returns, which averaged 12 percent to 14 percent a year. Similarly, Social Security provided excellent returns to its early participants. The first person to receive monthly Social Security benefits was a woman named Ida May Fuller. She paid $24.75 total into the Social Security system over a three year period, and received $22,889 during her lifetime. Even Madoff was not so egregious to provide such a large return to his early investors. (more…)

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