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Ponzis : the science and mystique of a class of financial frauds, Volume 1
 
Author:Basu, Kaushik; Country:World;
Date Stored:2014/07/16Document Date:2014/07/01
Document Type:Policy Research Working PaperSubTopics:Access to Finance; Emerging Markets; Markets and Market Access; Economic Theory & Research; Debt Markets
Language:EnglishRegion:The World Region
Report Number:WPS6967Collection Title:Policy Research working paper ; no. WPS 6967
Volume No:1  

Summary: Ponzis are among the most ubiquitous and least understood phenomena of economic life. They acquired a certain salience with the global financial crisis of 2008 and the crash of Bernie Madoff’s celebrated Ponzi scheme. This paper explains the structure of Ponzi schemes and goes on to argue that what makes this such a troubling phenomenon is its ability to be camouflaged amidst legitimate practices. It is shown, for instance, that the common practice of giving stock options to employees could be a potential Ponzi that allows corporations to flourish for a while by borrowing from its own future. The paper goes on to discuss the need for intelligent regulation to incise harmful Ponzis (not all Ponzis are harmful) while taking care not to damage other legitimate activities that surround them.

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