Ponzi Scheme: Mortgages Were Pledged to Multiple Buyers at the Same Time

April Charney – a consumer lawyer with Jacksonville Area Legal Aid – and CNBC’s Dennis Kneale noted in February 2009 that courts have found that some mortgages have been sold again and again to different trusts, when they should have only been sold once.

Kneale explained that that is the reason that two different banks sometimes try to simultaneously foreclose on the same home.

"This is a three to seven trillion dollar Ponzi scheme."

via Guest Post: Mortgages Were Pledged to Multiple Buyers at the Same Time « naked capitalism.

 

1910 police mugshot of Charles Ponzi.

“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business.  It is named after Charles Ponzi...One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time...The catch is that at some point one of three things will happen:

(1) the promoters will vanish, taking all the investment money (less payouts) with them;

(2) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);

(3) the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the 'assets' that should exist do not."

via wikipedia