A million dollar ponzi scheme was just taken down in the Twin Cities, leaving investors duped in their investments. We all contribute to a ponzi scheme called 'social security', here's why.

We've all heard of a "ponzi scheme" and I've been somewhat duped by one. Simply put, it's a scheme that asks for money with promises of a return, where that money is used to pay another contributor, and there's not enough to pay everybody back.

Here's the Washington Post's definition of it:

A Ponzi scheme is generally a system in which investors think they’re investing in something real but are instead being used to pay one another back. Eventually, the scheme runs out of new investors and collapses.

You may remember one of the largest ponzi schemes in Minnesota with a Tom Petters, who grew up in St. Cloud, and duped investors of nearly $4 billion through multiple investments into hedge funds. He ended up buying the well-known mail order company named Fingerhut, uBid, Polaroid, and finally Sun Country Airlines -- just before being caught in his ponzi scheme in 2008. Two years later he was sentenced to 50 years in prison.

Just a few days ago, a Mound Minnesota man, named Jeremy Lundin, was found guilty of a $1 million ponzi scheme and was sentenced to 9 years in prison along with 3 years of supervised released, and order to pay nearly $1 million in restitution to his victims.

In a ponzi scheme's early days, the payoff for an investor can be positive, leading the investor willing to put in more money for expectations of a great return, but all they are receiving is a payoff of other new investor's money. At some point the ponzi scheme will collapse and those with money still invested will never see their money again.

There have been many debates on the federal government's "social security" being a similar ponzi scheme, but deemed legal because the government is managing it. The reason for this accusation that social security is a ponzi scheme is because there isn't enough money in the social security "pot" to pay back all the investors (us who work and have that money taken out by law) if we decided to cash out all at once.

The government makes it's case on why it's not a "ponzi scheme" here if you'd like to try to understand it. Of course THEY have rules when you can collect your social security and only in certain amounts, and at a certain age. They're making their money on investments and keeping it solid, but regardless, it's still a ponzi scheme in it's own rule.

I don't want to mislead the severe damage that a ponzi scheme does outside the government-run ponzi scheme of social security, but it does make you wonder how they handle it when it starts to collapse. At some point there will be more people coming to the age of collecting social security than expected, and the pot will not have enough to cover it. When that day happens, it's likely that they'll adjust the rules and collections from current working Americans to cover this failed plan that started in the 1930's.

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