Who Was Ponzi & What Was His Scheme?

What is a Ponzi scheme? And why does it bear this name? First, you need to know a little bit about its namesake, Charles Ponzi.

Anyone can work a simple swindle, but you have to be a special kind of con man to have your name become synonymous with "fraud." Ponzi pulled it off, though. After arriving in the U.S. from Italy in 1903, Ponzi knocked around in a variety of unskilled jobs that usually ended when he got into trouble for theft or cheating customers. A few years later, he moved to Canada, where he spent a hitch in prison for passing a forged check. When he eventually drifted back down to the U.S., he needed a way to make some quick cash.

Making Money via Mail

Ponzi eventually found his way to get rich quick using a vagary of the postal system. At the time, it was common for letters abroad to include an international reply coupon "“ a voucher that could be exchanged for minimum postage back to the country from which the letter was sent. Thus, if you sent your buddy in France a letter, you could include a coupon so he could respond. (This practice still exists but is less common.) As exchange and postal rates fluctuated, though, there was an opportunity to make a profit. You only had to purchase postal reply coupons cheaply in some foreign country, send them back to the U.S. to swap them out for American stamps of a higher value, then sell these stamps. This arrangement was perfectly legal; it was just cleverly gaming the system. Ponzi started buying and selling postal reply coupons using agents in his native Italy, and he was making a good living doing it.

Unfortunately, whatever defect made Ponzi steal from his employers and pass bad checks prompted him to get greedy here, too. He started to recruit investors into his system with the promise of 50% returns in just a few days. Investors would pay their cash in, and sure enough, Ponzi would get them the promised return. Everyone was happy with the results, and word started to spread about this Italian financial wizard. Within two years, he had employees all over the country recruiting new takers for this foolproof investment strategy.

Ponzi was pocketing millions, and he enjoyed a sumptuous life outside of Boston. At his peak, Ponzi was raking in $250,000 a day, which enabled him to collect such necessities as gold-handled canes. He became a celebrity investor, almost like the Warren Buffett of his day.

The Scheme

Why is it hard to think of Ponzi's name without affixing "scheme" to the end of it, then? Ponzi's underlying "business" — the arbitrage on the postal coupons — wasn't actually as sound as he claimed. In fact, there wasn't even really a business. However, since so much money was flowing in from new investors, he could just pay off the returns for the old ones from the new cash. In fact, Ponzi didn't even need to pay off the old investors, since many of them wanted to reinvest their returns in this wonderful business. Ponzi's charms made it easy for him to placate any worried customers, and his con looked unstoppable.

Fuzzy Math

Eventually, though, smarter financial heads started looking at Ponzi's business. Clarence Barron, owner of the Wall Street Journal and founder of the financial magazine that bears his name, realized Ponzi must have been a huckster and went on the offensive. While Barron conceded that there probably was a way for a person to make a small amount of quick cash on the postal reply coupon scheme, he figured that Ponzi would have to be moving 160 million coupons around to raise the cash he needed to support the business. Since there were only 27,000 postal reply coupons circulating in the world, Ponzi's story didn't check out. (Things only got worse when the Postal Service reported that there wasn't a huge flow of the coupons from one country to the other.)

On top of that, Barron noted that Ponzi told newspapers he invested his own cash in real estate, stocks, and bonds like any normal investor. Barron pointed out the obvious question here: if Ponzi had this failsafe scheme in which he could make a 50% profit, why was he putting his own money into plain old investment instruments that would give him (maybe) a 5% return? Those certainly didn't sound like the actions of a financial genius.

Barron's conclusions ran as front-page news in the Boston Post in July 1920, which would have been damning for most cons. Ponzi was such a charismatic force of nature, though, that many people chose not to believe the paper's report. Few believed that their hero, the man who had "tripled" their life savings, was anything less than 100% legitimate. In fact, the morning that the Post ran Barron's report, investors lined up around the block outside of his office in an attempt to give him more money "“ even after they'd been told that they'd been scammed. Ponzi later boasted that he'd taken in a million dollars in new investments the day the report ran.

The Unraveling

Things were starting to look less rosy for the scammer, though. Although he'd largely placated his investors after Barron's report, Ponzi must have realized his window of opportunity was closing. He hired a publicist, William McMasters, but the PR man saw through Ponzi's lies and renounced his client in the press. James Walsh reprints part of McMasters' slam of Ponzi in his book, You Can't Cheat An Honest Man. Of Ponzi, McMasters said, "The man is a financial idiot. He can hardly add"¦He sits with his feet on the desk smoking expensive cigars in a diamond holder and talking complete gibberish about postal coupons."

The next month, regulators raided Ponzi's office and discovered that he didn't have a huge quantity of postal reply coupons. Since Ponzi had used the mail to notify his marks of how their "investments" were performing, he faced serious mail fraud charges; in total, the government brought 86 charges against him in two separate indictments. Ponzi pled guilty to one of these charges in exchange for a light sentence of five years.

He served around three and a half years, then got his release to face state charges, for which he received a sentence of nine more years. But before he could go back to jail, he jumped bail and tried to start new scams in Florida and Texas. (You'd think the government would have learned their lesson about trusting this guy.) Eventually, though, his time on the lam ran out, and he served his whole sentence.

Upon his release, Ponzi was deported to Italy and spent the rest of his life in poverty before dying in 1949 in Rio de Janeiro, where he's buried in a pauper's grave.

Why Do We Eat Cranberry Sauce on Thanksgiving?

MSPhotographic/iStock via Getty Images
MSPhotographic/iStock via Getty Images

While plenty of people eat turkey, mashed potatoes, and pie year-round, it seems like cranberry sauce almost exclusively exists in the Thanksgiving universe. Although we don’t know for sure whether it was eaten at the very first Thanksgiving, the jiggly, gelatinous side dish does have deep roots in the history of America’s fruited plains.

According to Insider, cranberries are one of only three commercially grown fruits native to the United States, and the Wampanoag tribe had been using them for food, dye, and medicine long before feasting with the Pilgrims in 1621. If there were cranberries at the party, they probably didn’t taste much like the sweetened sauce we’re (circumstantially) fond of today; at that point, the settlers hadn’t yet succeeded in growing sugar cane in the New World.

But a little more than 50 years later, according to a 1672 account cited by The Washington Post, the new Americans and Native Americans had both started to enjoy cranberries much like we do at Thanksgiving dinner: “Indians and English use it much, boyling them with Sugar for a Sauce to eat with their Meat.”

In 1796, Amelia Simmons—author of American Cookery, the first-ever American cookbook—took it one step further by recommending that roast turkey be served with cranberry sauce. Considering that the Library of Congress included the book on its list of “Books That Shaped America,” it’s possible that Simmons’s suggestion reverberated through kitchens across the nation, and the tradition gained momentum from there. She does mention pickled mangoes as an alternate side dish for turkey, but the then-Indian import was likely less common than the locally-grown cranberry.

Then, in the early 1800s, Ocean Spray revolutionized the labor-intensive process of hand-picking cranberries from vines with what’s called a wet harvest. Basically, farmers flood the bogs where cranberries grow, and then they wade into the water to collect the floating berries en masse.

farmer wet-harvesting cranberries
A farmer gathering cranberries during a wet harvest.
kongxinzhu/iStock via Getty Images

This was a more efficient technique, but a mass harvest meant that more cranberries got damaged. So in 1912, Ocean Spray began crushing them into canned, jellied cranberry sauce—maximizing the yield and making it easier than ever for every home in America to slice up a cylinder of solid, sugary, berry goodness.

Explore the stories behind your other favorite (or least favorite) Thanksgiving foods here.

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Why Do We Eat Pumpkin Pie at Thanksgiving?

gjohnstonphoto/iStock via Getty Images
gjohnstonphoto/iStock via Getty Images

While it’s possible—even probable—that pumpkins were served at the 1621 harvest festival that’s now considered the predecessor to Thanksgiving, attendees definitely didn’t dine on pumpkin pie (there was no butter or wheat flour to make crust).

The earliest known recipes for pumpkin pie actually come from 17th-century Europe. Pumpkins, like potatoes and tomatoes, were first introduced to Europe in the Columbian Exchange, but Europeans were more comfortable cooking with pumpkins because they were similar to their native gourds.

By the 18th century, however, Europeans on the whole lost interest in pumpkin pie. According to HowStuffWorks, Europeans began to prefer apple, pear, and quince pies, which they perceived as more sophisticated. But at the same time pumpkin pie was losing favor in Europe, it was gaining true staple status in America.

In 1796, Amelia Simmons published American Cookery, the first cookbook written and published in the New World colonies. Simmons included two recipes for “pompkin pudding” cooked in pastry crust. Simmons’s recipes call for “stewed and strained” pumpkin, combined with a mixture of nutmeg, allspice, and ginger (yes, it seems our pumpkin spice obsession dates back to at least the 1500s).

But how did pumpkin pie become so irrevocably tied with the Thanksgiving holiday? That has everything to do with Sarah Josepha Hale, a New Hampshire-born writer and editor who is often called the “Godmother of Thanksgiving.” In her 1827 abolitionist novel Northwood, Hale described a Thanksgiving meal complete with “fried chicken floating in gravy,” broiled ham, wheat bread, cranberry sauce, and—of course—pumpkin pie. For more than 30 years, Hale advocated for Thanksgiving to become a national holiday, writing regular editorials and sending letters to five American presidents. Thanksgiving was a symbol for unity in an increasingly divided country, she argued [PDF].

Abraham Lincoln eventually declared Thanksgiving a national holiday in 1863 (to near-immediate outcry from Southerners, who viewed the holiday as an attempt to enforce Yankee values). Southern governors reluctantly complied with the presidential proclamation, but cooks in the South developed their own unique regional traditions. In the South, sweet potato pie quickly became more popular than New England’s pumpkin pie (mostly because sweet potatoes were easier to come by than pumpkins). Now, pumpkin pie reigns supreme as the most popular holiday pie across most of the United States, although the Northeast prefers apple and the South is split between apple and pecan, another Southern staple.

Have you got a Big Question you'd like us to answer? If so, let us know by emailing us at bigquestions@mentalfloss.com.

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