Optimal Bankrupts — Deadbeats on an International Treadmill

Abstract

One of the most famous bankers in US history was Charlie (neé Carlos) Ponzi, who ran a small financial institution in one of the Boston suburbs in the 1920s. Charlie promised to pay his depositors or investors 30 percent interest a month. All went well for three or four months; the number of investors increased rapidly and the earlier investors received their interest payments on a timely basis. Then in the fourth or fifth month, the inflow of new funds was smaller than the interest payments on the outstanding deposits, and Charlie defaulted on his promises. Eventually Charlie went to jail.