The cost of this plan was pegged
at $6 billion - almost 15 percent of Israel's annual GDP. The
indirect damage remains unknown.
Avaricious and susceptible investors are lured into investment
swindles by the promise of impossibly high profits or interest
payments.
The organizers use the money entrusted to them by new investors to
pay off the old ones and thus establish a credible reputation.
Charles Ponzi perpetrated many such schemes in 1919-1925 in Boston
and later the Florida real estate market in the USA. Hence a "Ponzi
scheme".
In Macedonia, a savings bank named TAT collapsed in 1997, erasing
the economy of an entire major city, Bitola. After much wrangling
and recriminations - many politicians seem to have benefited from
the scam - the government, faced with elections in September, has
recently decided, in defiance of IMF diktats, to offer meager
compensation to the afflicted savers. TAT was only one of a few
similar cases. Similar scandals took place in Russia and Bulgaria in
the 1990's .
One third of the impoverished population of Albania was cast into
destitution by the collapse of a series of nation-wide leveraged
investment plans in 1997. Inept political and financial crisis
management led Albania to the verge of disintegration and a civil
war. Rioters invaded police stations and army barracks and
expropriated hundreds of thousands of weapons.
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