Ponzi, Madoff, and the Fed.(THE LAST WORD)(Charles Ponzi, Bernard Madoff, Federal Reserve Board)

Poor Charles Ponzi is getting another media drubbing. News stories, of late, have been declaring Bernard Madoff's spectacular in- vestment fraud case "the biggest Ponzi scheme in history." Madoff, a former chairman of the NASDAQ stock exchange, was arrested on December 11 and charged with securities fraud involving, reportedly, $50 billion. Ever since, media attention has focused on New York City's famous Lipstick Building in Midtown Manhattan, where Bernard L. Madoff Investment Securities, its most famous tenant, occupies the 17th, 18th, and 19th floors.

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The eponymous Mr. Ponzi was an Italian con man who immigrated to the United States in 1903 and quickly got involved in one illegal scheme after another. The one that earned him lasting fame (or infamy) involved selling international postal reply coupons. He promised a phenomenal 50-percent return in as little as 45 days. And he delivered on the promises--for a time, that is. As news of the fabulous returns spread, new investors flooded in and Ponzi was able to amass a huge fortune and pay out magnificent profits from the new investors' funds. However. like all pyramid schemes, the obligations to pay out soon outstripped the income, and Ponzi's deception was exposed. Investors lost millions and Ponzi went to prison. Madoff may end up behind bars as well. If so, that may offer scant solace to the investors who were bilked of billions through his Ponzi-type scheme, and who will, most probably, never get back any of that money.

But Madoff is being unduly crowned "king" of the Ponzi schemers. He is an amateur by comparison to the real Ponzi artists, those who are getting bailed out by the government and the government officials themselves, who are dealing not in a few measly tens of billions of dollars (which once upon a time counted as "real money" in the scheme of things), but in hundreds of billions--and even scarier, trillions! The gargantuan $700 billion bailout fund voted by Congress in October has already been spent and that is just the tip of the proverbial iceberg.

One of the biggest recipients of the bailout funds thus far has been Citigroup, who will gouge the taxpayers for much of its $300 billion in toxic debt--with the blessings of the U.S. Treasury Department and Federal Reserve. The golden boys at Citi got into this mess with a giant Ponzi scheme selling unmarketable collateralized debt obligations (CDOs)--many associated with bad mortgage debt--that far eclipse Ponzi's postal coupon "creative financing" racket. Former U.S. Treasury Secretary Robert Rubin, a senior counsel at Citigroup, is one of the company's top management named in a ...