Donald Dunn's Book on Charles Ponzi
Donald Dunn's book on Charles Ponzi is a terrific read! A terrific read several times over, as I am now finishing it for the fourth time. The work repays careful re-reading, and it is almost a shame that it reads so engagingly on first impression, because one may not re-read it. I savoured the psychological insights into how Ponzi made this classic fraud work.
What was also intriguing was the explanation of Ponzi's understanding of how to manipulate credit reputation and the psychology of bank runs combined with his understanding of how to use the bankruptcy laws, as described in the early chapters. I had not realized the extent to which Ponzi had attempted to undermine the banking industry, both in Montreal and Boston. (This is why I hold that there is no significant difference between Enron and Ponzi, except as a matter of scale. Although with Enron there was a real company; but the cheat remains the same: lie to your creditors about the extent of the viability of your business scheme.)
What can we learn today from Donald Dunn's book?
What is most relevant to today’s financial fiascos was your description of how slyly Ponzi undermined the gatekeepers of credit reputation. Ponzi "lent" money to some of the gatekeepers so that they could invest in the Securities Exchange - basically a bribe to keep his business running.
It is a shame that this excellent demonstration of the psychological principles of fraud will probably not attract the academic and regulatory attention that it deserves as most regulators comprehension of the attraction of a Ponzi scheme is very limited, to judge from their advice on how to avoid. The FBI page on Ponzi's is typical. The dry language completely obscures why the hype overcomes the reason.
