I have a theory about frauds like Ponzi schemes. The theory is that these Fed-induced boom-bust cycles spawn more Ponzi schemes because people come to believe that wealth is easy to come by. There is a populist meme out there that believes that the Big Boys have Inside Dope to make the Big Bucks and that the Little Guys never have a chance to get in on the Spoils.
In a typical boom-bust cycle, the Fed pumps up the money supply, eases credit, and money and credit flows like water. During the Dot com cycle it was into tech stocks. This cycle it was into residential real estate. Bubble money always flows somewhere. So, these poor schmucks who missed out on the tech boom where they saw fortunes made and (not all) lost, felt cheated out of what was rightly theirs. So when the cycle comes around, they jump in.
Ponzi schemes are perfect for these people. Bernie Madoff is probably the new classic example of how this works. You had to know someone to get in. His reputation was as the “Jewish Bond” in that his reputation was impeccable and he always paid off. Only Harry Markopolos dared to ask.
So why are we surprised when former NBA player does it.
Tate George, a former player with the National Basketball Association’s New Jersey Nets and Milwaukee Bucks, was charged with running a $2 million Ponzi scheme that targeted former professional athletes.
George, 43, raised more than $2 million for his company, The George Group, after telling investors his real-estate development portfolio was worth $500 million, according to a Federal Bureau of Investigationcomplaint charging him with wire fraud.
“In reality, The George Group had virtually no income generating operations,” U.S. Attorney Paul Fishman said in a statement.
George used the money he raised to pay early investors in his company and to fund living expenses such as mortgage and child-support payments, restaurant meals, clothing and gas, according to the FBI complaint. George surrendered to the FBI today and is scheduled to appear this afternoon in federal court in Newark, New Jersey. …
George attended the University of Connecticut, where he hit the game-winning shot against Clemson University in the third round of the 1990 National Collegiate Athletic Association tournament. With one second remaining and Connecticut trailing by one, George caught a full-court inbounds pass from teammate Scott Burrell, spun around and hit a 15-foot jump shot as time expired.
He was selected by the Nets with the No. 22 pick in the 1990 NBA draft. In a four-year career, George averaged 4.2 points and 1.8 assists a game.