Ponzi scheme in which investors are promised extraordinarily high profits and are initially paid out. However, the payouts are not made from earnings generated on the market. Rather, they are paid from the contributions of newly recruited members. This scheme collapses whenever fewer new members are recruited than there are distributions to be made to existing members (a fraudulent mechanism whereby a person or group of persons wilfully promises exceptionally high returns, and simply uses the amount invested by new entrants to fund the “exceptional” returns paid to the first entrants. The scheme collapses when investors stop bringing new money into the structure, and therefore the exceptional returns suddenly vanish). – The investment of not yet realized speculative profits in new exposures already now (using unrealized profits on an existing security or commodity position as collateral to increase the size of the position). As a rule, securities in this case are highly speculative securities (cats and dogs). – See secret tip, go-go funds, junk bonds, Madoff system, penny stocks, risk-return principle, risk capital, super profit, terror securities.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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