Ever since Bernie Madoff with all the money — fifty billion-with-a-b, apparently – the journals and airwaves have all been abuzz with references to his alleged securities fraud as a “Ponzi scheme.” But few accounts have delved into the back-story of who “Ponzi” actually was, what he did – and the crucial role a watchdog press played in ultimately uncovering the legendary swindler whose name has since been enshrined in the financial Hall of Shame. I thought it might prove illuminating, as this dreadful year collapses to a close, to re-examine the original Ponzi scheme, as it sheds light not only on our tattered global economic system, but as well on what has been dubbed our “Ponzi era” — and indeed, on our entire, shattered, pyramid-like, 21st-Century Ponzi democracy itself.

First, though, who was Ponzi, what exactly did he do – and why, nearly a hundred years later, does he and his eponymous scheme still resonate?

The twelve months that carried America from the summer of 1919 through that of 1920 were laced with lust for a faster and better life — a lust stimulated by war and an influenza pandemic that showed how fleeting and frivolous life could really be, a lust at any cost. Soon the ‘20s started to roar, and Edna St. Vincent Millay greeted the new decade with a book of poems called “A Few Figs from Thistles,” best known for the lines “My candle burns at both ends;/It will not last the night;/But, ah, my foes, and, oh, my friends–/It gives a lovely light.”

She could easily have written that line about Charles Ponzi, the man who took that year in American history to churn millions of dollars and give his name to a scam that still plays havoc with investors today. An Italian immigrant hungry for the best in American status, Ponzi perhaps accurately saw corruption as nothing more than his newly adopted country’s accepted means to an end. After all, America was the land of opportunity and the builder of confidence – and Ponzi turned that confidence into a confidence game that would ruin thousands of people and sink six banks.

In June 1919, Ponzi, a 36-year-old clerk at J.P. Poole, an import-export brokerage house in Boston, stumbled by accident upon a racket that would launch his name into history. He opened a letter from a customer in Spain and discovered a postal reply coupon, enclosed to cover the postage for Poole’s return envelope. Ponzi found that although the customer had paid the equivalent of only one American penny for the coupon in Madrid, it was redeemable at any U.S. bank or post office for a nickel. Why not buy up these coupons around the world, thought Ponzi, and cash them in here? The possibility for financial growth was staggering. He did enough research to determine that most large countries sold these coupons and promptly quit his $16-a-week job.

In short order, however, his legitimate plan to achieve riches slammed into a wall of regulations. There were international rules that prevented more than $75,000 worth of postal reply coupons to be used worldwide annually, but Ponzi merely viewed this revelation as a momentary setback. Spurred by a galloping ego, he figured that if he knew next to nothing about these coupons, what could the average Bostonian know? He circulated among his Italian compatriots in the city’s North End and spun tales of profits to be made with these little known coupons. He told them he had learned moneymaking secrets at Poole’s, secrets that made Rockefeller rich, secrets everyone else could use to become rich as well. Invest with me, promised Ponzi, and in 90 days you will get your money back with 50 percent interest.

Although his offer seemed as difficult to believe as it was to refuse, Ponzi opened an office for a foreign exchange investment firm. His first two customers were immigrants bringing him fifty dollars — something approaching their life’s savings — but most came with ten dollars or less. Ponzi gave them receipts and kept his word the only way he could, finding a second group of investors whose money he would use to pay off the first group in 90 days. And so started a swindle that would stay afloat as long as there were enough Peters to rob to pay all the Pauls. As Ponzi built a bigger and bigger house of cards, the greed and confidence of his investors aided and abetted in his scam, because the greedy many didn’t come back for their money after 90 days — they came back to reinvest it all…

As months went by and the lines outside his office stretched to five blocks long, Ponzi’s own greed knew no quenching. He dreamed of running for mayor and owning banks. Eventually, he took control of the Hanover Trust Company and his old employer, J.P. Poole. He began to pay laborers ten cents for every new dollar they could bring him. Soon, Ponzi’s investors included waiters, bartenders, stevedores and elevator operators. The American Dream began to look real for the working class people of Boston. Everyone seemed able to make money with this scheme – especially Ponzi, who lived luxuriously in a mansion boasting unheard of luxuries such as air conditioning and a heated swimming pool.

By the spring of 1920, Boston’s Brahmin bankers began to worry. Depositors were taking their savings out and giving all the money to Ponzi. At first, the bankers – along with representatives of big business and the press – tried to ignore the little Italian, treating him as a flash in the pan, a man with a crazy scheme that couldn’t last. True, Boston publisher Clarence Barron, a financial expert who published the Barron’s financial paper, called the scheme ridiculous in his own paper, but reporters at the other papers continued to fight their way through the crowds outside Ponzi’s office, completely disregarding the biggest story in New England, to invest their own money

Finally, however, one of one of the editors of the Boston Post became suspicious and assigned investigative reporters to check Ponzi out. Soon panic led to a run on the company. Ponzi bought time by paying out $2 million in three days, but as the Post ran a series of articles, the swindle soon unraveled. By August Ponzi was under arrest, 17,000 people had been cheated of millions, maybe tens of millions.

“By the time this is over,” the Washington Post recently editorialized, “‘Madoff scheme’ may be the new name for mass financial fraud.” Unlike Charles Ponzi, the paper noted, Bernie Madoff “operated in a modern regulatory environment in which numerous authorities, state and federal, were supposed to keep an eye out for such scams” — something other people, such as Madoff competitor Harry Markopolos, observed years ago. Markopolos even told the Securities and Exchange Commission “Madoff Securities is the world’s largest Ponzi scheme.” But as the Post accurately concluded, “the regulators slept.”

So too did our recently deregulated media. Is it possible, I wonder, that there may be a connection between the deregulation of the media and the fact that the same media never warned us of the dangers of financial deregulation? The dots aren’t so hard to connect…

If the current “Ponzi” scandal tells us anything, it is this:

• even the most sophisticated investors are easily fooled;

• the general public therefore needs robust government regulation;

• the public also needs a robust, vigilant media system to safeguard both the marketplace of commerce and the marketplace of ideas and democracy;

• and without aggressive financial regulation and a vigilant press, markets, politics, and our entire society inevitably devolve into corruption for which we all pay the price.

For decades, we have been sold a bill of goods and told incessantly that government isn’t the solution — it’s the problem; that markets are efficient and rational and will self-correct; and that personal wealth, no matter how obtained, matters above all else.

And that’s what I call a Ponzi democracy.

Rory O’Connor discusses his new book, Shock Jocks, with Peter B. Collins.

Listen to interview here )))

Peter B. Collins is now on air on the EAST COAST for the first time - in Boston on WWZN 1510 AM, live 6-9pm EST Mon-Fri. He is one of our favorite and most talented progressive talk show hosts. We’re pleased to see him expanding into the East as part of an effort to level the distribution playing field in news-and-opinion talk radio, which still - as per Shock Jocks - is still more than 90% conservative!

I must protest – even at the risk of having my press credential arbitrarily and summarily revoked – the latest undemocratic decision by New York Mayor Michael Bloomberg.

Fresh on the heels of having abrogated the decision of the people at the ballot box regarding the matter of term limits, Hizzoner’s current controversy revolves around a boneheaded decision by his Police Department to deny official ‘working press’ passes to three men, Rafael Martínez Alequin, Ralph E. Smith and David Wallis, all of whom work for online or nontraditional news outlets — such as this one!

One of them – David Wallis – is well known to me as the founder of featurewell.com, a professional syndication service that provides news coverage to 1,500 publications worldwide. (Disclosure: Wallis and featurewell have syndicated many of my blog posts and articles in the past.) There is NO question that Wallis — who had a valid press identification card for many years, beginning in 1994 — is a legitimate and noted journalist. His articles, for example, have appeared in The New York Times, The New Yorker, and numerous other prominent publications, and he is also the editor of two acclaimed collections of censored articles and cartoons. Nonetheless, as of last year, he has been deemed illegitimate by the NYPD and denied credentials — without explanation. As a direct result, his ability to engage in professional journalistic activities has been hampered, and he says he eventually “ceased to pursue opportunities to report on newsworthy events.”

Mr. Smith, a public information officer for the city’s Correction Department, is also publisher of The Guardian Chronicle, a Web site for black law enforcement workers. He had a press credential from 1996 until 2007, when his application to renew was also denied without a written explanation. And Mr. Martínez Alequin, identified by the Times as “a longtime City Hall gadfly” who had become “persona non grata in City Hall,” has already had his troubles with the powers-that-wannabe. (For example Rudolph Giuliani, that paragon of politesse, once called him a “jerk” and an “embarrassment.”)

For nearly twenty years Martínez Alequin published The Brooklyn Free Press, after which he began the online New York City Free Press, and then the blog Your Free Press. He too was credentialed as a journalist for years — from 1986 to 2000 and again in 2005 and 2006. But in the apparently fateful year of 2007, his application to renew his press pass was denied, and as a result, he was barred for a time from Mayor Bloomberg’s news conferences.

It is unclear whether the fact that Martínez Alequin often criticized Mayor Bloomberg — just as he did with Bloomie’s City Hall predecessors like rude Rudy G — had anything to do with the refusal to grant him credentials. But even if that is not the case, the decision to hold back official recognition of his role as a journalist is blatantly stupid – if only because that inference can and will be made as a result. Why is the Mayor opening himself up to charges that police permits are denied to journalists who may have viewpoints considered controversial? Is the problem perhaps that Martinez Alequin has been insufficiently reverential of powerful politicians? (He once angered Giuliani by noting that the NYPD was “trigger-happy when it comes to blacks and Latinos,” and was later publicly chastised by the current mayor for referring to his autobiography “Bloomberg by Bloomberg” as “Bloomberg on Bloomberg.” Whatever!) In any event, Martinez Alequin has it right when he says, “There are many questions that have to be asked to the mayor or to any elected official that I think the mainstream media very seldom asks.”

After exhausting other means of appeal, the New York Three have now filed a federal lawsuit asserting that the Police Department violated their constitutional rights. The suit contends –- rightly, to my mind — that the city’s regulations governing press credentialing are “unconstitutionally vague,” and the plaintiffs are seeking both compensatory and punitive damages.

Norman Siegel, the attorney representing the three men, told the Times in a phone interview that, “The system of granting press credentials in New York City has run amok and needs to be changed immediately.” Siegel is correct – but why does it require literally making a federal case out of this for the city to begin “investigating the plaintiff’s concerns thoroughly?”

The Times report on the matter by Sewell Chan framed the conflict as one of determining, “In the ever-shifting media landscape of 2008, who, exactly, is a journalist?” Wrong in its entirety! There can be no doubt that people like David Wallis, Rafael Martínez Alequin, and Ralph E. Smith are practicing journalism. That makes them, de facto, practicing journalists.

The City of New York should promptly get this entire matter out of federal court, issue credentials to the three journalists –- along with an official apology -– and then get busy rationalizing their ridiculous credentialing process, or else just get out of the press pass business entirely.

Come on, Mayor Bloomberg -— you’re better than that… Free the New York Three!

Van Jones, one of our nation’s most dynamic and insightful orators, perhaps put it best before a fired-up Netroots Nation. “It’s naïve to expect the next president to fix everything that’s broken,” Jones told digital activists assembled in Austin not too long ago. “In fact, I don’t think we even need a president to fix all our problems. All we really need is a president who will stop breaking everything — then maybe we can fix all our problems ourselves!”

Jones’ remark, while meant as a general observation, can also be specifically applied to the many media problems facing our democracy – and the next president, a self-styled ‘change agent” (but then, aren’t they all?). Given that the outgoing gang in the White House has been among the most horrific on record when it comes to both its assessment and treatment of the press, it would be hard to imagine any succeeding administration could be worse. The Bush Administration’s default approach toward journalists has been to use them when necessary and bypass them when not – while meanwhile employing a panoply of measures aimed at co-opting, intimidating, misleading, minimizing and even impersonating them. From the Pentagon’s penchant for “information dominance” and regard for the Fourth Estate as a “fourth front” in the interminable war on terror, from paid punditry to propaganda-as-news, and from phony video news releases to “controlling the message,” the last eight years have seen a downward spiral in the presidential/press relationship that has left public opinion of, and confidence in, both institutions at all-time lows.

The annual Gallup assessment shows that fewer than one of four Americans now have “a lot or a great deal of confidence” in traditional news media such as television or newspapers – down from about on of three just four years ago. What’s worse, public confidence in the media eight years into a disastrous administration is even lower than that in the presidency itself — although the media did at least manage to attain a higher trust rating than Congress…

So, in addition to his other accumulated troubles, the next president will have a full press plate awaiting him. Items needing urgent action include, but are not limited to:

• combating the pernicious effects of decades of relentless media deregulation and consolidation;
• correcting the vast preponderance of conservative opinions on the radio airwaves by somehow leveling the unbalanced distribution playing field;
• ending the hate speech spewed regularly on the public airwaves by talk radio’s leading shock jocks;
• finding a way to encourage more localism and diversity – resulting in more choices and voices – on the public airwaves;
• returning fairness, balanced discussion and coverage of important issues to those airwaves, while dealing with what the industry trade journal Broadcasting & Cable rightly termed “the manufactured crisis” of the rumored return of the Fairness Doctrine;
• passing a federal shield law to protect journalists, their sources and the public’s right to know;
• rationalizing the current content crackdown and FCC obsession with supposedly “indecent” material;
• freeing public broadcasting by ending Rovian political partisanship and content coercion within the Broadcasting Board of Governors and CPB, and hence PBS, NPR and other outlets;
• finding a mechanism to deal with the declining economic health of newspapers – and along with them, investigative and public service-focused reporting — by recognizing and countering the ongoing crisis in journalism, and hence in democracy, occasioned by the “lost revenue model;”
• embracing the fact that producing, identifying and sharing credible, trustworthy news and information is a public good — and treating it as such;
• helping to support independent media and journalism – economically and otherwise — as a necessary counterpart to more establishment forms.

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Obviously the list is long and growing ever longer. Add in the ongoing online battleground, where large media companies are trying to expand their brand reach; net neutrality; web privacy issues and ads delivered to your virtual doorstep; the impending transition from analog to digital broadcasting, which will take place shortly after Inauguration Day… Clearly the new president will have to have his media game face on. Some observers will argue that, facing a meltdown of the entire economic system, two unsuccessful wars, the eternal struggle to somehow fix our broken health system, and other “more important” problems, media issues will just have to be placed on a back burner.

But such an approach would be shortsighted in the extreme. Whatever the story is, the “other story” is always the media story. Should we be surprised, for example, that our recently deregulated media system totally missed the story of what impact deregulation would have on our financial system? Of course not – and that’s why, in order finally to see true media “change we can believe in,” we’ll need an even more robust and active media reform movement that will dedicate itself to keeping the president’s feet to the fire. More importantly, as per Van Jones, we really need to begin focusing energy on fixing some of our media problems ourselves – provided, that is, that the new president at least stops breaking things!