Bubble, Bubble No— Toil, No Trouble (February 1973 | Volume: 24, Issue: 2)

Bubble, Bubble No— Toil, No Trouble

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Authors: Francis Russell

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February 1973 | Volume 24, Issue 2

Seen from the high oval windows of Boston’s City Hall on that sultry June morning in 1920, the line of stiffbrimmed straw hats bobbing along School Street resembled a roiled, wheat-colored stream. Among the straws were dark blotches of cloth caps, women’s brighter hats, and even the official visors of the police. On the honky-tonk outskirts of Scollay Square the stream grew denser and contracted into the cleft of Pi Alley. Then it flooded left down City Hall Avenue past the blank, rusticated side of City Hall and left again beyond the pigeon-spattered statue of Mayor Josiah Quincy. The stream dissolved into a jabber of individuals who stormed up the dark stairway of Twenty-seven School Street, just below City Hall, to wedge themselves, seething and shoving, along the corridor and into the office of the Securities and Exchange Company.

 

For all its imposing name the Securities and Exchange Company consisted of one man, the dapper, dynamic five-foot three-inch Italian immigrant and financial wizard known as Charles Ponzi, who, it seemed in that Boston summer, had conjured up the secret of perpetual money. He had started the Securities and Exchange Company with a few hundred dollars borrowed from two discreetly silent partners, Louis Casullo and John Dondero. Lend me your cash, he promised in the prospectuses that he mailed out, and in forty-five days you will get it back with 50 per cent interest; in ninety days you will get it back doubled. And since the previous December, when fifteen investors lent him $870 and the following month happily drew out $1,218, he had been keeping his promise. In December Ponzi had paid only 40 per cent interest. By February he had raised the rate to 50 per cent for forty-five days, 100 per cent for ninety. Seventeen new investors paid him $5,290 that month. The good news spread, and in March, no Bostonians left $28,724 at the unpretentious office on School Street. April brought 471 hopefuls with $141,671. Four times that number paid almost a half million dollars in May, and during June, 7,824 persons trudged up the stairs to the Securities and Exchange Company to pay in $2.5 million in cash and receive forty-five- or ninety-day notes in return. In the latter part of the month Ponzi claimed to be receiving $500,000and paying out $200,000 a day, and traffic in School Street had come to a standstill.

It was all very simple, the money wizard explained, merely a matter of knowing how to take advantage of the various and varying exchange rates in different parts of the world. He had conceived his scheme, so he said, when he received a business letter from Spain enclosing a reply coupon — issued as a convenience by international postal agreement—which was exchangeable at any United States post office for a six-cent stamp. Ponzi was struck by the fact that the coupon in Spain had cost the buyer only the equivalent of one cent. As he