Ponzi

Get Bob and Alice to both lend you money. Give Alice her money back, with the addition of some really good "interest" you took out of Bob's loan. Stall Bob.

Go back to Alice a little later and see whether she can steer you toward a bigger loan. Alice can. In fact, she'll do it herself. She remembers that big payoff.

Pay Bob with some interest you took out of Alice's latest loan, leaving Bob with a big smile.

Wash, rinse, repeat. Echo the dollars back and forth between these two until one of them is comfortable with a really huge loan. Pocket the money, change your name, and move to another city.

That's the core of a Ponzi scheme, making one mark's investment work to make another mark feel comfortable. Named after Charles Ponzi, who became famously rich using this scheme in 1920. He later became an economic advisor to Benito Mussolini, which might explain a few things about Fascist Italy.

Most Ponzi schemes use much more than two people, and in fact depend on a constant influx of new people putting in money to pay the other ones. Indeed, a common name for Ponzi schemes is "rob Peter to pay Paul", as the principle is the same--except that today's Peter is tomorrow's Paul, until this grows unsustainable. May also be referred to as a Pyramid Scheme. The largest example ever was the $60,000,000,000 collapse of the firm of Bernie Madoff, whose operation was a classic Ponzi scheme. The Reverse Ponzi Scheme is actually a form of the Delayed Wire con.

Literature

 * One such scheme in fiction before the name was created is that run by Merdle in the Charles Dickens novel Little Dorrit. He kills himself just as his scheme is exposed, ruining several characters.
 * In the Dragaera novel Orca, Vlad and Kiera investigate a massive conspiracy that stems from a crooked investment scheme. It turns out that.
 * Used in one of the short stories in the Ellery Queen collection QBI - Queen's Bureau of Investigation.

Movies

 * The Other Guys has Corrupt Corporate Executive Pamela Boardman and her British partner-in-crime Sir Ershon conducting such a scheme. After he attempts to defect with the money, she sends mercenary hitmen after him (and the protagonists, who just happened to arrest him on a minor construction fraud). . The ending credits give the viewers an Edutainment section about what a Ponzi-scheme is and how it works, complete with the appropriate statistics of the 2008 financial crisis.

Live-Action TV

 * Fairly popular as a plot device in police procedurals following the Madoff scandal.
 * Penn and Teller Bullshit featured an episode about multi-level marketing. Now, it's illegal to call a multi-level marketing company a Ponzi scheme since they pay commission on sale of a product. If commissions are paid for recruiting new members, the business is an illegal Ponzi scheme or pyramid scheme. Penn and Teller stood in front of a picture of a large pyramid, all the while complaining to their lawyer about how they couldn't use a certain word just because the companies were selling a product.
 * In Episode 1-7 of Boardwalk Empire Nucky Thompson has a chat with one of his friends, an investor in/victim of Charles Ponzi's Trope Naming scheme.
 * One episode of Two and A Half Men has Alan accidentally sets up a pyramid scheme by asking his friends and family for money for advertisements and paying them back with each other's money. When he realizes what he has done, he decides to just go with it and spends the rest of the money on himself. In the end he is saved because he is bribed by to keep quiet about  and can pay everyone back.
 * The plot of the CBS Sit Com Two Broke Girls is based on the fallout from one of these. Martin Channing was found guilty of executing a Ponzi scheme and all of his bank accounts were frozen, leaving his daughter Caroline without any money to her name and needing work. This led her to seek employment as a waitress in a diner, where she met Max, who she now lives with.
 * Several episodes of Dragnet involved Ponzi schemes. One was a straight-up "give me money, recruit other people to get you money" plan. Another involved a complicated scheme of getting people to buy ad space on a publication that would get them a Get Out of Jail Free Card.
 * Doug in The King of Queens gets conned into one by his neighbor Tim but we never know how Doug manages to get out of it.

Video Games

 * The Eve Intergalactic Bank in Eve Online, the largest scam in that game's history (seeing the theft of 671 billion ISK, which translates to $119,000 at the exchange rates of the time), was one of these. The man who predicted that it was a scam was also, before that bank's collapse, the previous record holder for the title of "largest scam in Eve." Many Eve players take a warped sense of pride in how friendly their game is to scammers.

Real Life

 * When The Great Politics Mess Up occurred, several countries that had previously been Commie Land were suddenly turned into free-market economies. After generations under a planned economy (seventy-four years in the case of the Soviet Union proper), all kinds of schemes naturally abounded, since people really had no idea how economics worked under capitalism.
 * Of all these schemes, the one involving most of the population of Albania tops it. Nasty fallout, though.
 * Another big one was Sergei Mavrodi's MMM from the early New Russia.
 * The dust hasn't settled yet, but the Bernie Madoff scheme has taken the record away from it in terms of sheer amount of wealth destroyed, if not causing an armed rebellion.
 * Adjusting for inflation and overall world economic growth, the all-time biggest Ponzi scheme (so far) was that perpetrated by "The Match King" Ivar Kreuger.
 * Yet another scheme was run by former Boy Band magnate Lou Pearlman.
 * There was a scandal in Mexico involving community savings banks. The marks -- most of them impoverished workers with only a few dollars of savings, whose only education was elementary school, and who made up roughly 40% of Mexico's population -- were lured into legitimate-looking institutions, were promised gigantic interests around 40%, dazed and confused with ebullient econobabble, and then they would pony up their entire life savings, thinking it would finally make them rich. Then the banks played upon the existing corruption and elitism in the Mexican government, and proceeded to bribe the entire judicial system into protecting them once it was time to get away. After a while, all these "savings banks" suddenly closed, and their owners fled to where noone could find them. Cue the occasional Molotov bottle thrown against Mexico's banking authorities.
 * Due to a heavy reliance on housing construction, development, realty and allied trades, the entire economy of the state of Florida before the housing crisis was described as this; a much larger-than-average percentage of the people who already lived in Florida made their living housing the people who were moving into Florida.
 * The Florida land boom of the 1920s was the first and among the most notable of such real estate bubbles; it even forms a (mostly forgotten) plot point in the Marx Brothers film The Cocoanuts.
 * The only difference between an illegal Ponzi scheme and a legal multilevel marketing scheme is that MLM sells a product. Both rely on ever-expanding recruitment, both leave the end-user usually taking the loss, and both suffer a massive problem when the exponentially-increasing number of people needed at every level simply saturates the community. However, MLM companies remain on the right side of the law by selling a product. Since they require the distributors to purchase the product and then try to sell and recruit, the MLM company makes money from gaining new distributors. While a small fraction of MLM participants do make money, the vast majority (even according to figures released by MLM companies) lose money to their so-called employers. So, don't call it a Ponzi scheme - you can get sued. It's absolutely, positively legally distinct from a Ponzi/pyramid scheme.
 * Long story short, be wary of any industry where you have to pay them money upfront before you can make any money. This might be it via membership fees, buying stuff to sell, buying 'samples', anything. If you have to give them any money at all, be careful and consider how much work it will be to earn that much money back. If you only wanted to buy five dollars worth of their stuff, how many sales will it take you to sell off the $100 worth of inventory they make you buy? And remember it make take ten attempts to get a single sale. Are you going to try to sell to 200 people? Just to break even?
 * Many of the legit 'you can be a reseller' companies will let you make sales without making any purchases from them at all. They will obviously recommend that you get some sample products from them to show people, but will let anyone sign up as a reseller without doing that, because they are truly trying to sell a product. So any company that doesn't do that, that tries to make resellers jump through hoops, where the hoops cost money, should be looked at carefully.
 * The fact that MLM companies operate on the edge of legality is a bit of a sensitive issue in Grand Rapids, Michigan, as the world's largest MLM company--Amway--is based in GR and a major contributor to the local economy (half of the the privately-funded public-works institutions in the city are either "[DeVos]" or "Van Andel"). This does not, however, extend to Dick DeVos, the former head of Amway/Quixtar/Whatever, whose failed campaign for Governor was merely one symbol of how disliked he was in the city proper.
 * Speculative bubbles are essentially self-running Ponzi schemes. The open-source peer-to-peer alternative, if you will.
 * The old-age pensions of many countries are structurally similar to Ponzi schemes. These payoffs rely on new workers/employees paying contributions, which are not saved or invested toward the future of the contributors, but immediately handed out to existing pensioners. This system is sustainable as long as the economy keeps expanding and old people die quickly enough, but socioeconomic trends of late have both been working against this.