Bubble, Bubble No— Toil, No Trouble


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 told a Eioston Post reporter interviewing him in his lush Lexington mansion at the height of his dollar-checkered career, “I looked the coupon over. I thought about its value on this side of the Atlantic and its value on the other side. I said to myself: ‘If I can buy one of these stamps in Spain for one cent and cash it for six cents in the United States just because the rate of money exchange is higher here, why can’t I buy hundreds, thousands, millions of these coupons? I’ll make five cents on every one—of this particular kind - so why not?’ Then … I investigated the rate of exchange in many of the other foreign countries. My original theory, ‘Why can’t I make money this way?’ grew more real. Then it became a fact.”

Ponzi explained to the reporter that his operations were being conducted in nine unspecified foreign countries. His agents were bundling international reply coupons in massive quantities back and forth among these countries, although he had now | stopped redeeming foreign coupons in the United States. The scheme might not, he admitted, be considered ethical, but it was positively legal. And the idea was foolproof. He said he had just set up thirty new branch offices throughout New England and was preparing to open an office in New York.

Each morning at eight o’clock his Japanese chauffeur brought him from Lexington in a cream-colored Locomobile limousine to his School Street office. Each morning an ever larger crowd was waiting for the cocky little man with the bouncing step and elegant manner. Police cleared the way for his car. Men cheered him, and office girls blew him kisses. He smiled and bowed, tipped his hat, and sometimes on getting out of his car made a little speech. He exuded jauntiness, from his pointed shoes to his wide, pointed lapels, from the razor-sharp crease of his trousers and his sleeves to the pearl stickpin in his striped moiré tie. Nonchalantly he swung a gold-headed Malacca cane and smoked a Turkish cigarette in an ivory and gold holder. His manner and his manners never failed. “A born aristocrat,” his young wife said of him. For his thirty-eight years and certainly for the hard rows he had already hoed in life, he looked amazingly fresh. There was no sign of a wrinkle on his high forehead. He had a wide mouth above a jaw of almost Mussolini set. His eyes were genial and sympathetic. His voice was soft and convincing, withjust a trace of an Italian accent. Face and voice inspired trust and among some a permanent devotion.