|Digital History ID 3430|
Few people ever see their name enter the English language, but Charles Ponzi did. A "Ponzi scheme" has become synonymous with wild speculation. In September 1919, Ponzi was a 42-year-old former vegetable dealer with just $150 to his name. He promised to return $15 to anyone who lent him $10 for 90 days. His plan, he explained, was to buy foreign currencies at low prices and to sell them at higher prices. After newspapers reported his scheme, dollars began to pour in--$1 million a week. An admirer described him as the greatest Italian of all time: "Columbus discovered America...but you discovered money."
The scheme was too good to be true. Ponzi took in $15 million in eight months, and less than $200,000 was ever returned to investors.
Ponzi symbolized the "get-rich-quick" mentality that infected the public during the 1920s; a vivid example was the Florida land boom. During the 1920s, sun worshipping Northerners discovered Florida's warm winter climate and its sun drenched beaches. Could there be a safer investment? Real estate promoters, including the former presidential candidate William Jennings Bryan, offered seafront lots to investors for 10 percent down. Investors snapped up the properties, much of which turned out to be swamp and scrub land. Prices skyrocketed. A lot 40 miles from Miami sold for $20,000. A beach lot sold for $75,000. Ponzi himself sold lots "near Jacksonville," which were actually 65 miles west of the city. He divided each acre into 23 lots.
The bubble burst in the fall of 1926. Two hurricanes ripped through Florida, killing more than 400 people. Property valued at $1 billion in 1925 dropped to $143 million in 1928.
A wave of stock swindles and business frauds took place during the 1920s. But the most striking manifestation of the decade's speculative frenzy was the stock market boom of 1928 and 1929. After rising steadily during the 1920s, stock prices began to soar in March 1928. Between March 3, 1928, and September 3, 1928, AT&T rose from 179 1/2 to 335 5/8, General Motors from 139 3/4 to 181 7/8, and Westinghouse from 91 5/8 to 313. By the beginning of the fall of 1929, stock prices were four times higher than five years before.
Brokerage houses lured investors into the market by selling stock on margin, requiring investors to only put down 10 or 20 percent of the stock's price in cash and borrowing the rest. By 1929, some 1.5 million Americans had invested in securities.
Boosters like John Jacob Raskob, the chairman of the Democratic Party, encouraged ordinary people to invest in stocks. In an article in the Ladies' Home Journal titled "Everybody Ought to be Rich," he explained that a person who invested $15 a month in the stock market for 20 years would have a nest egg of $80,000. Leading economists encouraged investors to believe that the stock market would continue to rise. Irving Fisher of Yale University announced: "Stock prices have reached what looks like a permanently high plateau." At the end of October 1929, the seemingly endless surge in stock prices came to a crashing halt.