Ponzi's Scheme_ The True Story of a Financial Legend - Mitchell Zuckoff [42]
Ponzi knew from his conversation with currency expert Roberto de Masellis at Fidelity Trust Company that few world currencies had suffered as much as the Italian lira. Once valued at five to the dollar, the lira had fallen after the war to twenty to a dollar. With the lower value, Ponzi calculated, a dollar could purchase sixty-six International Reply Coupons in Italy—three times as many as in Spain. Ponzi could scarcely believe it. The same dollar that could buy twenty coupons for five cents each in the United States could buy more than three times as many of the same coupons in Italy. Sixty-six coupons purchased in Rome for a dollar would be worth $3.30 in Boston. Ponzi’s mind reeled at the thought—he was looking at profits of $2.30 on every dollar spent, or 230 percent, before expenses. Other countries might have even more devalued currencies, and the profits would be even more astronomical. One example was Austria. After the war, the Austrian krone had fallen from the equivalent of twenty cents to less than a penny. A thousand dollars would buy 140,000 kronen, which theoretically could purchase more than a half million International Reply Coupons. If redeemed in the United States, Ponzi’s initial thousand-dollar investment would yield stamps worth more than twenty-five thousand dollars.
The hitch, Ponzi understood, would be getting cash for the stamps he bought with the coupons. One possibility would be to sell the stamps at a slight discount to businesses that used large amounts of postage, giving them a bargain on a necessary item while still maintaining huge profits for Ponzi. Another hurdle would be figuring out how to buy and transport the enormous numbers of coupons necessary to turn a significant profit. But those crucial details would wait for another day.
Sitting at his desk, Ponzi could hardly contain himself. The whole calculation had taken him less than five minutes, but he was certain of the conclusion. If he bought coupons in bulk in countries with weak currencies, converted them into stamps, and cashed them in the United States or other countries with strong currencies, he would soon be richer than Rockefeller. All he needed was a small pile of money to get him started with his first stack of coupons. But that was no small hurdle. As the summer of 1919 turned to autumn, Ponzi was deep in the hole.
His first thought was to borrow the money in large sums from a few sources, but his options were limited. Banks were out. He was struggling to make payments on fifteen hundred dollars in loans from Fidelity Trust, and his rejection at the Hanover Trust when he’d sought seed money for the Trader’s Guide gave him a good idea about how Boston’s banks would receive his new idea. Also, he feared that if he thoroughly explained his plan to bankers, they might steal it and leave him cold. He would need private investors, but first he needed proof that his epiphany was more than a pipe dream.
In the weeks after his brainstorm, Ponzi mailed a dollar to each of three acquaintances, one in Spain, one in Italy, and one in France, with instructions to exchange the dollars for the local currency, go to a post office, buy as many reply coupons as possible, and then send them to him in Boston. A few weeks later Ponzi had his answer: His calculations were correct. The Spanish and French deals were a wash, a small profit from Spain and a small loss from France, but the Italian effort was a big moneymaker. In the meantime, while waiting for his European correspondents, Ponzi went to a Boston post office and confirmed that coupons could be exchanged there for stamps. He also began collecting newspaper columns with quotations on foreign exchange rates, to demonstrate the fluctuations to potential investors.
The more Ponzi thought about his idea, the more he liked it. He would