If forced to choose one phrase to describe the U.S. economy in the 21st century's first decade, Ponzi scheme would not be bad.
The bubble in real estate values that defined the period was not a Ponzi scheme in the traditional sense, but it still depended on taking money from one party to pay another.
As long as house prices rose, borrowers could refinance their mortgages, paying off the old lender with money from a new one. When the new money dried up, the entire country crashed and nearly brought the world economy down with it.
"Every refinancing is a Ponzi scheme," said Tamar Frankel, a Boston University law professor, who has studied the Ponzi phenomenon, where money from new investors is used to pay off previous investors.
Virtually every corporation does that with bonds, selling new bonds to pay off old bonds, in the normal course of business. The structure is fine. What matters is when the slippery slopes start, Frankel said. "Where does something that is really questionable become a gamble without any rationality?"
That fatal slide occurred in the first half of the decade at American Business Financial Services Inc., a subprime-mortgage lender in Philadelphia that went bust in 2005 with losses of $700 million for thousands of mostly elderly mom-and-pop investors.
It happened with Bernard Madoff and with Philadelphia's own Ponzi schemers: Joseph S. Forte on the Main Line, Ron Schnable in the Mennonite stronghold of Souderton, and allegedly with Tony Young in Chester County horse country, and maybe with Troy Wragg of Manayunk, who has denied civil charges.
Solid data on Ponzi schemes, which are not legally defined, are hard to get, experts said. A spokesman for the Securities and Exchange Commission said the agency filed charges in 70 of the schemes in 2007 and 2008. In 2009, there were 55 as of Dec. 4.
Counting Ponzi artists may be hard, but once they are exposed, it is easy to see they have a lot in common.
They tend to be entrepreneurial hustlers, and they gain credibility by winning over a pillar of the community or by exploiting a connection to a group. Like gambling addicts, they are always looking for one last chance, Frankel said. Forte, for example, told his probation officer that the only way he could reimburse his victims was to have another shot at investing.
Some of them are crooks from the start, said criminologist Adam Graycar, who recently left Rutgers University in Newark. Others start with good intentions, he said, but resort to what are supposed to be stopgap measures, and then go too far to turn back.
Among the victims are the greedy and the trusting. "When you've got the greed and the crook together, then you've got dynamite," Graycar said.
Ron Schnable remained relatively obscure while operating a series of schemes from 1995 to 2003 that took advantage of middle-class Montgomery County Mennonites and others around Souderton.
When Schnable appeared for sentencing last January in federal court in Philadelphia, wearing a green prison jumpsuit, his face covered by a bushy beard and his scraggly hair pushed across his balding head, it was hard to imagine him as a man able to persuade his victims to mortgage their homes and give him that money.
Schnable, who lost his securities license in 1996 because of a previous fraud, did it by preying on people at vulnerable moments in their lives, by touting a humanitarian angle to his investments, by promising a guaranteed return, and by being one of them.
"He talked a lot about his faith, his family, our community," Deborah Steiner, who lost $285,000 to Schnable, said at the sentencing hearing. Steiner said she was comforted by the knowledge that Schnable's two daughters attended a Christian school.
"Ron knows exactly where your vulnerable moment is and goes after it with a vengeance," said Steiner, whose guard fell when her husband lost his job.
Steiner, among 38 victims, was pulled into Schnable's fraud by talk of a housing development that would help needy residents of Costa Rica.
Steiner, of Souderton, said she first knew Schnable as a butcher. Ever hustling for new business, Schnable, 47 when he was sentenced to eight years in prison, sold mutual funds and mortgages before swindling people with deals for shipping sugar to Russia, building projects in the Caribbean, and advertising in supermarket parking lots.
Schnable maintained that all he wanted to do was build a business but that too many things went wrong. "I was so overwhelmed, I didn't know how to explain it," he said. "I wanted to see it all work out."
Joseph S. Forte, finding his victims on the Main Line, operated in a much different milieu than Schnable, but the two shared a drive to establish themselves as businessmen.
Before starting an investment fund in 1995 that over 13 years defrauded 76 investors of $35 million, Forte owned a gym in Havertown and then a computer-sales business in Upper Darby.
Neither of the businesses made money. The gym was supported financially by his mother, and the computer business was kept alive by his mother-in-law, according to testimony last month at Forte's sentencing.
In some ways, Forte, 53, was a textbook Ponzi schemer. He got his start by winning over leaders of the community, including a Main Line accountant he became friendly with at meetings of the Haverford Township Rotary Club.
To ease himself into the same circles in which his wealthy victims lived, Forte invested in private companies, joined the boards of private schools, and donated millions in charitable causes - all with money he was supposed to use for trading futures contracts on the Standard & Poor's 500-stock index.
Frankel, the Boston University professor, said perpetrators of Ponzi schemes typically had a "complicated and not necessarily all-black type of personality."
That description fits Forte, who volunteered as strength coach for the football team at Malvern Preparatory School and was an assistant football coach at St. Anastasia's parish in Newtown Square, where he was a member.
Forte lived well on other people's money, but not outrageously so. When his scheme collapsed a year ago, his houses in Broomall and Sea Isle City were heavily mortgaged. A week after Forte reports to prison Jan. 8 for his 15-year term, his wife, Bernadette, will have to vacate the Broomall house, where they raised four children.
The approach of Chester County's Tony Young, who has been accused by the Securities and Exchange Commission of a $23 million investment fraud, differed markedly from that of Forte.
Young, who came across to some as a spoiled rich kid, apparently abhorred debt.
He owned three houses outright: in Mount Desert, Maine; in West Marlborough Township near Coatesville; and in Palm Beach, Fla., just a few hundred feet from Bernie Madoff's house in that wealthy enclave.
While authorities unravel Young's alleged scheme and as victims adjust to life with millions of dollars less than they thought they had, Young has been allowed to continue living with his wife and two young children in the $2.1 million Florida residence paid for with investor money.
After civil charges were filed in April, Young agreed to turn over his assets to authorities. Criminal charges have not been filed.
Young, formally known as Donald Anthony Walker Young, moved from Georgia to Chester County and, in 1999, founded his investment company, Acorn Capital Management L.L.C., touting his abilities as a value investor.
Like Forte, Young, 38, gained access to investors through connections with well-respected members of a community. In the place of Forte's Main Line businessmen and Schnable's Montgomery County Mennonites, Young found wells of cash on Chester County horse farms.
To fit in, Young supported pet causes of rural Chester County, such as the Pennsylvania Hunt Cup; and SAVE (Safety, Agriculture, Villages & Environment Inc.), a nonprofit founded by a key early investor, W.B. Dixon Stroud Jr. Its goal: Preserve the Route 41 corridor.
But more than other local Ponzi schemers, Young appears to have been just as interested in enjoying the perks of the wealthy whose money he was stealing. A knock on him and his wife by locals was that money never bought them good taste.
He had a stable of cars, including Volvos, a BMW, a Porsche, and two Mercedes-Benzes, and played sports associated with the wealthy: polo, foxhunting, and yacht-racing.
The Sagara, the 33-foot sailboat he used to win a race in 2007, is among the trappings of Young's lavish lifestyle being sold to raise cash for defrauded investors. The asking price is $72,000.
It takes a strong salesman to pull off a Ponzi scheme.
Troy Wragg, who is fighting civil charges by the SEC that he operated a Ponzi scheme with a hook in green technology, has a compelling personal sales pitch down pat.
Wragg, 28, woos listeners with a hardscrabble tale of having lived in 42 of 50 states, of having been homeless with his family from ages 9 to 15, and of using those experiences as his motivation to help people through business.
But pieces of his story, as told in an August interview on Executive Leaders Radio, do not fit neatly.
He spoke of a stable childhood in Allentown - just before mentioning that he had been homeless as a boy. Then Wragg talked of starting a cleaning business at the age of 17, specifying that it happened about four years after his bout with homelessness.
That math might not work out, but some of the 100 investors who gave $54 million to Wragg and his Mantria Corp. of Bala Cynwyd since 2007 remain convinced that the math behind guaranteed annual returns of at least 17 percent was sound.
One investor said the SEC was on a "witch-hunt." Another said her faith in Mantria and the green technology that produces a charcoal-like substance from plant material and generates electricity as a byproduct was unshaken.
"We have personal relationships with the CEO and COO," said another, referring to Wragg and his partner, Amanda Knorr, 27.
A biography on Mantria's Web site said Wragg and Knorr started their business with less than $5,000 in 2005 and built an enterprise in Tennessee real estate that they valued at $128 million.
How is that possible?
In the August radio interview, Wragg, who has defended himself by pointing out that he disclosed his intention to pay off some investors with proceeds from new ones, said that "determination is half of business."
He displayed a high degree of it when he listed himself as a member of the Joint Economic Development Board for Van Buren County, Tenn. - even after he had been turned down because of his Pennsylvania residency.
It took a cease-and-desist order to get him to stop.