A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish pyramid schemes from Ponzi schemes:

• In a Ponzi scheme, the schemer acts as a “hub” for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means no investment return).

• A Ponzi scheme relies on some esoteric investment approach, insider connections, etc., and often attracts well-to-do investors; pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.

• A pyramid scheme is bound to collapse a lot faster, simply because of the demand for exponential increases in participants to sustain it (Ponzi schemes can survive simply by getting most participants to "reinvest" their money, with a relatively small number of new participants).

• Worldcom and other financial frauds. Worldcom did not pay out high returns (that is, high dividends). Worldcom was a publicly traded company which used expectations from the internet/dotcom boom and various fraudulent accounting schemes to inflate publicly reported profits to keep its stock high. Investors were free to sell at any time; when they did, the company wasn't the one paying the investor -- it was the person buying the stock who paid, and took the risk at that point.

• A bubble. A bubble does rely on suspension of disbelief and an expectation of large profits. But it's not the same as a Ponzi scheme. A bubble involves ever-rising (and unsustainable) prices in an open market (be that shares of a stock, housing prices, the price of tulip bulbs, or anything else). As long as buyers are willing to pay ever-increasing prices, sellers can get out with a profit. And there doesn't need to be a schemer behind a bubble. (In fact, a bubble can arise without any fraud at all - for example, housing prices in a local market that rise sharply but eventually drop sharply because of overbuilding.)

• Robbing Peter to pay Paul. When debts are due and the money to pay them is lacking, whether because of bad luck or deliberate theft, debtors often make their payments by borrowing or stealing from other monies they have. It does not follow that this is a Ponzi scheme. From the basic facts set out, it is not, because there is no indication that the lenders were promised unrealistically high rates of return via claims of unusual financial investments. Nor (from these basic facts) is there any indication that the borrower (banker) is progressively increasing the amount of borrowing ("investing") to cover payments to initial investors (as, again, Ponzi was the first to do.)