With a ponzi scheme, there is no underlying investment. So the pool of capital never grows.

This Korean system should work in theory. People generally don't move very frequently. As long as there's a liquid market for investments in stocks & bonds, and the housing appreciates in value over the long term, it's not a bad system.

Seems pretty favorable to the landlords too. They get $90k up front for a $100k house. Which they could invest for an 8% or so return, which, in the first year is ~$550/mo in rent, compounded each year, minus maintenance. Yield wise, $7k on a $10k investment ($100k house - $90k from renter) is fucking amazing.

The fact that is has been around for so long suggests that it works in practice too. Yeah, maybe a black swan event causes a liquidity crunch. But so long as the government steps in to provide liqudity (low interest mortgages would work), then it shouldn't hurt too bad. Worst case, foreign investors step in to buy up the real estate.

> With a ponzi scheme, there is no underlying investment. So the pool of capital never grows.

The "pool of capital" never grows here, either. Landlords get more assets (houses), but also more liabilities (deposits).

A Ponzi scheme is perfectly capable of having underlying investments, by the way. I'm pretty sure Madoff bought houses with his money, too.

> Which they could invest for an 8% or so return

Where the heck do you get an 8% return with no risk? I want in.

> The fact that is has been around for so long

How many decades did Madoff's ponzi scheme last?

You ask jokingly, but the serious answer is that there's an actual scarce asset behind it. Sort of like Bitcoin ;) Whether the scheme artificially inflates the value of the asset remains to be seen of course. I feel the fact that the contracts usually only last 2 years or less really takes the sting out of the risk of collapse, but I'm no economist. Also if it's been going on since the 80's, that means it's been going strong through 30 years of turbulent economical climates.