Lovely simplified post Chopera. 🙂
The fraud element in Ponzi schemes is conning the investor their money is invested in safe assets when in fact it’s being used to pay other investors. With fractional reserve banking the government will always repay the depositor if the bank fails and are in fact the lender of last resort and there in lies the difference.
A Ponzi scheme can continue forever in theory. The trouble comes when the depositors ask for their money back in large numbers and cannot be repaid. There is no lender of last resort the depositors lose and the operators go to jail. In the US usually for life since there it’s considered the most heinous crime you can commit.