fandomhigh | Cons & Confidence Men: How Not to Get Taken, Class 4

"Today we're taking a look at pyramid schemes, sometimes called Ponzi schemes after Charles Ponzi, who in 1920 set up an arbitrage system for reply coupons between Europe and the U.S. It quickly changed to an outright fraud. Instead of investing the money in coupons and working out the price differences for a profit, Ponzi simply turned over the latest investors' money to previous investors at a ridiculous rate of return... thus seducing others into investing. Ponzi schemes rely on a constant influx of new investors to prop up the scheme. Eventually they collapse under their own weight, and the director often disappears with everyone's money." She raised an eyebrow. "The most infamous perpetrator of such a scheme is Bernie Madoff, the New York stock exchange manipulator, whose scheme may have been in place for 30 years. When he was finally caught, the estimates of the losses he'd caused were in excess of $12 billion dollars. The SEC here in the states had previously believed no one could defraud more than $400 million. He's currently serving a sentence of 150 years. Which means he'll never make parole, thankfully."

"How did he get away with it? A whistle-blower team tried for ten years to make anyone in the government listen. It was the sheer size of the fraud that made it difficult for anyone to take their allegations seriously." Sophie ticked off points on her fingers. "An investment scheme with a very high rate of return, very quickly-- but no concrete evidence of the product being invested in-- may be a Ponzi scheme. One which operates without transparency of their records. One deeply embedded with the authorities who are supposed to regulate whatever industry it supposedly operates within; Madoff was good friends with the heads of both the SEC and its investigation teams. If you can't touch the product or the records or the person, don't invest."

She shook her head. "There's other types of pyramid schemes, however, which are legal. Today, I want you to figure out how you'd set up your own scheme, and lure investors into supporting your cause."

Flat | Top-Level Comments Only

Like you own your own pyramid.

Peter Bishop

Emma Frost

Parker

Lindsay Weir

Asuna Kagurazaka

Roy Harper

Tim Drake

Talk over the fraud, or whatever else you're thinking of this Friday morning.

"Come up with a hook, to draw in investors-- Amway, Avon, and, oh, the Church of Scientology are all legal pyramid schemes, depending on people's desire to rise higher and higher in a hierarchy, as well as make money. What is your organization made to do? Are you appealing to greed, or the urge to 'get in on the ground floor'? Or something else, like the promise of an afterlife where you're the elite?"

Peter didn't like this. It was impersonal, big, and unwieldy.

"Honestly, I don't think I could do it," he said.

"Why not? What about it makes it unlikely for you to succeed with something like this?" Sophie questioned.

"It's not a matter of skill," Peter said quickly. "It's a matter of motivation. There really isn't a lot of satisfaction in a scheme like this."

"I would tend to agree with you. Do you think then, that it's the sheer scale that appeals to the perpetrators? The chance to walk away with some distance between themselves and the victims?"

"Probably," Peter said. "The idea that once it got big, you'd never see the faces of the people you ruin. Which really just makes you more evil, not less."

"It does seem that way, doesn't it. So, why do people get seduced by it? Third graders can work out that the math doesn't make sense on chain letters; why do people believe schemes that make them immediately rich, then tempt them to invest even more?"

"Because hope springs eternal," Peter said. "And because people are often willing to do stupid things if they think the reward is just around the corner. Getting rich without having to work for it is the real American dream."

"The European dream too, on occasion," Sophie teased lightly. "Then what's the appeal of schemes like Amway, or the Scientologists? A great deal of work has to be expended in those set-ups."

"I honestly don't get the appeal of the latter," Peter said. "I guess it has something more to do with the exclusivity than the massive benefits."

He mulled over the question for a moment.

"I guess with Amway, it's the sense of feeling like it isn't just a scheme. Because it's easy to view it as a legitimate business, even though the business model is shady."

"It's the little series of rewards at each level," Sophie said, nodding. "More respect, a new title, perhaps more control over a geographical area... and it's achievable, given the right motivation. With each level of the hierarchy, you're no longer a beginner, a newbie, an initiate. You're an acolyte, an insider, someone in the know. It's the same appeal with the illegal schemes, aside from the money. You found it first; your perceived savvy gives you the right to reap the rewards." She smiled slightly. "I believe some online games work on the same principle."

"So I know what to avoid in the future," Peter said. Amused because his future was technically the past.

"If you haven't become addicted yet," Sophie said mock-gravely, "Then I commend you. And advise you to invest in a reputable company."

Who would just climb the pyramid and steal the capstone.

Parker was there and wondering pretty much why people didn't just do that. Or, at least, why anyone would want to come up with such a complicated scheme when you could just break in and steal stuff.

Who frankly is sorry Madoff is having such fun playing bocce ball in prison with mobsters.

Back this evening, around 7pmEST.

Sorry for Karla missing class. She's off offering moral support to an accused murderer...

Sophie completely understands! Your crew comes first.

Cons & Confidence Men: How Not to Get Taken, Class 4

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