Our Global Pyramid Scheme
Global Investors' Broken Heart Club?
Mark O'Byrne
Jul 1,
2004
Recently here
in Ireland there has been a sad news story which has interesting
parallels with the global economy. It concerned that veryold
confidence trick or financial scam of a 'pyramid scheme' or a
'pyramid selling scheme.'
It is believed
that this particular scam, which was euphemistically called 'Women
Empowering Women,' was begun in the U.S. in the late 1990's and
spread to the U.K. and subsequently to Ireland. Everywhere it
has collapsed leaving the few who are first in and first out
very wealthy. Meanwhile, the majority of those beguiled by stories
of easy, no risk returns have been left a lot poorer.
In reading
about and listening to various current affairs radio programs
discussions about this modern day morality tale, I was reminded
of the many parallels between this bogus pyramid scheme and our
new and increasingly bogus 'asset based' global economy where
earnings and savings are disrespected in favour of the blind
pursuit of capital gains in the property market.
This particular
bogus pyramid scheme worked like a chain letter in which only
women can take part. It is based on individual contributions
or "gifts" of £3,000 given to a member of a network.
In return, each participant may expect to receive multiples of
that amount up to £24,000 as they progress through the
network hierarchy. However, this is dependent on new participants
continually joining the scheme.
The danger
is that these types of networks break down as the pool of new
investors eventually dries up. Thus there must be continual measures
to keep the investment network expanding (Greenspan and the Federal
Reserve would be able to relate to this). Participants joining
the scheme late stand a good chance of losing their original
contribution never mind any return.
Thus it doesn't
require a BA from Yale and an MBA in Business from Harvard to
realise that this scheme is doomed to collapse and the majority
of those who've been entangled are going to end up out
of pocket.
The Pyramid
Scheme 'Women Empowering Women' also known by the Orwellian 'Happy
Hearts Club,' (and like most perversions of the English language
this euphemism was slowly found out and soon became the 'Broken
Hearts Club') was based on what all pyramid schemes are based
on - maintaining confidence among those already in the pyramid
and there being a growing number of new recruits to replenish
the base, feed the peak of the pyramid and prop up the proverbial
'house of cards.' A drop in new recruits is akin to taking one
card out from the bottom of the house of cards.
It's a fraud
because the promoters know the sums don't add up and it's bound
to collapse. They know the implied promises will not materialise,
and all but a few will be left with nothing from their involvement.
The confidence trick only works as long as confidence in the
scheme remains.
The two themes
which emerged from the mercenary affair were the ability of a
few amoral or immoral individuals to convince the mass of people
of no risk, easy money profits and the great credulity of the
mass of the people in believing the fairy tale profit story spun
for them by the convincing sale's spinmeisters. There would not
be 'investment suckers' without cunning enablers and there would
not be cunning enablers engaged in such schemes unless there
are less astute investment suckers.
Amorality,
immorality verses credulity and naivety - a toxic combination
which when they feed of each other lead to dreams of early retirement,
the blind pursuit of riches and subsequently big round bubbles
ripe for pricking with the inevitable tears and much gnashing
of teeth which follow.
On hearing
the tale I was immediately struck with the thought that if one
was to substitute the word 'women' in the title 'Women Empowering
Women' for that of 'investor,' the parallels between this scheme
and our current asset based global economy would become evident.
Wall Street and the financial press's continual spin
is that 'we are all investors now' and that we can all get rich
by getting involved in 'investing,' especially in that one way
street to riches - the property market.
The property
markets of the western world are very similiar to a massive Pyramid
Scheme. Rather than 'Women Empowering Women,' these property
markets could be called 'Investors Empowering Investors.'
Rich and poor, blue collar and white collar, moms and pops are
all property 'investors' now. They are forming the base of the
pyramid and their money will go to the 'smart' money at the top
of the pyramid who have had the sense to get out of the property
markets in recent months and take their capital gains or are
in the process of doing so. The smart money knows it is better
to have money or gold stored in a secure location rather than
owe a lot of money to the bank.
The process
of collapse of any Pyramid Scheme begins when doubts begin to
percolate into mainstream consciousness of the group or society.
These doubts could include significant financial, economic, political
and military challenges facing a nation or indeed the world.
All it takes is a small but significant astute minority to take
the courage of their convictions and go against 'the herd' and
the conventional wisdom of the mass media and sell their home,
investment house, houses, apartment or apartments and the property
decline will begin.
The ironic
and stupid thing is that our modern day property market's 'Investors
Empowering Investors' scheme is completely moral and legal and
barely questioned unlike the 'Women Empowering Women' Pyramid
Scheme which is completely illegal and was the subject of massive
opprobrium and disgust when revealed.
The British
Secretary of State for the Department of Trade and Industry and
Minister for Women, Patricia Hewitt was suitably outraged, "This
scheme has a nasty sting in the tail and preys on vulnerable
women." Would that she were as concerned for the millions
of mom and pop investors soon to face a rude awakening on their
property 'investments' when interest begin their rise.
She populistically
continued, "I am extremely concerned that many have lost
thousands of pounds of their hard-earned cash and potentially
many more will lose out." A sentiment to be expressed frequently
by 'outraged' politicians in the years to come?
Ms. Hewitt
finished, "I want the public to be aware of the risks associated
with schemes of this kind. I would urge them to think long and
hard before they get involved, and then think again." My
sentiments exactly about our massively speculative property markets.
I remain 'cautiously
optimistic' on the global economic recovery. However unlike financial
sham shills who claim to be 'cautiously optimistic' and then
advocate throwing caution to the wind investment-wise and getting
their customers into massive debt in order to 'invest' in property,
I am genuinely cautious and thus advocate reducing one's debt
burden and investing at least a small part of one's earnings
or assets in those ultimate hard assets and financial insurance
- precious metals.
Let us hope
that our global economy has a happier ending than the Women Empowering
Women Happy Heart Club's ending did and does not become the Investors
Empowering Investors Global Broken Heart Club.
Mark O'Byrne
June 30,
2004
Email: mobyrne@ireland.com
Gold Investments
Website: www.goldinvestments.org
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