A Ponsi or Ponzi scheme is a confidence trick. Pyramid scams or schemes are similarly confidence tricks. All confidence tricks have 4 characteristics in common. Ponzi schemes like pyramid schemes all begin with a promise. They hold out the tempting vision of extraordinary gains. Confidence tricks all have an air of exclusivity and special inclusiveness about them. All of the big cons are shrouded in mystery and pray on people’s desire to believe in ‘magic’ secrets or individuals. Finally Ponsi and pyramid schemes inflate to unrealistic levels and burst leaving the victims in varying degrees of distress and always considerably worse off than the started.
Take the Bernard Madoff con for example. The biggest ever recorded. The promise was of big 8 to 13% returns on investment, no matter what the market was doing. How unbelievable in hindsight? It was exclusive at it’s core, beginning with wealthy New York Jewish investors. Madoff wouldn’t take just anybody’s money and the more he said ‘no’ the more appealing his specially inclusive club became. It was a truly Worldwide club at the end but one hedge fund, the Fairfield Greenwich Group, sunk more than $7 billion into the Madoff Ponzi scheme while at the same time encouraging others to invest. They all believed that the man himself was somehow endowed with special knowledge or super investment X-ray vision.
What was really scary about the Madoff Ponzi scam was how long it was able to inflate. Over 20 years the inward flow of funds was exponentially increasing to cover large payouts that were regularly demanded. But there was never enough real profit to deliver on the promise for everybody and so the bubble had to burst at some point.
Pyramid schemes likewise promise the unwary victims large profits that come entirely from bringing in others to join the scheme rather than turnover from any genuine investment or authentic sales of goods to customers. Some schemes hide their secret nature behind ‘a product’, but mostly this just hides the pyramid structure. They even give pyramid schemes a pseudo management jargon style name, ‘multi level marketing’ or MLM. BEWARE!
There are two warning signs that a product is the veil over a pyramid scheme. 1) overloading of stock onto victims and 2) a chronically low level of actual sales. Stock overloading is when a company’s bonus making program pushes associates to buy excess product. More in fact than they could ever hope to sell.
Many so-called MLMs are in fact pyramid schemes that rely on the current influx of investments to pay off the older commitments. All of them inflate to bursting levels because the commission levels are simply unsustainable. The only way to feed the ongoing product bonus payments is to recruit more victims often at a very high price, to maintain the cash flow.