I don’t want this to be one of the traditional, rather tedious round-ups of the year but hidden amongst the stories of disaster, gossip and trivia, I think there were some events that mattered to consumers, events that teach us something about how we should behave, how we should protect ourselves and what to look out for. Some of them were local, others international but they all, in some way, had an impact on you and me.
I’ll probably be criticised yet again by these people (Bring it on!) but the appearance of the so-called Success University in Botswana was a great opportunity to think about pyramid schemes.
Success University, it must first be said, is not a university. It has no premises, employs no respectable professors and doesn’t award qualifications. Instead it offers you the chance, in return for your hard-earned cash, to receive up-lifting, empowering and fundamentally useless DVDs of a range of American evangelists waffling on about positive thinking, self-improvement and making yourself enormously successful and wealthy.
None of these things are inherently bad of course, they’re just not going to happen just because you bought a mass-produced DVD that thousands of other people are also buying.
What Success University really want is to recruit you. They want you to join their pyramid and start recruiting other people beneath you who will buy the DVDs. You then encourage those people to recruit others beneath them and you start to build a pyramid that earns you a fortune. They say you can earn up to $40,000 per month if you have thousands of people beneath you in your pyramid.
Of course that’s never going to happen. There simply aren’t enough gullible fools to go around, particularly in a small population like ours. Also, sooner or later, the various regulators are going to realise that this scheme is dodgy, like they have in Namibia, where the Central Bank has declared them a pyramid scheme and therefore illegal. Our regulators should do the same.
OK, I confess that’s a fairly insignificant example but I think it parallels another story that we’ve probably all heard that’s much, MUCH bigger.
Better qualified people than me can comment on the so-called credit-crunch and the looming global recession that has already started to bite, even here in Botswana. However the thing that interests me most is one of the things that the potential crisis exposed. The world’s largest Ponzi scheme.
These frauds are named after an American crook of the early 20th century called Charles Ponzi. Ponzi managed to separate people from their money by offering them enormous and rapid returns on their investments. With their eyes lit up with greed people would give him their money and the early ones would indeed see large returns. It works like this.
I suggest to A that if he gives me P100 I can offer him an almost instant P50 return. I do this by recruiting B in the same way who also gives me P100. I take P50 of B’s money and give it to A and I keep the other P50. I then recruit C and do the same, giving P50 of C’s money to B and keeping the rest for myself. And so on with victims D, E, F and all the way up to Z and beyond.
However like all fraudulent schemes they eventually fall apart. This can happen when victim A wants his original money back, when he demands more of the wonderful interest he now feels he’s entitled to or when the fraudster runs out of victims to pay the earlier investors. It can also happen, as it did with the original Ponzi, when the press find out and a sceptical reporter starts asking awkward questions.
Usually Ponzi schemes stay fairly small so they don’t attract too much skeptical attention. Quite how the recent Bernard Madoff Ponzi scheme managed to evade detection is a major question for the American money markets to answer. In an economy that is regulated and where the stolen investments might exceed $50 billion it’s astonishing that Madoff got away with it for so long. It’s astonishing that so many people with so much money were deceived. It just shows that wealth and skepticism aren’t correlated.
The lesson consumers must learn from the Madoff fraud, as they should from the nonsensical claims from Success University, is that consumers can only rely on themselves to provide first-line protection. Regulators, central banks, the police and even Consumer Watchdog can usually only intervene AFTER something bad has already happened.
Quite rightly, and probably thankfully, we can’t patrol the streets preventing people from signing credit agreements, from buying fancy new cellphones that don’t actually do what they claim or from throwing their money into the pockets of charlatan preachers.
On that last point, yes preachers ARE a consumer issue, not just a spiritual one. If a crook steals your money and drives around in a fancy car it doesn’t matter whether he was selling investments or salvation, you paid him for something he wasn’t able to deliver, you deserve your money back and he deserves to be thrown over the border or put behind bars.
The only way to prevent yourself from falling victim to a scam is to use the skeptical parts of your brain. Just because someone SAYS something is valuable and it will make you rich, doesn’t make it true. Engage your brain, question everything and never believe the unbelievable.
This week’s stars!
- Smarts at Dros in Gaborone for excellent problem solving skills and understanding a customers perspective.