What if many things we know are no better than Ponzi schemes? What if they were just designed to take our money ultimately, only in a much slower and more deliberate manner?
A well-known actress has been arrested, for charges that made her one main characteristics of a normal Ponzi scheme, in other words someone famous enough to help build trust from scratch.
Successful Ponzi schemes need celebrities to help kick off the deception. Allegedly, the actress fit the bill. The iCon Group scandal rocking Thailand recently also featured alleged involvement of well-known people and those with great “credibility”.
The dictionary says a Ponzi scheme is a form of fraud in which trust is maliciously built for a virtually a non-existent enterprise that deceptively promises the payment of quick returns to the early investors from money invested by later investors.
But this is a standard Ponzi scheme we are talking about. There may be bigger, more brilliantly deceptive types that are probably hiding in plain sight. And they are so well-established they don’t need celebrities to lure the innocents.
Bonds and debentures are a good way to start. Legally, they are miles away from a Ponzi scheme as we know it. Issuers are fully-legitimate entities, be it governments or companies.
Yes, they are a lot more secure than a standard Ponzi scheme, which relies on promises of huge and quick returns, illusions of legitimacy, psychological hype (Grab it now before others beat you to it), and simple ignorance on the part of the victims. But when/if push comes to shove, bond and debenture holders can also end up like every Ponzi prey.
Bond and debenture issuers can do the bad things legitimately as well. Declaration of bankruptcy plus good lawyers can rob investors blind or delay payment considerably. They are protected by the “We told you to be careful” warning accompanying every investment commercial.
That warning, “Every Investment Carries Risks”, allows dishonest bond or debenture issuers, or those who become cunning later, to thrive. If bad things happen, it can be worse than a simple Ponzi scheme actually, because at least the latter lets early investors off the hook or even enriches them.
The same goes for shareholders. People put their hard-earned money into the stock markets and can do nothing when the money disappears. A weird situation because where does all the money go?
Now, banks. Yes, they are the most trustworthy among the lot. A lot of honest people run them. But that can be up to a point only. If a bank collapses, it can actually steal your life savings, and legitimately so.
It’s easy to overlook the fact that the foundation of banking can be fragile. Every bank exists on a balancing act performed to make sure the “assets” and “liabilities” do not exceed the safety level.
The “assets” are loans banks give out, and the “liabilities” are the deposits customers make, whose interests come from the higher interests banks charge the borrowers.
As we can see, if the loans perform well, there will be no problem. On the other hand, a large amount of non-performing loans will destroy a bank’s business. Interesting enough, depositors are likelier to suffer more than the business owners.
Show me a banker whose wealthy life is upended by a banking collapse who has to beg for food and I will show you a Santa Claus. For certainty, collapse or bankruptcy can do only one thing _ legitimising losses of depositors’ savings. Of course, a collapse rarely happens, but that does not mean it never happened.
And, like bad bonds, bad debentures and bad stocks, a banking disaster will not spare early birds. (This is to be fair to the indefensible Ponzi schemes, whose early investors often escape scot-free at least.)
Ponzi scheme plotters are like petty thieves who are branded as criminals in a country whose rulers will be hailed as heroes if they manage to loot the coffers of another country. We are living in a world where a crime is not a crime if it is big enough.
Yes, banks, bonds, debentures and stock markets are more transparent. Those involved learn from the beginning the virtues of honesty and prudence. But like Ponzi schemes, they are businesses based on desires to make profits. And a slippery slope awaits every desire to make profits.
Some of the slippery slopes are near, but others are far away. However, all are definitely there all the same.
Like they say, if the world is crumbling because it has too much debts, who are the creditors then? Why does a banking collapse always affect the public negatively? It should not have, considering the fact that banking involves public money, which is supposedly pure and made to build, not devastate, the economy?
This is not a show of sympathy for Ponzi schemers. This is to say that it’s likely that there are possibly others hiding behind some nice and seemingly credible names. When we hear “Ponzi schemes”, we run, but when we hear “High-yield bonds”, we scramble towards them.
Also, this is to say that the Ponzi schemers’ only crime is probably they want to get rich quickly. They think short-term and camouflage badly. They don’t have the patience to, say, create a “real” business and become emperors instead of low-level thieves.
The economic order is full of good people. But bad ones, the emperors, can steal gloriously, heroically and legally.
