New Technology, Old Scam / Artikel, engl. / Für dottore interessant?

verfasst von - ELLI -, 22.10.2002, 18:06

-->Habe ihn nur überfolgen und verstehe ihn nicht.
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<font face="Verdana" size="1" color="#002864">http://www.mises.org/fullstory.asp?control=1070</font>
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<font face="Arial" size="2"><font face="Verdana" color="#002864" size="5"><strong>New Technology, Old Scam</strong></font>
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<font size="4">By Clifford F. Thies</font>




[Posted October 22, 2002]









The most famous scam in American history was the Ponzi Scheme of 1920.&nbsp;&nbsp;In
this scam, Charles Ponzi, an immigrant to this country, promised investors 50
percent interest for ninety days (an amazing 200 percent annual rate of
interest, even ignoring compounding!).&nbsp;&nbsp;And, for a while, he
actually was paying 50 percent interest for ninety days.




People started lining-up to turn their money over to him, altogether 40,000
did, investing an average of $300 each. How could he pay such a spectacular
rate of interest?




Well, it is now obvious, once he got his scheme going, he was able to pay
interest to old investors from the money provided by new investors.&nbsp;&nbsp;Very
little money was actually invested in productive assets.&nbsp;&nbsp;But, the
supply of suckers—while large—is limited, and soon he was forced into
default.




When he was arrested, he was found to have had a criminal record, forgery,
to be exact.&nbsp;&nbsp;Then, after serving some time in jail, he returned to
his native <st1:country-region>
<st1:place>
Italy</st1:place>
</st1:country-region>
and got a job in the Italian airlines.&nbsp;&nbsp;There, he helped Mussolini
run the planes on time until he lost his job after he turned informant when he
was refused a share of a kick-back scheme.&nbsp;&nbsp;Petty thieves like
Charles Ponzi should know better than to mess with organized crime!




Ponzi schemes are alive and well in the world today.&nbsp;&nbsp;In <st1:country-region>
<st1:place>
Albania</st1:place>
</st1:country-region>
, in 1997, when that country was freed from its ultra-orthodox communist
regime, the ex-communist bosses ran banks based on the ponzi scheme that duped
the majority of the people of the country.&nbsp;&nbsp;They thought, now we're
a free country, we should be rich like the Italians just across the <st1:place>
Adriatic</st1:place>
.&nbsp;&nbsp;First of all, they weren't quite free, just a little less
repressed than they had previously been.&nbsp;&nbsp;But secondly, freedom only
gives you the opportunity to increase wealth by hard-work and entrepreneurship.&nbsp;&nbsp;Choosing
well makes you rich.&nbsp;&nbsp;Choosing badly makes you poor.




In <st1:country-region>
<st1:place>
Haiti</st1:place>
</st1:country-region>
, this year, the Clinton Administration-installed dictator Aristide got a
ponzi scheme underway by recommending"cooperatives" run by his
left-wing cronies.&nbsp;&nbsp;Supposedly, these co-ops were going to make
enormous profits for their member-owners because, as any good communist knows,
the managers of capitalist enterprises are nothing but leeches on the economy.&nbsp;&nbsp;When
this ponzi scheme went bust, Aristide was not without an explanation.&nbsp;&nbsp;The
<st1:country-region>
<st1:place>
United States</st1:place>
</st1:country-region>
was to blame!




I should point out that capitalism is a very flexible system, and can
include cooperatives as well as proprietorships, partnerships and corporations,
as well as other forms of business.&nbsp;&nbsp;We have many fine cooperatives
in our country that don't rely on government grants of monopoly but rather on
their ability to serve their member-owners well.&nbsp;&nbsp;But, there is
nothing magical about these cooperatives, and they don't offer anybody the
kind of returns promised by scam artists.




The California Department of Corporations identifies the top ten frauds of
today as:


<ol type="1">
~ Promissory notes.&nbsp;&nbsp;E.g., nine-month promissory notes, offering
high rates of interest, and claiming to be unregulated by the SEC by
reason of some technicality (not unlike the original Ponzi scheme).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
~ Internet fraud.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
~ Telemarketing fraud.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
~ Investment seminars and financial planning.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
~ Affinity group fraud.&nbsp;&nbsp;This typically involves offering
members of ethnic or religious groups"special deals" on
investments or diamonds or other commodities.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
~ Abusive sales techniques by broker-dealers and agents.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
~"Vertical investment scams." This typically involves the offer
to sell shares in life insurance policies of people suffering from aids or
other terminal illnesses.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
~ High tech investments.&nbsp;&nbsp;This typically involves the offer to
sell shares of ownership of high tech products or services to
unsophisticated investors.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
~ Entertainment.&nbsp;&nbsp;This typically involves the offer to sell
shares in movies supposedly having enormous profit-potential without
disclosure of the risks involved.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
~ Multi-level marketing / Ponzi schemes / Bunco. A catch-all category
including a variety of scams.</li>
</ol>


A common thread running through many of these frauds is that the normal
structures for evaluating the worth of new or risky ventures are represented
to be untrustworthy.&nbsp;&nbsp;Banks, insurance companies, pensions, mutual
funds, finance companies, venture capitalists, and so forth, take some care
when making investment decisions to consider the risks involved, including the
risk of fraud.&nbsp;&nbsp;To be sure, this effort doesn't guarantee anything,
it just improves the odds.




Sometimes, a person happens to be in a better position than a financial
institution to evaluate the risks involved in an investment.&nbsp;&nbsp;Or,
because of family or other connections, can influence the risks involved.&nbsp;&nbsp;For
example, your brother wants to go into business for himself and needs some
initial capital.&nbsp;&nbsp;You know your brother is an honest and
hard-working person.&nbsp;&nbsp;At the least, you're willing to trust him with
a few thousand dollars because he's your brother.




And, often in scams, the scam-artist will try to convince the sucker that
this is an occasion when you are in a better position than a financial
institution to evaluate the risks involved.&nbsp;&nbsp;For some reason,
financial institutions—not even venture capitalists—won't get involved.&nbsp;&nbsp;However,
you—a person picked at random, whose only qualifications are, first, you
have some money and, second, you don't have any particular expertise—you can
make a lot of money if you do.




Normally, the pool of suckers is limited to people who are at least
somewhat ignorant of the capitalist system, and therefore don't know what is
reasonably possible in terms of investment returns.&nbsp;&nbsp;Suckers tend to
think that profits are based on theft and exploitation, instead of on
hard-work and entrepreneurship, and they want a piece of the action.




But, there are times when there is a society-wide outbreak of foolishness
and greed.&nbsp;&nbsp;At these times, the normal rules of investments seem to
be repealed, and the values of assets such as real estate and stock prices
rise higher and higher without any connection to earning power.&nbsp;&nbsp;Among
such times have been the Dutch Tulip Mania, the Mississippi Bubble, the South
Seas Bubble, and, more recently, the Japanese Balloon Economy of the 1970s,
and the Dot.Com Balloon Economy of the 1990s.




In these Financial Manias, something real is almost always involved.&nbsp;&nbsp;In
16^th Century <st1:City>
<st1:place>
Holland</st1:place>
</st1:City>
, the growing wealth of the middle class following the country's independence
and adoption of free trade, meant that more and more people would want
luxuries like tulips in their lives, objects of beauty and not merely of
survival.&nbsp;&nbsp;The production of tulips, however, cannot be easily
increased. So, demand initially outstripped supply, and tulip bulbs rose in
price.




After the rise in price (it is now obvious)&nbsp;was irrationally&nbsp;extrapolated
into further rises in price, the Tulip Mania got underway, leading eventually
to a bust when rationality suddenly returned to the country.




Much the same thing happened during our Dot.Com Balloon Economy.&nbsp;&nbsp;The
internet is truly a marvelous advance in technology.&nbsp;&nbsp;It offers many
advantages both to the way we do business and to the way we enjoy life.&nbsp;&nbsp;But,
it did not usher in nirvana.&nbsp;&nbsp;The stock market (it is now obvious)
got ahead of itself, way ahead.&nbsp;&nbsp;I can hardly believe the extent to
which I myself bought into it!




And along with the outbreak of foolishness and greed comes an outbreak of
corporate fraud and theft.&nbsp;&nbsp;Look at the aftermath of the Panic of
1837.&nbsp;&nbsp;During the 1830s, a speculative boom got underway in our
country, with some reason.&nbsp;&nbsp;The west (meaning places like <st1:State>
<st1:place>
Mississippi</st1:place>
</st1:State>
and <st1:State>
<st1:place>
Illinois</st1:place>
</st1:State>
) was being opened, canals and railroads were tying our markets together, and
immigrants were flocking to our lands.&nbsp;&nbsp;The values of real estate
and of corporate stocks were soaring, and banks were rapidly expanding the
money supply.




Then, for reasons historians debate, it all fell apart.&nbsp;&nbsp;And when
it all fell apart, the fraud and theft and recklessness got uncovered.&nbsp;&nbsp;Yes,
during the panic, the banks suspended.&nbsp;&nbsp;But, following the panic,
when the banks were to resume, many proved unable, that is, failed, and many
of them because of embezzlement, defalcation and insider-dealing.&nbsp;&nbsp;(These
are all fancy words describing bank robbers who enter the bank by the back
door.)




I have come across dozens of bank failures during that time due to the
criminal activities of bank officers, directors and employees.&nbsp;&nbsp;Most
spectacular was the failure of the Schuylkill Bank of <st1:State>
<st1:place>
Pennsylvania</st1:place>
</st1:State>
, whose cashier stole $1.3 million and then absconded to <st1:State>
<st1:place>
Texas</st1:place>
</st1:State>
.




Another speculator failure involved the Mississippi &amp; Alabama Rail Road
&amp; Banking Corporation (AKA the Brandon Bank) of <st1:State>
<st1:place>
Mississippi</st1:place>
</st1:State>
.&nbsp;&nbsp;Upon its suspension, great concern arose for its solvency, and
the market value of its banknotes quickly fell to 9¢ on the dollar.&nbsp;&nbsp;A
federal <st1:City>
<st1:place>
marshall</st1:place>
</st1:City>
was sent to arrest the bank president.&nbsp;&nbsp;However, the bank president
and two other directors of the bank left the state for <st1:State>
<st1:place>
Texas</st1:place>
</st1:State>
, taking with them 300 slaves, 50 of them and ten whites armed.&nbsp;&nbsp;"The
<st1:City>
<st1:place>
Marshall</st1:place>
</st1:City>
," the <st1:City>
<st1:place>
Vicksburg</st1:place>
</st1:City>
Sentinel reported,"went in pursuit, but could not overtake
them."&nbsp;&nbsp;In view of the army amassed by the fleeing bank
president, I wonder how vigorously the <st1:City>
<st1:place>
marshall</st1:place>
</st1:City>
pursued them.




Not every"bankster" made his way to <st1:State>
<st1:place>
Texas</st1:place>
</st1:State>
(possibly to be reincarnated a century later as an Enron executive).&nbsp;&nbsp;The
president of the Bank of Tennessee, for example, when he was caught, hung
himself in his jail cell.&nbsp;&nbsp;According to one estimate, sixty banks
failed in the aftermath of the Panic of 1837, at an aggregate loss of $132
million.&nbsp;&nbsp;The country languished in recession through 1842 or '43.




We, in <st1:country-region>
<st1:place>
America</st1:place>
</st1:country-region>
, should not gloat over the misfortunes of the Albanians and Haitians, or of
those who kept their money in stocks following the Panic of 1837 or the Crash
of 2000.&nbsp;&nbsp;We have our own ponzi scheme to worry about.&nbsp;&nbsp;A
massive ponzi scheme that threatens to bankrupt our entire country.&nbsp;&nbsp;I'm
talking about Social Security.




Social Security worked marvelously for the first couple generations in the
program.&nbsp;&nbsp;They paid little or nothing into the system, and retired
on benefits provided by taxing the working-age generation.&nbsp;&nbsp;The
working-age generation was promised that one-day it would be their turn to
live off of somebody else.&nbsp;&nbsp;




For&nbsp;longer than&nbsp;five decades, a growing population provided an
expanding tax base from which to support those receiving benefits (even so,
the social security tax rate kept being raised).&nbsp;&nbsp;Then, the
passing-through of the"baby-boom" generation allowed Social
Security to reap a bonanza of revenue, which was"invested" in the
federal government's deficit instead of in productive assets.




Now, the aging of the baby-boom generation looms ever so large before us,
and it is growing clear that there will be no fix.&nbsp;&nbsp;If you want to
see what will happen in the <st1:country-region>
<st1:place>
United States</st1:place>
</st1:country-region>
, look to the welfare states of <st1:place>
Europe</st1:place>
.&nbsp;&nbsp;There the disaster will happen first and worst.




Being susceptible to scams, both on an individual basis (being a sucker)
and as part of society (being subject to occasional financial manias and to
disasters of fiscal policy), is part of life.&nbsp;&nbsp;Our vulnerability
makes us nervous&nbsp;and joining-in is a temptation.




Most of us enjoy the idea of scamming the scammer, as played-out in the
1973 movie"The Sting," starring Paul Newman and Robert Redford, and
the winner of the Academy Award for best movie.&nbsp;&nbsp;There's a certain
justice to it.&nbsp;&nbsp;But, I think the best advise regarding scams is
always,"if its sounds to good to be true, it probably is."


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Clifford F. Thies is a professor of economics and finance at <st1:place>
<st1:PlaceName>
Shenandoah</st1:PlaceName>
<st1:PlaceType>
University</st1:PlaceType>
</st1:place>
.&nbsp;&nbsp;Send him&nbsp;MAIL. See his&nbsp;Daily
Articles Archive<font size="2">.</font>


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• New Technology, Old Scam / Artikel, engl. / Für dottore interessant? - - ELLI -, 22.10.2002, 18:06
  • die alte Masche mit neuen Hintergründen............................ - Emerald, 22.10.2002, 19:45