OldVet: Scheming Your Way from Rags to Riches

This one is by OldVet…

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”Scheming your way from riches to rags”

This seems an opportune time for Angrybears to gird up their loins financially. For those who have not already succumbed to the lures of the “greater fool” theory of housing markets, please be aware that in declining economies the clever may turn to other schemes to part you from your cash. Ponzi operators such as hedge funds, private equity funds, Nigerian con artists with “special opportunites” and other wickedly complex characters will importune you to “invest” for quick returns. Pyramid scheme operators will urge you to “invest in yourself and your future” with the promise of riches and income streams in perpetuity by recruiting friends and neighbors to buy and sell inventories of overpriced crap.

Wikipedia’s definition of a Ponzi scheme and a pyramid scheme distinguish them from financial “bubbles” thusly:

– A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish pyramid schemes from Ponzi schemes:

– In a Ponzi scheme, the schemer acts as a “hub” for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means no investment return).

– A Ponzi scheme claims to rely on some esoteric investment approach, insider connections, etc., and often attracts well-to-do investors; pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.

– A pyramid scheme is bound to collapse a lot faster, simply because of the demand for exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by getting most participants to “reinvest” their money, with a relatively small number of new participants.

– A bubble. A bubble relies on suspension of belief and an expectation of large profits, but it is not the same as a Ponzi scheme. A bubble involves ever-rising (and unsustainable) prices in an open market (be that shares of a stock, housing prices, the price of tulip bulbs, or anything else). As long as buyers are willing to pay ever-increasing prices, sellers can get out with a profit. And there doesn’t need to be a schemer behind a bubble. (In fact, a bubble can arise without any fraud at all – for example, housing prices in a local market that rise sharply but eventually drop sharply because of overbuilding.) Bubbles are often said to be based on “greater fool” theory.

Armed with this knowledge and alert to these potential pitfalls, I would only add that the operators of such schemes have identifiable personality characteristics. From investigator Bill Branscum we learn:

His system makes it possible for him to pay incredible rates of return. The elaborate office, exquisitely tailored suits, involvement with the church, and generosity toward charitable organizations are all classic window dressing. . . Ponzi or Pyramid – either way, the con artists who perpetrate these scams are swindlers with sociopathic personalities who view everyone around them as bit part players in their own personal play. These people are devious beyond comprehension. Uninhibited by anything akin to conscience or remorse, they have no mercy and feel nobody’s pain. Charm and charisma can conceal a lot. It is hard to imagine that one of the most likeable people you ever met in your life, totally trusted by those you respect and admire, would destroy everything you worked your entire life to build while looking you in the eye and smiling in your face all the while.

Oh my!! Is there any way to protect yourself from these smooth operators? Yes. Become a psychopath. That’s your best shot, according to a study.

Wanted: psychopaths to play the stock market. The US team found that people with certain brain injuries which suppress their emotions could make the best stock market traders. They took a selection of 41 people of normal IQ, 15 of whom had suffered lesions on the areas of the brain that affect emotions, and made them play a simple investment game. Those with brain damage significantly out performed those without, the researchers from Stanford Graduate School of Business, Carnegie Mellon University and the University of Iowa found.

Good luck, suckers. ☺ OldVet (and with advance apologies to the eponymously named fellow Angrybear, ECP, Jr.)

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This one was by OldVet.