What Is The Attraction of Pyramid Schemes?

The newspapers are always full of stories about new variations on the Ponzi fraud idea or new types of investment fraud. We also keep hearing about how people keep falling for new Pyramid Selling programs. In 1996 and 1997 the foundations of Albania's economy was shaken by one particular epsisode of Pyramid selling. When the various schemes collapsed, more than sixty per cent of the population had lost substantial amounts of money. There followed riots and some 2000 people were killed in the turmoil.

Although Albania's problems were accentuated by a number of factors, including a financially unsophisticated population, deficiencies in the formal financial services industry and failures in the Albanian governance, the way in which hard working and careful people were taken in must be a cautionary tale for the rest of the world. This is especially true given the success that many Pyramid schemes have enjoyed in the years following the Albanian fiasco.

Pyramid selling schemes do work for the promoters because many people can not get their heads around the impossibility of the of their success for the contributor. The schemes are dressed up, often as good causes as in the case of 'Women Empowering Women' in the UK in recent years, in such a way as the true pyramid nature is overlooked and a simple credible business opportunity is perceived. As an example, a typical program might be called something innocuous such as 'The Investment Assistance Community' and you are asked to donate £1,000 to be awarded silver membership.

You just need to find another two friends or acquaintances who might be interested so that you can be promoted to a gold member. That is all - then you can sit back and wait for your pay back of (say) £3,000. If you want you can buy any number of silver memberships, if you think you can recruit more people. If you receive your £3,000, you will probably decide to reinvest it in three memberships, such is your confidence in the scheme. It seems fairly plausible? But where is the £3,000 pay out coming from?

You are relying on the two members you have recruited and each of whom has gifted £1,000 to join to also recruit a further two members each - thus elevating you to 'platinum level'. Now take note. Counting yourself, seven contributors have joined and £7,000 in total has been paid into the system. The four new recruits must each find two further participants so that a total of £15,000 has been paid in by everybody. At this time you are raised to 'diamond' status and given your £3,000. The balance of £12,000, plus your £3,000 if you decided to reinvest, will be swallowed up by the program's proprietors, in administrative costs, dividends, expensive living and fancy cars. It becomes harder and harder for the lower levels to each recruit new members and the scheme is not self sustaining. It reaches a saturation limit and collapses as all of these schemes inevitably do.

And yet there are those victims of such schemes that blame the authorities for intervening for their losses, such is the incomprehension of the fundamental concepts underpinning the fraudulent nature of pyramid selling schemes. The key point to be aware of when looking at such a scheme is whether or not it offers some valuable product in return for your money. If the scheme is simply a money circulation club, an investment club, or anything else that purports to pay out astronomical returns for no work, then it must be a unsustainable pyramid scheme.

Now that pyramid schemes are better understood, they are outlawed in most countries. They are illegal in both the United States and the United Kingdom. Attempts to circumvent legislation have been made, by replacing any mention of 'investment' with 'gifting' for example. Schemes are still promoted, often as legitimate Multi Level Marketing programs. Many people still succumb, if they are unable to differentiate from schemes that offer genuine products and those that do not.

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<!DOCTYPE HTML PUBLIC '-//W3C//DTD HTML 4.01 Transitional//EN' 'http://www.w3.org/TR/html4/loose.dtd'><html><head><title>Articles Back Link | What Is The Attraction of Pyramid Schemes?</title></head><body><h3>What Is The Attraction of Pyramid Schemes?</h3><br><br> By: Mark Jenner<br><br><p><p>The newspapers are always full of stories about new variations on the Ponzi fraud idea or new types of investment fraud. We also keep hearing about how people keep falling for new Pyramid Selling programs. In 1996 and 1997 the foundations of Albania's economy was shaken by one particular epsisode of Pyramid selling. When the various schemes collapsed, more than sixty per cent of the population had lost substantial amounts of money. There followed riots and some 2000 people were killed in the turmoil.</P><p>Although Albania's problems were accentuated by a number of factors, including a financially unsophisticated population, deficiencies in the formal financial services industry and failures in the Albanian governance, the way in which hard working and careful people were taken in must be a cautionary tale for the rest of the world. This is especially true given the success that many Pyramid schemes have enjoyed in the years following the Albanian fiasco.</P><p>Pyramid selling schemes do work for the promoters because many people can not get their heads around the impossibility of the of their success for the contributor. The schemes are dressed up, often as good causes as in the case of 'Women Empowering Women' in the UK in recent years, in such a way as the true pyramid nature is overlooked and a simple credible business opportunity is perceived. As an example, a typical program might be called something innocuous such as 'The Investment Assistance Community' and you are asked to donate &pound1,000 to be awarded silver membership.</P><p>You just need to find another two friends or acquaintances who might be interested so that you can be promoted to a gold member. That is all - then you can sit back and wait for your pay back of (say) £3,000. If you want you can buy any number of silver memberships, if you think you can recruit more people. If you receive your £3,000, you will probably decide to reinvest it in three memberships, such is your confidence in the scheme. It seems fairly plausible? But where is the £3,000 pay out coming from?</P><p>You are relying on the two members you have recruited and each of whom has gifted £1,000 to join to also recruit a further two members each - thus elevating you to 'platinum level'. Now take note. Counting yourself, seven contributors have joined and &pound7,000 in total has been paid into the system. The four new recruits must each find two further participants so that a total of &pound15,000 has been paid in by everybody. At this time you are raised to 'diamond' status and given your £3,000. The balance of £12,000, plus your £3,000 if you decided to reinvest, will be swallowed up by the program's proprietors, in administrative costs, dividends, expensive living and fancy cars. It becomes harder and harder for the lower levels to each recruit new members and the scheme is not self sustaining. It reaches a saturation limit and collapses as all of these schemes inevitably do.</P><p>And yet there are those victims of such schemes that blame the authorities for intervening for their losses, such is the incomprehension of the fundamental concepts underpinning the fraudulent nature of pyramid selling schemes. The key point to be aware of when looking at such a scheme is whether or not it offers some valuable product in return for your money. If the scheme is simply a money circulation club, an investment club, or anything else that purports to pay out astronomical returns for no work, then it must be a unsustainable pyramid scheme.</P><p>Now that pyramid schemes are better understood, they are outlawed in most countries. They are illegal in both the United States and the United Kingdom. Attempts to circumvent legislation have been made, by replacing any mention of 'investment' with 'gifting' for example. Schemes are still promoted, often as legitimate Multi Level Marketing programs. Many people still succumb, if they are unable to differentiate from schemes that offer genuine products and those that do not.<br></P></p> <br><br> <b>Author Resource:-></b>  <br><br><b>Article From</b> <a href='http://www.articlesbacklink.com/'>Articles Back Link</a><br></body></html>