Can Ponzi Schemes Save American Thought?
Like everyone else, I despise Bernard Madoff for running his Ponzi scheme which defrauded millions of dollars from people who invested in his fund. I am beginning to wonder, however, if a Ponzi scheme like the one run by Madoff is much different than other financial businesses. I also wonder if Ponzi schemes might be the only way for
E-tailing of creative work on-line, and lastly I wonder if the economy of scale the Internet offers might not be, well, the beginning of the end to American thought all together.
Looking backward, Ponzi schemes and legitimate businesses are not far apart.
I think we’ve all heard the story about investing a $1,000 in the stock market and investing $1,000 in beer in metal cans. If you drink the beer and get a refund for the empty can, you’ll probably be ahead of the stock market. This story originated in the recession of the late 1980’s and it is certainly true in the current recession. The stock market has always been risky, but now the too-big-to-fail mentality has turned the markets in to casinos where the house always wins.
Madoff was part of the system (part of the “house”) so he got a free ride from regulators – who were really working for the house, too. You were much more likely to be investigated if you didn’t work for the Wall Street Casino complex. How else can you explain why government regulators failed to act even when whistle-blowers told the US Congress he was running a Ponzi scheme?
The Flash-Crash is yet another example of how the house always wins. Investment banks can make trades in micro seconds, much faster than the average investor can make a trade. This edge gives them the ability to lay-off bets the same way bookies and casinos have always done. Gambling has replaced investment as the way Casino Wall Street makes money.
Hedge funds are sort of competing casinos. If you don’t like the odds Casino Wall Street is giving you then go play at an after-hours Hedge Fund. Make no mistake that in either casino the business is not about creating wealth through investment, it is about gambling pure and simple. Buy and hold no longer works, gambling works – if you are the house.
I’m not arguing that Wall Street is an illegal activity anymore than I would argue the casino business in Las Vegas and around the world is an illegal business. I am suggesting that Ponzi schemes really belong somewhere under the umbrella of capitalism as much as pyramid schemes.
Many huge US corporations are pyramid schemes and are very close to Ponzi schemes. Tupperware, Avon, Amway are all pyramid schemes. The closer you are to the top of (your) pyramid, the more money you’re likely to make. But, in fact, there’s only a hairbreadth of difference between a Ponzi Scheme and a pyramid or MLM business.
One of the differences is that pyramid schemes aren’t run for investment as Madoff’s company was. Of course the end goal is to make money in both a Ponzi and Pyramid scheme, so this difference seems pretty small. In a Pyramid scheme you have to invest, not only your money, but your time as well. In a Ponzi Scheme, you just invest money (same as you do with Casino Wall Street).
Another difference, which seems small to me, is that in a Ponzi scheme you are sold on the scheme by one person, Madoff for example. In a Pyramid scheme the investor takes the part of Madoff and sells new people on the idea.
Of course in a Pyramid business there is a product, but sometimes the product is just a token or piece of paper. When you buy stock from Casino Wall Street, what do you get? A piece of paper. All of these businesses are acorns that have fallen near the bottom of the same oak tree. My first point is that Madoff was not way off in right field when he began his fraudulent plan. He has been called a psychopath, and he probably is, but he was dancing to the same music and dancing in pretty much in the same manner as legitimate businesspeople.
The new Internet business plan for creative property is a lot like a Ponzi scheme.
Another apocryphal story is the college student who creates a virtual college. He does this by putting up a slick web site complete with pictures of buildings and facilities. It should not be surprising that his phony college was a success. Web site designers even take pride on selling you the idea that you can look just as good as the big guy. Again, I’m not suggesting that small businesses shouldn’t put up web sites that have the look and feel (sometimes even better than) of large corporations, but I am suggesting is that there is just as much “professional” cover here for fraud to go unnoticed as there was in Madoff’s professional banking world.
But the reason why the Internet is forcing people into Ponzi schemes is simple: everything on the net is free. And if it is not free, it is offered at such a low price that tens of thousands of copies have to be sold just to get above the poverty line. The great feature of the Internet (that it is free) is the very thing driving people to Ponzi schemes.
Magazines and newspapers had a lucrative advertising base before the Internet. Now, those same businesses have to have an Internet presence, but they have not been able to regain the advertizing revenues lost when the Internet arrived. They’ve had to adopt new business plans, and some of those business plans look a lot like Ponzi schemes.
For instance many on-line fiction magazines solicit material (as they did before as a print version), but now they require a reading fee to be submitted with the manuscript (which they never did before). They offer only a token payment if the material is used, but they do offer prizes if the material is judged the best of a group. It’s a lottery, and because you have to pay to enter, probably illegal. And if they’re not illegal as a lottery, it may be as a Ponzi scheme (you don’t know how many investors are in the pool, you are sold by one entity and the scheme fails when investors fall short of payouts.)
I don’t say throw the bums in jail, I say God bless them! Without these on-line creative property sites – there’d be nothing. American art and thought would wither on the vine.
Greenwood’s Law: All Intellectual Property that is not offered for free will be sold at one price on the Internet not to exceed the price of a mobile phone app.
The economy of scale of the Internet – the stuff that makes entrepreneurs drool – will drive selling prices down to the lowest downloadable, common denominator. That’s probably a mobile phone app. So an app which may contain a few lines of code will sell for the same as an e-book of the Grapes of Wrath. Steinbeck no longer needs money, but new writers do and it is unlikely they will invest their time and energy to create a book that even if it is accepted and sold will net a pittance.
The chance of a new Steinbeck bursting on the scene is even more negligible because when everything sells for the price of a phone app we lose our ability to discriminate between good books and bad – our sense of quality is left by default to Oprah’s Book Club because the magazines that use to review books are gone. The whiz kids who run the e-tailing sites and make money from ads and monetizing hits don’t care about quality. They only care about what sells. The reviewers themselves, I think have been overwhelmed by the sheer volume of e-books. The only way we have to judge a book now is by its cover – and the graphic arts business in creating e-covers is booming.
If you look at what happened to the music industry when the Internet came along, it’s hard to blame companies for walking very near to the footsteps of Madoff. These are magazines paid for by the people who make the magazine. In many ways it is like the FaceBook model (and many others) who offer only the flesh of other members as reason to pick up a copy - the 1973 movie Soylent Green has arrived.
The traditional sense of market is all but gone. Now we have friends who are friends only because they aren’t out to market anything to us. The traditional sense of selling a product is all but gone. Selling has been marginalized and left to fad [Let me add that I don’t know how FaceBook makes money. I’ve never bought anything off a FaceBook ad, have you?] The traditional sense of a customer is gone, too. A customer is something you could beat the bushes to find. Now he is all but unreachable through the smoke screen of social media. How can you make money in this type of world? What’s left for a businessman? Maybe just a Ponzi scheme.
Forrest Greenwood 10/28/10
Like everyone else, I despise Bernard Madoff for running his Ponzi scheme which defrauded millions of dollars from people who invested in his fund. I am beginning to wonder, however, if a Ponzi scheme like the one run by Madoff is much different than other financial businesses. I also wonder if Ponzi schemes might be the only way for
E-tailing of creative work on-line, and lastly I wonder if the economy of scale the Internet offers might not be, well, the beginning of the end to American thought all together.
Looking backward, Ponzi schemes and legitimate businesses are not far apart.
I think we’ve all heard the story about investing a $1,000 in the stock market and investing $1,000 in beer in metal cans. If you drink the beer and get a refund for the empty can, you’ll probably be ahead of the stock market. This story originated in the recession of the late 1980’s and it is certainly true in the current recession. The stock market has always been risky, but now the too-big-to-fail mentality has turned the markets in to casinos where the house always wins.
Madoff was part of the system (part of the “house”) so he got a free ride from regulators – who were really working for the house, too. You were much more likely to be investigated if you didn’t work for the Wall Street Casino complex. How else can you explain why government regulators failed to act even when whistle-blowers told the US Congress he was running a Ponzi scheme?
The Flash-Crash is yet another example of how the house always wins. Investment banks can make trades in micro seconds, much faster than the average investor can make a trade. This edge gives them the ability to lay-off bets the same way bookies and casinos have always done. Gambling has replaced investment as the way Casino Wall Street makes money.
Hedge funds are sort of competing casinos. If you don’t like the odds Casino Wall Street is giving you then go play at an after-hours Hedge Fund. Make no mistake that in either casino the business is not about creating wealth through investment, it is about gambling pure and simple. Buy and hold no longer works, gambling works – if you are the house.
I’m not arguing that Wall Street is an illegal activity anymore than I would argue the casino business in Las Vegas and around the world is an illegal business. I am suggesting that Ponzi schemes really belong somewhere under the umbrella of capitalism as much as pyramid schemes.
Many huge US corporations are pyramid schemes and are very close to Ponzi schemes. Tupperware, Avon, Amway are all pyramid schemes. The closer you are to the top of (your) pyramid, the more money you’re likely to make. But, in fact, there’s only a hairbreadth of difference between a Ponzi Scheme and a pyramid or MLM business.
One of the differences is that pyramid schemes aren’t run for investment as Madoff’s company was. Of course the end goal is to make money in both a Ponzi and Pyramid scheme, so this difference seems pretty small. In a Pyramid scheme you have to invest, not only your money, but your time as well. In a Ponzi Scheme, you just invest money (same as you do with Casino Wall Street).
Another difference, which seems small to me, is that in a Ponzi scheme you are sold on the scheme by one person, Madoff for example. In a Pyramid scheme the investor takes the part of Madoff and sells new people on the idea.
Of course in a Pyramid business there is a product, but sometimes the product is just a token or piece of paper. When you buy stock from Casino Wall Street, what do you get? A piece of paper. All of these businesses are acorns that have fallen near the bottom of the same oak tree. My first point is that Madoff was not way off in right field when he began his fraudulent plan. He has been called a psychopath, and he probably is, but he was dancing to the same music and dancing in pretty much in the same manner as legitimate businesspeople.
The new Internet business plan for creative property is a lot like a Ponzi scheme.
Another apocryphal story is the college student who creates a virtual college. He does this by putting up a slick web site complete with pictures of buildings and facilities. It should not be surprising that his phony college was a success. Web site designers even take pride on selling you the idea that you can look just as good as the big guy. Again, I’m not suggesting that small businesses shouldn’t put up web sites that have the look and feel (sometimes even better than) of large corporations, but I am suggesting is that there is just as much “professional” cover here for fraud to go unnoticed as there was in Madoff’s professional banking world.
But the reason why the Internet is forcing people into Ponzi schemes is simple: everything on the net is free. And if it is not free, it is offered at such a low price that tens of thousands of copies have to be sold just to get above the poverty line. The great feature of the Internet (that it is free) is the very thing driving people to Ponzi schemes.
Magazines and newspapers had a lucrative advertising base before the Internet. Now, those same businesses have to have an Internet presence, but they have not been able to regain the advertizing revenues lost when the Internet arrived. They’ve had to adopt new business plans, and some of those business plans look a lot like Ponzi schemes.
For instance many on-line fiction magazines solicit material (as they did before as a print version), but now they require a reading fee to be submitted with the manuscript (which they never did before). They offer only a token payment if the material is used, but they do offer prizes if the material is judged the best of a group. It’s a lottery, and because you have to pay to enter, probably illegal. And if they’re not illegal as a lottery, it may be as a Ponzi scheme (you don’t know how many investors are in the pool, you are sold by one entity and the scheme fails when investors fall short of payouts.)
I don’t say throw the bums in jail, I say God bless them! Without these on-line creative property sites – there’d be nothing. American art and thought would wither on the vine.
Greenwood’s Law: All Intellectual Property that is not offered for free will be sold at one price on the Internet not to exceed the price of a mobile phone app.
The economy of scale of the Internet – the stuff that makes entrepreneurs drool – will drive selling prices down to the lowest downloadable, common denominator. That’s probably a mobile phone app. So an app which may contain a few lines of code will sell for the same as an e-book of the Grapes of Wrath. Steinbeck no longer needs money, but new writers do and it is unlikely they will invest their time and energy to create a book that even if it is accepted and sold will net a pittance.
The chance of a new Steinbeck bursting on the scene is even more negligible because when everything sells for the price of a phone app we lose our ability to discriminate between good books and bad – our sense of quality is left by default to Oprah’s Book Club because the magazines that use to review books are gone. The whiz kids who run the e-tailing sites and make money from ads and monetizing hits don’t care about quality. They only care about what sells. The reviewers themselves, I think have been overwhelmed by the sheer volume of e-books. The only way we have to judge a book now is by its cover – and the graphic arts business in creating e-covers is booming.
If you look at what happened to the music industry when the Internet came along, it’s hard to blame companies for walking very near to the footsteps of Madoff. These are magazines paid for by the people who make the magazine. In many ways it is like the FaceBook model (and many others) who offer only the flesh of other members as reason to pick up a copy - the 1973 movie Soylent Green has arrived.
The traditional sense of market is all but gone. Now we have friends who are friends only because they aren’t out to market anything to us. The traditional sense of selling a product is all but gone. Selling has been marginalized and left to fad [Let me add that I don’t know how FaceBook makes money. I’ve never bought anything off a FaceBook ad, have you?] The traditional sense of a customer is gone, too. A customer is something you could beat the bushes to find. Now he is all but unreachable through the smoke screen of social media. How can you make money in this type of world? What’s left for a businessman? Maybe just a Ponzi scheme.
Forrest Greenwood 10/28/10
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