Ciaran’s Peculier [sic] Blog

I often dream of launching an alternative to the Nobel Prize for Economics. It would be for the person who has had the most long-lasting effect on the economic lives of the world’s citizens. My own nomination might seem surprising. Would it be John Kenneth Galbraith? No. John Maynard Keynes, no; Milton Friedman – wrong again. No, the prize would go (posthumously) to Carlo Ponzi, the Italian American who gave his name to the notorious Ponzi scheme, better known perhaps in western Europe as the pyramid scheme, which still attracts gullible investors and then fleeces them throughout the world.

Put simply a Ponzi scheme offers you huge returns on a very small initial investment. It is usually based on a rather dubious financial base. As the initial sums are small it usually attracts the small investor, especially in the Third World, who often invests all their savings in the hope of emerging from a life of drudgery and penury. The Ponzi scheme inevitably collapses, leaving investors with nothing, but those who have set up the scam in the first place escape in the nick of time, usually with large sackfulls of cash. As these schemes usually occur in countries with dubious regulatory regimes it is often felt that the people behind them are in cahoors with powerful people in government.

Ponzi schemes have affected countries like Albania Yeltsin’s Russia and Tajikistan, though one operated for a while in the dear old Romish Republic, but it was kind of hushed up because those who were stung were too embarrassed to admit they’d fallen for such a scheme.

I’ve written a book about them, with my friend Gerry Griffin. It’s called Fools’ Gold: Cautionary tales in Greed, Speculation and Delusion. It is still available through Amazon.com. It ends with the pithy aphorism: “If a scheme seems too good to be true, it probably is.” You’d think that people would have copped on to these schemes by now. They are so familiar and follow the same pattern. The latest one has hit Colombia. One of the dubious companies behind the scheme is called DRFE. It like numerous other “investment companies” had been promising gargantuan returns on piddling initial investments. It is thought some of them have been laundering narco-money. AAnyway the bubble’s burst leaving thousands of angry investors with sweet FA. They have responded by storming the investment companies’ offices. In the city of Pereira in south-western Colombia some company employees were caught by the police leaving through a back entrance with suspiciously heavy suitcases. They were taken into custody for their own protection after having offered one of the suitcases to the police.

Some of those behind the scams seem positively gleeful about how they were able to get away with it. In the town of Santander de Quilichao about 50 km from Cali people looking for their money back found the following note pinned the the company’s door:

Now for being stupid and believing in witchcraft you will have to work much harder to recoup the money you gave us

while the door of another investment company office had an early Christimas card, wishing investors “a sad Christmas and a shameful New Year.”

The Colombian government has expressed horror at what has happened, but apart from sending in troops and riot police to stem the investibale crowd trouble have done nothing. The vice-president, Francisco Santos has said: “Nothing is free in this world and that is not going to change.” (unless of course you’re a member of the Colombian congress, when pretty much everything is free).