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Jewish World Review
April 14, 2009/ 20 Nissan 5769
Snookered!
By
Tom Purcell
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http://www.JewishWorldReview.com |
I was just a naive kid at the time. That's how I got snookered.
It happened in the spring of 1978. My best friend Ayresie and I had quit our jobs as cooks at the Ponderosa Steakhouse to start a business rebuilding retaining walls. We put an ad in the community paper and some fool attracted by the cheap labor, no doubt entrusted his driveway wall to us.
After a week of hard labor we completed the job. After we paid for our supplies and Mitch Morton's dad's truck we'd hired Mitch to haul off the excess stones and dirt we were each left with a profit of $100.
My father was eager for me to put my very first profits into my college fund, but I had a better notion. I was going to "invest" that money and turn it into thousands.
An interesting scheme had come to our community, you see. To participate, you needed $100. You'd give $50 to the person who brought you into the scheme. Then you'd mail another $50 inside a birthday card to a name at the top of a list of 10 names.
Your name would then be placed on the bottom of the list and your task was to find two other suckers to cough up $100 each each person would give you $50, so you'd get your $100 back and then each person would find two other people and so on.
As your two people brought in two people, your name would then be on four lists; as those four people got two people, you'd be on eight lists, then 16, 32, 64, 128, 256, 512 and so on.
So long as the scheme continued to expand so long as you were one of the early participants in the scheme your name would move up to the top on thousands of lists. Thousands of participants would send you $50 in the mail.
That's exactly what happened to the lucky early participants. They made thousands of dollars off the deal though their postal carriers wondered why so many people were so interested in their birthdays.
But of course the scheme was unsustainable for the rest of us. It was a classic pyramid scheme a simple shifting of wealth from the many to the few.
You see, in time, there weren't enough suckers to risk their $100. The scheme finally collapsed under its own weight and a lot of people ended up just as I did.
Broke.
I learned from the experience, though. I learned that every pyramid scheme has three stages. The first was enthusiasm the folly that huge returns would come pouring in. The second was realization that you've been duped out of your hard-earned dough. The third was embarrassment you felt shame and regret for letting your emotions cloud your judgment.
This knowledge has helped me avoid numerous financial schemes over the years.
I was puzzled that tech stocks kept soaring in the '90s, when few tech companies we're earning profits, and I avoided that collapse.
I was puzzled that housing prices were doubling and tripling earlier this decade, when the average income remained the same, and I avoided that collapse, too.
And now I'm puzzled by the latest nutty idea that our government can prop up our economy through massive expansion and spending.
President Bush was no stranger to such spending. In 2002, he was the first president to propose a $2 trillion budget. In 2008, he was the first to propose a $3 trillion budget.
But President Obama puts Bush to shame. Despite a severe economic downturn, he's the first president to propose a nearly $4 trillion budget and he's enthusiastic about it!
Whereas Bush nearly doubled our debt (from $6 trillion to $11 trillion), Obama wants to nearly double it again (from $11 trillion to $20 trillion) in only 10 years! Such a public debt would be unsustainable.
Even a 16-year-old kid wouldn't be dumb enough to invest in a scheme like that.
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ARCHIVES
© 2009, Tom Purcell
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