“That’s a pyramid scheme.”
Have you ever heard that phrase?
Being heavily involved and successful in a network marketing company I sure have. But does anyone really understand what a “pyramid scheme” is?
Did you know there are legal and illegal pyramid schemes? Did you know that some of the legal pyramid schemes actually are no different from the illegal pyramid schemes?
Ok, let’s start in the early 1900’s. A fella by the name of Charles Ponzi immigrated from Italy in 1903 arriving the United States-via a big boat, with $2.50 to his name. With aspirations of a rich and famous lifestyle he became involved in a bank that went under due to bad loans. Ponzi was left broke, and began forging false checks. He was caught and put in jail for three years, this was not the last illegal doings of Ponzi.
It didn’t take Ponzi long to think of a master plan.
It initially started when he received a letter from Spain which contained an international reply coupon (IRCs). These coupons could be redeemed for (x) amount of postage stamps. Ponzi, being quite clever, established partners overseas. He sent partners money, they returned him IRCs. He would find the most expensive stamps (these were worth much more than the IRCs he bought) and traded his IRCs for them. With the stamps in hand he was able to turn around and sell them making a 400% gain- WHOAH!!!
This was not enough for Ponzi. He began investing other people’s money. To begin he would ask investor (x) for $15 and tell them to claim their 50% return in 45 days (In today’s world people would kill for a 3% return on CDs). People were skeptical, but come day 45 they would have their hefty 50% return. As time went on, skepticism shrank due to great performance. Investors began investing $20,000, $50,000 and beyond with Ponzi (In early 1900’s dollars) now receiving 100% return after 45 days.
What these investors did not realize- Ponzi was paying yesterday’s investors off with today’s investor’s dollars; rather than with any actual profit! (Also what Bernie Madoff did)
With Ponzi making an estimated $250,000 a day, the Boston Post began to investigate how he got such great returns. With the investigation and rumors floating, investors began pulling their money out. And with no new investments Ponzi’s “Scheme” was over. Yes, if you haven’t figured it out yet- “Ponzi Scheme.”
Those who got out early enough, obviously made their profit. But those who were too late lost an estimated $20 million- in today’s dollars that is more than $220 million!
For any movement of money there must be a good or some sort of value received from it. If not it is a Ponzi or pyramid scheme.
So what is considered a legal pyramid scheme?
They all are made of a pyramid. There is a leader at the top. On the way down there are other executives, middle management, and other employees. What makes this legal is that there is a value being sent down the pyramid which in return brings a value up the pyramid. What happens when that flow becomes one way?
When the value only flows up the pyramid it is illegal.
Let’s use a network marketing company for example. If you only get paid when you sign someone up and there is no exchange of good being sent down, that’s considered illegal.
Sounds like the United States version of social security huh!?
Think about it, our parents (I’m 23) have paid in over all these years, and in ten years or so when it comes time for them to retire will they receive that full benefit of what they paid in? ABSOLUTELY NOT! You and I are paying in right now and no way will we see that money. Sounds like an illegal version.
With baby boomers retiring and social security dollars drying up they are using the money we pay in today to support the people retiring today. Sounds a little bit like what Charles Ponzi was doing if you ask me.
Let’s look at another example that you would never think of being a pyramid scheme, but has signs of a suspect.
Every college/university in this country.
Think about it! How many people, especially these days, will see the full VALUE of attending college compared to what it cost them? Will you? Will your sibling? Your best friend?
You go to college for $25,000 per year. That adds up to $100,000 over 4 years (and plenty of people are going 5, 6, 7 years these days). How many of the graduating class in 2012 will ever see that value? I graduated with many that are now unemployed. I graduated with others who have to go work at Subway- and not in the corporate offices. Are they receiving the value for which they paid in college tuition?
By no means do I think college is a bad thing. I still believe everyone should be able to attend and should attend. It is where you learn to communicate, how to problem solve, meet some of your best friends and future business partners. But it could be considered a pyramid scheme.
Without having done any serious research I CAN’T PROVE that it is. But by the looks of it, by the feel of it, by the smell of it who knows?
So before you claim I, or others who are involved in network marketing are associated with a pyramid scheme, think again. Maybe you would want to be a part of a network marketing scheme if you read this and educate yourself.
I get compensated very well for the 3 to 6 hours of work with my network marketing company per week. In return those who purchase the products from me or my team see great benefit/value. To call it a pyramid scheme is ignorant.
Absurd? Agree? Hate? Love? Leave a comment. What do you think? And again, thanks for reading!