It's not hard to spot a con..

July 02, 2012 10:34:37 AM

It's not hard to spot a con...
July 2 2012 at 05:00am
By Ethel Hazelhurst


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How can you distinguish between a scam and a genuine investment opportunity? This was a question asked at a Reserve Bank briefing last week, to alert people to the dangers of pyramids and Ponzi schemes.

There are a few ways to answer the question. Most simply: an offer of 200 percent in annual returns is a good indicator that the scheme is a con. But investors – and not just the ignorant – are apparently unable to see this.

An alleged Ponzi scheme set by up Barry Tannenbaum and exposed in 2009 reportedly offered returns of this order. And those who fell for it included former Pick n Pay chief executive Sean Summers, former head of OK Bazaars Mervyn Serebro, ex-Bond Exchange of SA chief executive Tom Lawless and former JSE chairman Norman Lowenthal. No wonder a humble journalist asked for guidance.

Another questioner at the launch of the Reserve Bank’s campaign against pyramid schemes and Ponzi schemes tried to pin some of the blame on the banks.

“Isn’t the problem that the gap between what the banks offer and what these schemes offer is too big?” he asked. Well, the reason the gap is so big is that the banks give your money back to you, as agreed, while assorted illegal money schemes and other cons just swallow it up.



But the question implied that the banks were Scrooges and should be forced to provide higher returns. Perhaps the questioner thought the Reserve Bank could initiate legislation to force banks into cloud cuckoo land – along with those who think high returns on investment are a basic human right.



Part of the reason things go miserably wrong in an economy is that too many people cling to their ignorance. Perhaps they feel safe cocooned in a miasma of misinformation and disinformation. In 1964, psychiatrist Eric Berne published a book called Games People Play. Among the games he described was “if it weren’t for you”, in which people choose the role of victim because it is easier than accepting responsibility for their own actions.



The game has been actively played in Greece over the past 30 months, where angry citizens blamed their government because it was no longer able to provide the unrealistic benefits they had received in the past. Similar sentiments echo all round Europe, where people object to the retirement age being raised to ensure that there are enough working people to support the retired. In cloud cuckoo land there is an alternative.



Politicians are quick to take advantage of the situation.



In Germany, in 1933, Adolf Hitler promised voters prosperity in a thousand-year reich. Given the rest of his agenda, they should have spotted the problem. Instead, the voters perceived his policies as credible and put him in power. Twelve years later, German cities were reduced to rubble and the economy was in ruins.

In apartheid South Africa, the supporters of the National Party voted them into power election after election until the country ran out of net reserves. To their credit they faced reality when there was no foreign exchange to replace ageing Mirage jets for the border war. And they eventually voted “yes” to change.

Greece has yet to face the reality test. The anti-austerity Syriza party gained 26.9 percent of the vote in last month’s election. And the majority coalition is on shaky ground.

People love a spellbinder. Listening to hogwash gives them hope and relieves them of the responsibility to think.