A post below got me thinking. Set your mind back to 2001, the notorious 'Women Empowering Women' 8 ball pyramid scheme. I heard from a reliable source that it got so stupid on the Isle of Wight that some bank branches turned off their atms.
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Apparently participants were so frightened of it collapsing they were emptying their own bank accounts to lend new participants the money to join. Have a look back at the news:
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"One week the NatWest had so many withdrawals of £3,000 that it was concerned its branches would run out of money."
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It's a shame they make the connection in about 2004 isn't it?
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"...the Community Investment Club, based in a shopfront in Newport, promised via details in the window to turn £100 into £88,300 ... 'We are a group who lost out in the collapse of the old pyramid. We are keeping the initial investment down so more people can invest' says Duncan"
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Shared appreciation mortgages? Affordable housing schemes? QE?
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"Not everyone has lost on the schemes, though, and among the minority who emerged winners was Lady Anson, a cousin of the Queen ... the richer members of Circles, many of whom spend much of their spare time trying to recruit new members, meet regularly in some of London's top restaurants."
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Or you could say - "Among the minority who emerged winners were some very rich hedge fund managers, who persuaded their very rich friends to buy the dodgy mortgages in some of London's top restaurants" Couldn't you?
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Discuss?
8 comments:
Agreed.A lot of people call the housing market a Ponzi scheme but it is much more like pyramid selling.A ponzi scheme relies on everything being run through one dodgy operator but the housing market relies on a large and increasing number of people with an interest in duping newcomers to the market.
A pyramid scheme it is (was).
However, you make the usual mistake of thinking that QE was the government lending the banks money - it was exactly the opposite - QE was the government borrowing from the banks (about £160 billion).
The government lent the banks approx. £300 billion under two completely separate schemes called 'Special Liquidity Scheme' and 'Credit Guarantee Scheme'.
So it's £160 billion in one direction and £300 billion in the other (although presumably there's no precise overlap, so the two figures do not simply net off to £140 billion).
Yes, housing is a genius pyramid scheme since you can use leverage. None of this amateur league use your own money rubbish.
I like the part in the Wikipedia link about the Colombian army having to stop the riots caused by the pyramid schemes there.
What I find interesting is what causes the pyramid to collapse. I think most people realize the con but they think they can cash out before the scheme collapses.
For instance in the USA house prices are still falling yet in Canada which is essetially part of the same economy(similar interest rates, exchange rates, taxes etc) house prices are still close to peak or rising.
Are Canadians just slow to catch on? Does anyone have a theory?
Interesting programme about the Dubai ponzi scheme on ITV last night.
The punters bought houses that only existed in glossy brochures so the ponzi controllers didn't even have to build the houses in the first place. That's got to be the best scheme. Very little outlay for vast profits. One Egyptian ponzi controller has moved to Northampton and bought a mansion. The police can't move against him unless the Dubai government make a complaint. Priceless !
DBC - I reckon there are a lot of ponzi similarities too.
MW - The WE reference was more to pinning interest rates down, lowering the entry stake.
Andy - Loads of them go into these 8 balls on the plastic take loans!
wja - What program? I'm expecting gold in storage scams to crop up at some point.
Steven..
It was the 'homes from hell' series
http://www.itv.com/itvplayer/video/?Filter=155336
Watch out for the graphic designer now forced to live with his mum after losing £60K in the scam. He said he trusted the Dubai government because they followed 'sharia' law. You couldn't make it up.
Or the couple who continued paying into the scheme 4 years after their apartment was supposed to be finished. They even kept paying despite driving past the complex last year and seeing just a hole in the ground.
The Egyptian fellow made them 'feel special' as he always made a point of thanking them personally for keeping up with the payments. I bet he did.
Fake gold ? That's already being talked about openly. Gold coated iron in vaults everywhere.
The main thing is that it's a game that's supported by people who are too ignorant to grasp that like a ponzi scheme or bubble stocks like Netscape, it's a zero sum game. You might make a load of money out of home ownership, but you might get burnt.
It's one of the reasons I'm dead against homeownerism. It doesn't actually make people richer, and just creates a whole lot of other problems like negative equity and boom-and-bust cycles.
These cycles have a terrible effect on the economy. Businesses run far better on a consistent level of demand than being richer for 7 years and then having 2 years of collapse. 18 months ago I was fighting for client work. Now, I'm struggling to keep them all happy. I'd much rather have had some of this work 18 months ago and had a smooth flow. And the reason it's not a smooth flow is because of housing bubbles.
Andy, good one. The big difference appears to be that the Canadian banks are better regulated; there was no forced sub prime lending; no tax breaks for home-ownership, and so the house price bubble in Canada was much more restrained. What doesn't go up need not come down.
WJA, that Dubai programme was a f***ing classic of its genre, I enjoyed every millisecond.
JT, indeed, that's yet another bad effect of Home-Owner-Ism. The 'Austrians' say it's credit bubbles that cause these hiccups, but you can't talk about credit bubbles without talking about land price bubbles.
If we take this to its logical conclusion, it is yet another argument for shifting taxation from wealth creation to land values. The former ONLY has bad knock-on effects; the good effects of the latter far outweigh any possible downsides.
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