Monday, February 23, 2009

.: For The Love Of Money :.

Bernard Lawrence "Bernie" Madoff founder of Bernard L. Madoff Investment Securities LLC, also known for his Ponzi scheme (a hedge fund scheme that was all one BIG LIE) may be the largest investor fraud committed by a single person.

His sales method was to offer his clients a modest return on their investments and his investments was often marketed as "too complicated for outsiders to understand".

So what was his scheme all about? How did he manage to pay out such high yield from his funds - way above market returns? How did many "intelligent" companies/individuals get fooled into this? It's not the housewives-next-door that gets caught in this scheme. Investors includes HSBC, BNP Paribas, RBS, Ascot Partners, etc.

Well, in a nutshell, it works like a pyramid scheme (MLM, Network Marketing or whatever you may want to market it as).

A very simple, yet explains-it-all lesson I learn from my lecturer is this - to look at the cash flow of the company. Where is it getting it's profits (which will later on translate to cash) from? And more importantly, is it sustainable?

Bernie's scheme is such where new investors invest cash into the scheme. Existing investors who wants to draw out cash would be able to do so, but the cash actually comes from the new investors rather than actual profits made by the funds.

In this scheme, it's like a musical chair. Everyone is happy when the music is playing, but once the music stop, the one left without the chair is in the losing end (and it's usually the later investors, while the earlier investors who have already withdrawn from such schemes are safe).

It's really quite sad for I've seen this type of scheme presented to me a couple of times, which I must admit, the returns are really good. The testimonials from the investors of such scheme are so convincing. They are not of older people, but of people my age, who claims to have make it big, driving a Beamer, shopping at KLCC boutiques and all that. But take a more closer look at these schemes, push asides the greed in us for high & fast returns, and you will unravel the wolf behind sheep's clothing.

The main reason why this type of scheme is still around, despite numerous warnings from media, etc is because of human greed. High returns without having to do anything. This young girl came up to me and begin to testify in one of the talks I went to. She began to tell of how she loves to shop, and want to buy branded goods - and because of this scheme, she doesn't have to slave and work, and she can just earn money just like that and can buy whatever goods she wants. I can see why many people will buy that, especially those of my age range. Easy money. No HARD WORK (albeit, no boring 9-5 jobs, sitting behind the office desk). So much time to spend shopping and holidaying and spending money.

Yes, I never dispute the fact that one could make money from such a scheme. Just have to be the pioneers, the top end of the pyramid, extracting money from the bottom end of the pyramid. These schemes are to a certain way legitimate (if it's marketed the right way) but in substance, it is morally wrong.

I have seen and heard, all of this with an open mind, but one should never let greed get in the way of rational. I've seen intelligent friends, some even from accounting backgrounds, who got fooled into such scheme, and got burned in the end.

Sometimes, the money invested and lost can be viewed as "education fees". You learn from your mistakes. And move on. But some, who has poured in their lifelong savings - have literally nothing to live by. Because of the collapse of the Bernie's funds, there were a couple of people who decided to take their life. There was this elderly man who had to go back to work, instead of enjoying his retirement - all because his savings were wiped off overnight.

I really feel very strongly against such schemes but have been keeping mumps about it until recently. I just hope that people would be able to wake up and realize all this and make a wise decision before it's too late.

Remember, money is not the root to all evil. The love of money is.
(1 Timothy 6:10)


nana said...

he stole my money making scheme
now I have to think of a new one
to milk all the stupid rich ppl of their belongings

Anonymous said...

Anonymous said...

Anonymous said...

"Easy money. No HARD WORK (albeit, no boring 9-5 jobs, sitting behind the office desk). So much time to spend shopping and holidaying and
spending money."
- Those are get-rich-quick schemes, not legitimate network marketing businesses for sure. ;-) I'm against those schemes as well.

"Just have to be the pioneers, the top end of the pyramid, extracting money from the bottom end of the pyramid. These schemes are to a certain way legitimate (if it's marketed the right way) but in substance, it is morally wrong."
- If you're an employee, then you're working hard for your CEO, President and Head of Departments and it's the same as "just have to be the pioneers, the top end of the pyramid, extracting money from the bottom end of the pyramid", right? So you feel that all CEOs are morally wrong because they all have people working under them (plus they can retrench their employees whenever they like and cut their salaries too)?

Actually, there's nothing wrong with the SHAPE of the pyramid because your family tree (your mom and dad, and then their kids under them and so on) and corporate companies are all pyramid-shaped (you have the CEO, the HOD and the people under them; that's a pyramid too).

Coming back to your generalised remark about MLM, well, many top universities around the world have Network Marketing courses hence it's legitimate because it's a business and it's part of Marketing (I studied that in college too). And MLM (which stands for Multi-Level Marketing) is a marketing method, not a scam per se. And MLM has two types: Direct-Selling and Network Marketing. Companies like McDonald's, BMW, Coca-Cola, Dell, etc. all used Network Marketing when they first started off, because many know that Advertising and PR are not that effective anymore, only when the brand is establised (like McDonald's now... and Coca-Cola). The concept of Network Marketing (NM) is that, instead of paying celebrities the endorsing fees, those companies reward their consumers for spreading the word about the products. The concept of NM is sharing; word-of-mouth. It's like, when you go watch a movie at GSC and you share with your friends about a certain movie, Hollywood and GSC don't pay you for sharing. The difference with companies that use the NM method is that they pay their consumers for sharing. Hence it's more effective than Advertising and PR combined. I know this because I was from that industry.

Yes, there are MANY scams out there and they actually SORT OF apply the concept of MLM, that is why many people detest MLM, because of bad apples like that. But it's important not to generalise, because like a friend of mine (who's a successful entrepreneur) once said, "If you agree that not every single man in the world is a serial rapist, then it is absolutely true that not everything associated with MLM is a scam." It's just like there are many bad guys out there and you may have been hurt by many bad guys before but it shouldn't stop you from marrying someone of the male species someday just because of those bad apples, right?

Just my two cents' worth, little one. And remember: NEVER GENERALISE.

Kathlynn said...

Thank you for your comments :)

In my humble opinion, I never dispute that MLM schemes (or however it is labelled) is not legitimate. In fact, the easy money, no hard work, so much time, etc were testimonies of ppl from schemes that are perfectly legitimate.

All I am just saying is, it is my stand that certain schemes (I am not pin pointing any schemes in particular nor am I saying that all are), tho legitimate, it is just against my principles. In fact, I do not know much of platinum4life, so my opinion does not even encompass this.

A non related example is of gay marriages. Tho in some places gay marriages are perfectly legal, doesn't mean I MUST accept this. I am just standing for what I believe in (whether it's due to my religious beliefs, the environement that I was brought up in, etc).

I really feel strongly agaisnt this, but I definately have nothing agaisnt the people who are in them. Afterall, it is only my opinion, but who am I to impose my opinion just like that unto other people.

For instance, I am a Christian, but I have many non-Christian friends alike. And tho I know that the only way for salvation is thru Christ alone, I can never impose or force anyone to accept my beliefs. I still give the same respect and treatment to my non Christian friends.

Just like you may have your own opinion on this, so do I have mine. And I really and sincerely do respect your opinion on this matter. And I hope that you have the same for mine. :)

You are totally right that just because there are many bad guys out there, it shouldn't stop me from marrying a guy just because of the bad apples. But of course I would have to make a "generalisation" of men (i.e. by being careful)and get to know them really well first, before I start a relationship with them, wouldn't I? :)

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