15 replies to this topic

[Boris Rarden]

Hello Objectivists,

If you haven't heard yet, there is a very big Ponzi Scheme pyramid called MMM, http://i-mmm.com . It now has 20 million members (unverified). Unlike other Ponzi Schemes, this system doesn't have any product to sell, it sells itself as a sort-of bank. You deposit money, and get it out at 30% interest after a month, or three. There are different plans. Where does it get the money ? From advertising inself and getting more recruits. Its biggest users are the elderly people who were robbed of their pension in Russia and Former Soviet Union, and who are now able to have a decent living. However, many other people joined in, from other countries and are investing fairly large sums, $10,000 and up. The MMM "bank" has a, like a real bank, some money in the system, and some money coming and coming out. You can imagine that there is a net amount of money that is stable, for example, 1 billion, and can be invested into a real product, for example an Oil Refinery, which would bring in real dividents from products, rather than new people joining. So eventually the really exciting interest rates of 30% are going to fall to match the inflow of people and the means to make money from different products.

So now we have this "bank". It was built by people puting in money for two reasons:
- great interest
- the philosophical idea of helping others, by pooling money together.

And this was done at the expense of risk, because nobody knows if the system will survive another day (less people will reinvest than outgoing payments are due). So in a way MMM is like a gambling game. Moreover, the system is based on trust, nothing is stopping a member to run off with the money. (To understand this last statement, please note that the money is distributed in member's accounts, rather in one big account, and they are supposed to transfer the balances on command to appropriate destinations).

What do you think about the moral implications of such a system ? Is this capitalism on socialism ?

The official statement of the creator is that he wants to crash the current economic system where money is printed by the Reserve Bank and robbing people. Here I agree. He says that because the system of ever-increasing debt and money printing is a sort of pyramid, then the only way to beat it, is with another pyramid.

However, the inclinations of the creator of MMM are socialistic -- he claims that banks are robing its clients by giving a smaller percentage than they could. From what I could gather he doesn't really believe in laissez-faire capitalism (although he never states this). He wants to build some kind of new way, once the current system is crashed.

However, putting the ideas of the creator aside, and looking at the outcome -- can we say it is a bad thing ? A good thing ?

Finally, suppose that we conclude that it is a bad thing, because it promotes socialism. (I leave that discussion open). Is it moral to still invest money into the system, for the following purpose:

- Whatever money I make, I will return to those who will be in the end ripped off (who risked and invested, but didn't get their money back because the system collapsed).
- I want to return that money in the form of Bitcoin. All those people participated in the MMM system, which is really defining its own currency, based on the weakness of conventional currency $. Because the BitCoin project is exactly that, if I return them their money in BitCoin, in a sense I'm putting their money to the good use. I tricked them into buying Bitcoin.
- I plan to withhold a percentage of the balance for my work. So they won't get all 100% back of what I made on MMM, but a bit less. Say 90%.

I hope I was clear enough, and looking forward to hear what you think.

[Greebo]

However, putting the ideas of the creator aside, and looking at the outcome -- can we say it is a bad thing ? A good thing ?

The nature of a ponzi scheme is such that any "investment" into one is nothing more than a gamble. The gamble is a bet on whether or not you will be able to win before everyone else involved tries to win and the scheme collapses.

The very design of the scheme is inherently flawed - it is unsupportable in the long term - and the longer it runs before the inevitable collapse, the lower your chances of being able to win.

So now we have this "bank". It was built by people puting in money for two reasons:
- great interest
- the philosophical idea of helping others, by pooling money together.

I would suggest that those reasons are completely incorrect and baseless. Those who "invest" are trying to get rich, they're trying to help themselves, and they're ignoring the need to examine that in which they are investing in order to determine its worth.

What do you think about the moral implications of such a system ? Is this capitalism on socialism ?

It is neither. It is fraud. It is promising great returns to everyone who joins, when the founders know that the inherent design CANNOT succeed in the long term. It's a mechansim designed to dupe the ignorant and make the founders rich. Now this particular one is different in that it outright promises that it can't promise you'll get rich - so arguably at least he's being honest about it, but even that kind of statement can be used as a tool to build up a false confidence in the integrity of the person pulling the con.

However, the inclinations of the creator of MMM are socialistic

I very much doubt that.

[softwareNerd]

There is a genre of scam artist who use political arguments to entice their prey. For instance, there are people who try to sell gold coins above their existing market value by spinning a story about how this will help get back to the gold standard!

If this scheme is a ponzi scheme, as you say, then it is immoral, but not because it is socialist or capitalist... simply because it is a scam that parts fools from their money.

[Boris Rarden]

It is a Ponzi-Scheme, openly, by definition. How is it at scam, if people understand how it works, and take a chance, as they do in casino. Is casino immoral ?

[Greebo]

It is a Ponzi-Scheme, openly, by definition. How is it at scam, if people understand how it works, and take a chance, as they do in casino. Is casino immoral ?

Well, he claims to have 25,000,000+ people involved, for starters.

I'd like to see some substantial proof of this - but I suspect he has neither proof nor anywhere that many people signed up, which itself is automatically a scam - misrepresenting his success.

[Kate87]

A much better way to try and "win" money which will give you much greater odds would be to invest your money in actual legitimate profit making companies.

[CrowEpistemologist]

In a casino there is "some" chance of winning however small. In a ponzi scheme there is NO chance of winning unless you convince people that there is.

[Nicky]

I don't know whether this is a scam or not (depends on whether all their claims are REALLY true or not), but a Ponzi scheme is an unproductive enterprise by definition. It is aimed at redistributing value, not at producing it. Scam or not, that is immoral.

A casino doesn't fit that description because it produces entertainment.

Edited by Nicky, 11 April 2012 - 10:38 AM.

[Boris Rarden]

Why not think of it as a money pool -- a bank, building itself up in a hierarchical structure ? Those who recruit more people, manage them, and in a sense get a job as an administrator for that group. When the system stops growing at a high rate, the percentages will fall, but the management structure in this "bank" will remain -- this hierarchy has proven itself in action -- the people at key positions have shown that they can be responsible enough and efficient to manage their "branch". This kind of structure can be now thought of a company Xyz, that can buy a real product, factory or service, and manage it. For example, if the company buys a service business, then all members of the pyramid can work on that business. If it buys an Oil Rig, then all members become private share-holders.

Last, but not least, a pyramid like this can crash the dollar and the Federal Reserve, and bring back the gold standard. It will accelerate the inflation inherent in our modern banking system, and will force people to re-evaluate what is going on.

Edited by Boris Rarden, 16 April 2012 - 11:22 AM.

[softwareNerd]

Last, but not least, a pyramid like this can crash the dollar and the Federal Reserve, and bring back the gold standard. It will accelerate the inflation inherent in our modern banking system, and will force people to re-evaluate what is going on.

History is not on your side here. If you wish for a situation where the dollar crashes, you're talking about a situation that historically been accompanied by or followed by even worse conditions.

[Greebo]

Why not think of it as a money pool -- a bank, building itself up in a hierarchical structure ? Those who recruit more people, manage them, and in a sense get a job as an administrator for that group. When the system stops growing at a high rate, the percentages will fall, but the management structure in this "bank" will remain -- this hierarchy has proven itself in action -- the people at key positions have shown that they can be responsible enough and efficient to manage their "branch". This kind of structure can be now thought of a company Xyz, that can buy a real product, factory or service, and manage it. For example, if the company buys a service business, then all members of the pyramid can work on that business. If it buys an Oil Rig, then all members become private share-holders.

Banks provide some value to their customers in the forms of loans which produce interest, and in savings accounts which are paid interest. Interest on savings is not paid from other people's deposits.

Your heirarchy does not model itself after a bank.

A company that buys a real product or service (did you just say money isn't real?) sells that product or service to customers, and collects money from them in trade, which is then paid to its employees.

Your heirarchy does not model itself after a business.

Your heirarchy depends on one thing only: Get more suckers to give up their money so the first people who joined can acquire more. It is not sustainable in the long term, it will collapse.

Even if the scheme is presented with perfect honesty to all concerned, it is a short term scheme only. We are long term thinkers here - your get-rich-quick scheme will not appeal to us. We do not consider such ventures moral.

[CrowEpistemologist]

[...]
Last, but not least, a pyramid like this can crash the dollar and the Federal Reserve, and bring back the gold standard. It will accelerate the inflation inherent in our modern banking system, and will force people to re-evaluate what is going on.

Well, again, this might be "the plan" but insofar as any rational person is aware of this (and thus aware that their investment will be annihilated), they will not invest. Hence, in order for this "plan" to work, you would need to convince people of the opposite e.g. fraud.

As to a private entity attempted to crash the dollar... well suffice it to say that it's been tried :-). And to SN's point, even such a thing were (partially) successful, it's doesn't follow that the political response would be a flight to free markets, and history has shown the exact opposite response to crises. Objectivists, I think, have a vested interest in good times, not bad.

[Boris Rarden]

"Your heirarchy depends on one thing only: Get more suckers to give up their money so the first people who joined can acquire more. It is not sustainable in the long term, it will collapse."

Not if the money pool willbe switched to purchase a real business and pay dividends as the percentages.

[Greebo]

"Your heirarchy depends on one thing only: Get more suckers to give up their money so the first people who joined can acquire more. It is not sustainable in the long term, it will collapse."

Not if the money pool willbe switched to purchase a real business and pay dividends as the percentages.

That's a big if requiring to take on faith that this will occur. Given the nature of ponzi schemes, I see no reason to extend that kind of faith.

[CrowEpistemologist]

"Your heirarchy depends on one thing only: Get more suckers to give up their money so the first people who joined can acquire more. It is not sustainable in the long term, it will collapse."

Not if the money pool willbe switched to purchase a real business and pay dividends as the percentages.

So it will be switched to a real investment model that makes real money. Easy. (Well not really).

Why not do that from day one?

[Boris Rarden]

Checkout Bitcoinduit.org -- a bitcoin based ponzi game