There comes a time you’ve got to call a spade a spade. Twice last year, I was invited by a dear and wonderful friend to a “presentation.” Okay, many of us getting an invitation of that sort know instinctively what it is about, but we swallow our reservations and sit down for an hour or so to hear how such and such a product made Jack and Jill millionaires.  

Snazzy videos of beautiful people with Ferraris and Rolexes are shown. Deep down you know this looks too good to be true, but being a sociable animal, you don’t want to spoil the party!

At these presentations, sharp shooters explain the ways and means to that first million dollars and second home in Malibu, with a leased jet thrown in. It all sounds good until you get into the mechanics of the deal: the metrics. Now one only has to visit Wikipedia to get the low down on this type of business. And the proponents hate it when you realise it is simply another “pyramid scheme.”

Wikipedia puts it this way at the most extreme: “A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula which is used for profit. The idea is that a ‘con artist,’ Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will make one payment each.” Ultimately, Mr. X and his handful of followers at the top of the scheme are the only real winners in the game!

Yes, this is the worst-case scenario. But the pyramid idea follows this trajectory. There is probably a sliding scale of legitimacy, from the totally illegitimate, with just a fantasy product, to the fully legitimate, with a host of tangible products that are available at the presentation. But ultimately it remains a game of pawns, a losing formula for most.

And for Virgin Islanders who may have difficulty accessing a United States network because they lack US citizenship, the system becomes a game of obstacles. The local “pawn” has to depend on a local postal service and then face US immigration and customs scrutiny before accessing various and more powerful pieces on the pyramid chessboard. Thus, the native VIslander usually enters the game with a handicap.

How it works

Wikipedia describes how Mr. X gets paid out of receipts from the new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the business expands. Wikipedia asserts that most such scams are well equipped with fake referrals, testimonials and information. Ultimately, this is simply a money-from-thin-air voodoo-type economics!

The flaw is that there is no end benefit. The money travels up the chain. Only the originator, sometimes called the pharaoh, and a very few at the top levels, make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Those Ferraris, beach homes and private jets are a gift from the gullible folk at the bottom of the pyramid to the con artists at the top!

‘Cultural subset’

Such schemes are a simple offshoot of a perverse Western cultural subset — a “dodgy” economics based upon greed, easy credit, ostentation and consumption. But this subset is built on a foundation of sand. Its more complex counterparts are those schemes on Wall Street and in London, including arbitrage, derivatives, subprime mortgages, hedging, and the like.

The wise individual should look at the Chinese and Asian economic model, where people produce more than they consume, cherishing a culture of thrift and hard work, while churning out tangible products demanded by a hungry Western consumer. The earnings from these products inevitably end up in the homes of the Western men and women who over two decades have been fooled by conspicuous consumption and easy access to credit, and who are today being crushed by debt. This sad state of affairs is a creation of irresponsible banks that borrowed excessively from those same Asians.

This pattern fueled a credit crunch and housing bubble that went south between 2007 and 2009, taking the entire Western banking system with it. Today, a highly leveraged European banking system is still living with the consequences. The global economy remains under threat from a debt load in the Western marketplace the height and mass of a vast mountain range.  

Asian thrift is a lesson everyone in the VI could learn and benefit from. We must get back to the basics: producing much more of what we consume, waiting to purchase a big ticket item only after we have the money safely saved, and learning how to live within our means. As the old people say, “If you cannot afford something, leave it alone!”

Land ownership

Many VIslanders and belongers are blessed with land ownership. This is an inheritance that has created personal equity levels that are probably higher than most communities without a similar dynamic. However, we must be careful with this precious asset, so that it won’t be frittered away on foolish schemes.  

A brilliant article in Newsweek magazine on Dec. 26, 2011 was titled “The big lie: Wall Street has destroyed the wonder that is America.” The author, veteran Wall Street insider Michael Thomas, spoke of the phenomenon of “Easy Street,” a culture of these modern times of “kiss ass” and “lie through my teeth” that is “anti-communitarian and morally opaque.”

The author speaks of a culture of immoral bookkeeping, elaborate corruption, and greed that has created a casino society with one percent owning the country’s wealth and essentially living off the remaining 99 percent.

Mr. Thomas also writes of derivative malefactions, subprime mania, and rogue trading that is tantamount to “grubby schemes and scams.” The author sees the Occupy Wall Street movement as the tip of an iceberg that will see a global economic collapse shortly. Let us all hope this never happens!

Caution urged

Consequently, caution these days is a virtue. And yours truly subscribes to the “Warren Buffet school of investment.” The world’s richest and greatest investor puts it very simply: “Work hard, earn and save before spending, spend wisely, and live simply.” He further advises the consumer to view thrift as virtue, and to aim to own a personal business, but never to put all the eggs into one basket. Mr. Buffett also advises the individual to use credit only as a tool, and pay it off monthly. Mr. Buffett typically invests in everyday products that are necessities, and looks at the long term when investing.

Though he is worth more than $30 billion dollars, he lives in the same modest home he bought in the 1950s, he drives an equally modest car, and many of the executives working in his myriad businesses, including an aircraft manufacturer, get the shock of their lives as they depart their first-class cabin on that all-expenses-paid business trip, only to realise later that their boss was all the while sitting happily in economy on the same plane.

Yes, “the richest man is the man whose pleasures are cheapest,” as Thomas Jefferson put it. And so true the proverb that “a fool and his money are soon parted.” Money earned the hard and old-fashioned way, by the sweat of the brow, lasts longer, according to a Hebrew Proverb. So leave those fancy-looking schemes alone!