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The danger of multilevel pyramids

But Seño (M’am), sophisticated people like [insert famous name here] has CrapWayLife and earns a lot of money attracting new people to our system! Just write down the names and phone numbers of all your friends here!

Ay ay ay, how many times have we been on the other side of this exchange? They want to convince us to get product X or product Y (or no product), with enormous minimum purchases (because “we’re going to sell it, right?”) and with the promise that if we get another X amount of people, and these get X amount of people, we’ll be millionaires in a  year.

This, of course, is a lie.

But tragically, that’s what we see in our hispanic communities, day after day. There are organized armies of fellow hispanics attempting to make a quick buck without caring who they trample over while they run as fast as they can, within a fog, to the inevitable brick wall just ahead.

And note I’m not talking about the door to door salesmen who attempt to make an honest buck selling a particular product or service that has value on its own. A good salesman, educated in the trade, is highly valuable, and having sales experience is great.

What I mean is those lowlives who snatch the most vulnerable people in our community, with the promise of big fortunes, if we were just to use all our available time and money in helping our sponsor get more victims, and then sponsor other victims of our own, who in turn have to look for their own victims.

Pyramids. But not the Aztec Ones

A pyramid scheme is any situation in which earnings are promised base in how many people you sign up, when these people also have to sign up others, leaving you a type of residual from the different generations. When the business depends purely of signing others, that business is actually a pyramid.

In cases where there are products for sale, multilevel marketing-style, you should take into account the value of the products without thinking of the multilevel to evaluate whether it’s worth selling. If you are invited to participate in signing others, you are involved in a pyramid scheme.

 

Cults, Sects and Pyramids

In several multilevel and pyramid schemes, an environment of us versus the world is created that is specifically focused on marginalizing the participants from the rest of society, dividing them from the people who could help them. They even recommend cutting contact with people not in the program, with phrases such as “if he/she is not in the program, they’re just not worth it”.

As part of the financial literacy we want to provide in this site, it is also very important to remove the bad notions, and educating people on when we are involved in a sect versus an investment group. It’s very common and normal to feel strong emotions associated with something as important as how we use our money (be it buying things, or with that beautiful feeling of saving for the future).

But if any investment invites you to:

  • Put doctrine over people
  • Offers this investment as the only way to get rich, i.e. does not invite to invest in various things at a time and wants all your money (i.e. offering a single way of salvation, to use a religious term)
  • Creates fear of leaving/extracts a large social cost (you just “know” they will stop speaking to you, etc)
  • Looks for/Has a lot of charismatic leaders
  • Exploits you requiring your unpaid help. in exchange for participation on a business that you have to pay money into anyway.
  • Invites you to lie to recruit (and lies to you to recruit)
  • Creates cognitive dissonance (it forces you to accept sources of contradictory information at the same time)
  • Dissuades you from looking at numbers with your calculator/spreadsheet so you can verify their assertions
  • Creates a group language instead of using common financial language.
  • Suppresses critical thinking.
  • Discredits external sources of information and attempts to tightly control information (I’m not mentioning product or service names, but I bet you I get letters anyway) 😉

Then what you are involved in is a cult, not an investment, a business, or anything of the sort.

The reality is that pyramid schemes are so bad and damaging to society (and discredited), that their leaders, so they don’t lose their business, have borrowed the techniques of religious sects and cults to take ownership of, psychologically speaking, thousands of people. To me that’s essentially a crime, morally speaking. How many investments and how much extra time would these same people have to be productive and make their own businesses if they used all their money and efforts in making their own businesses, invest in stocks, mutual funds, bonds, real estate or simply save for the future and run a sensible cashflow-positive household and be with their families?

 

 

 

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