Dennie Quill, Contributor

I have had long, and sometimes heated, conversations with friends over their decision to participate in the Ponzi-driven frenzy that Jamaica has recently experienced.

The first time I heard about one of these schemes promising super returns on investment, my antennae went up.

I was taken back to the 1980s when the pyramid scheme raged. At the workplace people who never said 'good day' were soliciting new investors for the scheme.

It became clear, before too long, that a simple formula was being pursued - promise high returns to recruits and use their money to pay previous investors.

Swindlers

When the stream of investors dried up, the scheme collapsed. Many gullible people got caught, and those who were honourable, felt obliged to refund their recruits.

I found out back then that the pyramid was a variation of Charles Ponzi's scheme. This Italian-American swindler of the 1900s conned US$10 million from investors by promising them 40 per cent return on their investment. He has been copied by countless swindlers.

I developed a sense of queasiness when I got a peak at the breathless paperwork relating to a few of these schemes because they were short on details and big on promise.

Surprisingly, a few warned that success was not guaranteed; others promised at least 80 per cent of principal.

I immediately thought Ponzi/pyramid. I questioned the judgement of my friends. Were they gullible or simply greedy?

I would describe myself as an intelligent non-economist and without relying on what I learned in my A' Level economics classes, I knew that returns of up to 20 per cent were not sustainable based on the natural laws of mathematics and finance.

When I pointed out that it would mean making some 200 per cent each year in order to make such payments, the response was that the banks are indeed making such profits, but refuse to pass it on to customers. People do believe this.

Those who got in and out early are fabulously wealthy today, but for every happy investor, there are thousands more who have lost their investment, like those who kept rolling over their money, while watching the accumulated profits on paper.

Well-oiled Public relations

Let's take Cash Plus. The first questions I asked my friends who were contemplating investment in Cash Plus were: Who is Carlos Hill? What is his background? What is his track record?

I got no answers, but Cash Plus had a well-oiled public relations machinery and there were regular announcements of major acquisitions, sponsorships and housing development.

The aura of prosperity fuelled faith in many, including a supermarket check-out boy who asked me whether I had heard about the bank called Cash Plus.

I cut him off in mid-sentence by telling it was not a bank. He wanted to get together with a few other guys and put some money into it. I said to him, "If you can afford to lose that money then go ahead."

Some friends tried to convince me of the authenticity of one particular scheme. They painted a picture of a financial wizard at work trading in foreign currency and commodities to amass millions of dollars in order to pay them 10 per cent return. They have seen the activity online and it is for real.

The Financial Services Commission was feeble in its response to the impending disaster. It needed to have acted sooner and to have done more than tell investors to 'research and think before they invest'.

How many had the resources to have found out that Carlos Hill was a convicted felon? And where was the Bank of Jamaica (BoJ)? Does this regulatory institution have a responsibility to review and investigate deposit-taking activities?

Surely the economists at the BoJ should be explaining that the continuity of Ponzis depends on paying off initial speculators with income of later investors.

Unsustainable

They should explain that, after 24 cycles of doubling the number of participants, millions of investors would be needed to keep it afloat. But after 32 cycles, more people than those who live on this earth would be needed to invest to keep the scheme alive.

To its credit, the Breakfast Club kept warning of the unsustainability of these schemes and at least one of its guests predicted that the house of cards would collapse in time.

The gullible will believe any optimistic story, so they are waiting for rebirth after nine months. As for the greedy - they will continue to climb on the backs of the gullible.

Send feedback to denniequill@hotmail.com or columns@gleanerjm.com.