Busted: Bankers and The Global Economy

April 1, 2010

Don’t Get Taken by Pyramid & Ponzi Schemes

What are some of the similarities and differences between ponzi and pyramid schemes?

Pyramid schemes and ponzi schemes are closely related. They both involve paying longer-standing members with money from new participants, instead of actual profits from investing or selling products to the public. Here are some common differences:

Pyramid Scheme
Ponzi Scheme
Typical “hook” Earn high profits by making one payment and finding a set number of others to become distributors of a product. The scheme typically does not involve a genuine product. The purported product may not exist or it may only be “sold” within the pyramid scheme. Earn high investment returns with little or no risk by simply handing over your money; the investment typically does not exist.
Payments/profits Must recruit new distributors to receive payments. No recruiting necessary to receive payments.
Interaction with original promoter Sometimes none.  New participants may enter scheme at a different level. Promoter generally acts directly with all participants.
Source of payments From new participants – always disclosed. From new participants – never disclosed.
Collapse Fast.  An exponential increase in the number of participants is required at each level. May be relatively slow if existing participants reinvest money.

What steps can you take to avoid schemes and other investment frauds?

When you consider your next investment opportunity, start with these questions:

  • Is the seller licensed?
  • Is the investment registered?
  • How do the risks compare with the potential rewards?
  • Do I understand the investment?

Many ponzi schemes share common characteristics. Look for these warning signs:

  • High investment returns with little or no risk. Every investment carries some degree of risk. Investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
  • Overly consistent returns. Investments tend to go up and down over time, especially those seeking high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.
  • Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
  • Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most ponzi schemes involve unlicensed individuals or unregistered firms.
  • Secretive and/or complex strategies. Avoiding investments you don’t understand or for which you can’t get complete information is a good rule of thumb.
  • Issues with paperwork. Ignore excuses regarding why you can’t review information about an investment in writing, and always read an investment’s prospectus or disclosure statement carefully before you invest. Also, account statement errors may be a sign that funds are not being invested as promised.
  • Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out your investment. Keep in mind that ponzi scheme promoters sometimes encourage participants to “roll over” promised payments by offering even higher investment returns.
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August 7, 2008

A Solution for Credit Card Theft and Risk

Hacking and identity theft has made the big time news once again. A worldwide ring of 11 people that compromised 41 million credit and debit cards have been exposed. The time was that when you received a credit or debit card, you were pretty much married to it. You used the card until the time that it expired and sometimes groused when they sent you a brand new one. After all, sameness is a comfort to many people. That desire for sameness inspires customers to frequent traditional retailers that may not be up to snuff on data security, creating fear when data is compromised, an event that is almost a daily fact of life.

Most of the time, thieves focus on regional or national store chains where people shop that have a few extra dollars to spare. Those are exactly the kind of people that thieves are looking for, which reduces their changes of opposition when making a charge. Allegedly, these hacks didn’t use traditional attacks via the internet, but compromised wireless networks at physical locations by finding security leaks. The conspirators tapped into the retailers’ networks for processing credit cards and intercepted customers’ PINs along with debit and credit numbers that were stored there.

What can an honest citizen do to protect personal interests? There seems to be a constant merry-go-round of compromise where personal information is concerned from the big three credit agencies to the smallest retailer. The sameness that used to reassure big spenders is the same predictability that is being used against them. Access to the world economy via a credit card has become expected and risky. The solution?

Don’t allow banks to attach debit credit cards to any long-term personal bank account. That convenience is dangerous and unnecessary, even though the bank will ply your confidence with all manner of security safeguards and policies with the hope of creating bank fees and holding your money.

The idea of having a traditional credit card may seem to be a wonderful tool, but the sameness of the credit card information itself can easily compromise personal security and identity, resulting in loss or at least, a large degree of hassle. Furthermore, when you make an error in judgment, you risk losing a healthy penalty to the issuing institution, thus making the banking community richer at your expense.

If you must have credit card access to the world economy, one solution remains that is considerably more secure than traditional methods. Get a debit card that is sold at a variety of drug stores and grocery outlets. Immediately, you limit your losses with allegedly the same guarantees as a regular Visa or Mastercard. You limit your expenses to a modest monthly charge without bank chargebacks and penalties. On some cards, deposits charges are waved as a reward for certain behaviors, for example, direct deposit of your paycheck or cashing checks at a certain retailer.

However, the strength behind using a debit card that you purchase at a store is simple disposability. Regardless of what the expiration date is on the card, simply limit the period of time that you use the debit card to just a few months. Drain the cash you have put on the card and get a new one. You are protected from long-term vulnerabilities to the system that is designed more for the convenience of the system than the consumer. What is involved is simply a different way of thinking using disposable cash-based credit. Cash is best, but if you can’t deal with cash, protect your name without risking your large accounts and wealth. Bankers will still get wealthy, but much less so and you will protect yourself from risk.

~ E. Manning

March 27, 2008

Fed Study Detects Expansion of Digital World

Filed under: banking, credit, federal reserve, money — Tags: , , , , , , — digitaleconomy @ 12:00 am

The results of a 2007 Federal Reserve study released on Tuesday reveals that more than two-thirds of non-cash payments are now electronic as electronic banking gains wider acceptance by consumers. Visa and Mastercard should be proud. Checks that were tracked under this program examine consumer activity only. Ineligible checks for the Fed’s tracking program include checks such as those with missing or no signature, checks greater than $25,000, and checks from businesses and the government. (more…)

March 20, 2008

U.S. Central Banking and Inflation

U.S. business and consumers paid more for food, energy, gasoline, automobiles and most other products last month. Recently, the government confirmed an inflation rate of 8%, which is still vastly underestimated and underreported. The rate is closer to 18% and 20% for food prices. This double-digit increase is a fairly recent event. Whether the Fed or the U.S. government care to admit the full truth, inflation is rising to new heights, due in part to continuous reductions in the central banks’ interest rates.

Most of you are no doubt familiar with the Consumer Price Index (CPI), that broad inflation measure the Bureau of Labor Statistics publishes once a month. The BLS’ monthly report includes another inflation measure, known as “core inflation,” which excludes food and energy. Once a month, the Bureau of Economic Analysis releases headline and core versions of another closely watched price index known as the Personal Consumption Expenditures (PCE). Food and energy items have been deliberately and systematically removed when most economists look at price movements. Removing food and fuel is the economists’ effort to eliminate “noise” in inflation measures.

The term core inflation was coined in the early 1980s. The practice of stripping certain components from consumer prices began in the late 1950s. The practice of reporting a CPI excluding both food and energy prices began when energy price volatility dramatically increased in the 1970s. Central banks desire to subtract the appearance of volatile swings in prices. Many of the arguments for excluding food and energy are based on the notion that an exceptionally large price increase today will be offset, somewhere down the road, by an exceptionally large price decline. When increases in food and energy prices represent trends, the arguments made for excluding food and energy prices are on shaky ground. This has been exactly the case since the 1970s. As a result of this simple accounting principle, inflation rates are skewed and inaccurate. Creative figures and inflation targeting have further reduced official inflation rates. Routinely excluding food and oil price movements from inflation gauges has been misleading at best, especially with the lowered costs of cheap imported food in the current U.S. economy.

The reality is that the interrelation between national economies within the global economy as a whole has become more important in measuring inflation and other economic factors. The growth of control by the world central banking community has become more important in establishing effective measures. This fact has been largely ignored by most economists.

February 10, 2008

The Seduction of Convenience

Filed under: banking, credit, government, Islam, money — Tags: , , , , , , , , , , — digitaleconomy @ 10:25 am

Prepaid Banking Cards Sell in Muslim Banking

For years, the Muslim banking community has resisted the standard trappings of the banking industry. The National Bank of Abu Dhabi, one of the leading banks in the United Arab Emirates, has announced the issuance of its Dubai eGovernment Pre-paid card. Now, the Muslim is being offered an alternative to cash and checking as the New World Order of electronic banking and tracking further tightens the noose on the unsuspecting world: all in the name of convenience. The bankers are focusing on “the non-banked” like low-salaried employees, retirees and students.

islamicbankingandfinance.jpgThe typical publicity line is that the banking card “allows cardholders to better budget finances by limiting spending to the amount of funds that have been loaded to the card, ensuring greater convenience, benefits and security for all United Arab Emirates resident and visitors. Do you smell the control while the bankers and government officials rub their hands in glee? How easy will it be to round up tourists in the event of any uprising or government collection program? The government has absolute control of the money with this new card. Beware of the seduction of convenience.

January 30, 2008

PayPal Banking Standards by Phone for Africa

Filed under: banking, money — Tags: , , , , , — digitaleconomy @ 10:03 am

Most banks in Africa only have banks in urban areas of cities. For example, 90 per cent of Kenyans do not have an account in a regular bank. Across Africa, only 20 per cent of families have formal bank accounts, according to a World Bank survey. Enter the new world of banking via cell phone. Customers deposit money with a registered agent or phone vendor. The agent then credits the phone account of the customer. Users can send between 100 Kenyan shillings ($1.5) and 35,000 shillings ($530) with a text message to another recipient: even someone using a different mobile network. The recipient then can obtain the cash from an agent by entering a secret code and showing personal identification. Banking is no longer just for the wealthy in Africa. ~ E.M.

A Bank in every African Pocket?

January 9, 2008

Keeping Cash On Hand

Filed under: banking, money — Tags: , , , , , , , , — digitaleconomy @ 1:00 am

moneystash.jpgKeeping cash on hand for at least three days worth of living expenses is a good idea. I am not claiming that this solves all problems, but rather gives you a wider latitude to survive when the world around you doesn’t operate perfectly. Where do you keep a cash stash? I would find a better place than a kitchen drawer. What is wrong with a private stash of cash? Nothing.

Security quickly becomes a concern of some. What if my house is robbed? If you are careful, a burglar will never find your cash stash. Depending on where you are, you may be as likely to be robbed at an ATM machine, especially if you spend lots of time there.

What would you do if the ATM machines suddenly stopped working or the electronic cards were to stop functioning for any reason? You would be able to use your cash instead of running out of gas or going without entirely. That is the prospect that everyone faces if your favorite electronic card doesn’t work for any reason. Whatever the case, keeping all your money in the bank accessible through the use of an electronic card for safety is only seductive reasoning, not reality. What is safety when you give that safety into someone else’s keeping that doesn’t have your interests at heart? That seductive reasoning quickly becomes foolishness.

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