Pyramid schemes in the Spectator

Back

from holiday (which is why this is the first blog this month) and catching up

on recent blogs, I find the normally well-above-my-head Charles

Stewart link to the

latest cover article in the Spectator with a single word: "Unbelievable".

I’m normally all in favour of contrarian journalism, but this time I agree with

Charles: it crosses the line from contrarian to irresponsible. Of course, the

Spectator can print whatever it likes, but printing this story is the equivalent

of running a big piece on how HIV doesn’t cause AIDS. If people read it and

believe it, serious harm can be done.

The cover shows a woman in bed, covered only by a sheet, surrounded by wads

of cash, with her fingers to her lips. "Don’t tell my husband," teases

the headline; inside the magazine, the story is run under the heading "Girls

just want to have funds". Here’s the standfirst:

The government would like to outlaw pyramid selling. Why? Rachel Royce has

joined Hearts, the girls-only investment scheme, and finds it good, clean

— and profitable — fun.

Yep, that’s right, the Spectator has now come out on the side of pyramid (or

Ponzi) schemes. It’s run a first-person account by a journalist who certainly

stands to make more from her article than the £375 ($611) she says she’s

investing, although one wonders if she might not be telling a few porkies to

make the scheme sound more harmless than it actually is. She says at the beginning

that the £375 could generate "a return of £6,000", but

then later admits that she got "sponsored" to join, which means that

she only stands to double her money. Which either means she stands to gain at

most a return of £375, or means that she’s very bad indeed at sums.

All pyramid schemes work the same way. Basically, I persuade ten people to

give me a buck, which means I get $10. Each of those ten people then perusades

ten new people to give them a buck, meaning they get $10 too. And so

on down the line, until the number of people runs out. Normally the people at

the top get a slice of everybody’s action, not just those people directly below

them, which means that the number of people who actually gain from the scheme

is very small, especially since many of the people who invest at the beginning,

making money, keep that money in the scheme instead of taking it out. When the

scheme collapses – as all pyramid schemes eventually do – even some

of the initial investors lose everything.

Rachel Royce knows all this. "One of the scary Internet articles had pointed

out that each pyramid must increase by a factor of eight, so for everyone in

my line to get their money, we would need 4,096 people," she says. "Another

lurid article suggested that for 12 layers of a pyramid you would need eight

billion people — more than the population of the planet." Yet still

she believes, and still she manages to hold completely contradictory thoughts

at the same time. Here she is about halfway through the article:

The government is planning to introduce hefty fines, and even up to six months

in prison, for anyone indulging in this sort of pyramid-gambling practice.

But new legislation isn’t expected until 2005 as part of a new Gambling

Act. At the moment it’s not illegal in this country.

And here she is seven paragraphs later:

I may yet be able to dodge my obligation to part with £375 if the government

goes ahead and keeps its promise to ban the scheme. I think the threat of

a six-month prison sentence would be a good enough excuse to allow me to back

down gracefully and still show my face in the village.

None of this makes sense, of course, which is why it’s so jaw-droppingly amazing

that the Spectator should put it on the cover. One minute: "It’s

an upper-middle-class thing. In my neck of the woods it’s a horsey, upper-middle-class

thing. The women sign up, wait and buy a nice new horse." The next: "If

you are like me and pathetically poor, then you can opt to buy a smaller share

— in my case, an eighth of a heart." And here’s a real beaut: "I

studied Torli’s chart, which shows all the hearts with names, home and

mobile phone numbers. There were quite a few names on the chart that I already

knew: my Astanga Yoga teacher, for one. I felt that anyone who regularly meditates

on the power of Om couldn’t possibly break a sacred female bond of trust

and friendship." Yep, why trust mathematics when you can take financial

advice from your yoga teacher?

The key fallacy in that last quotation, of course, is that the pyramid scheme

will only collapse if its members "break a sacred female bond of trust

and friendship." But there’s no ill will necessary for a pyramid scheme

to collapse, although Royce’s hoping that she might be able to get out of coughing

up her £375 would seem to be less than perfectly trusting. All that’s

necessary is that the members run out of new recruits, and indeed that seems

to be what’s happening: now that they can’t find anybody else to pony up £3,000,

they’re reduced to finding suckers like Royce who might be able to afford £375.

It’s like a drug addict crawling the floor looking for any last crumbs to keep

the buzz going just that tiniest bit longer.

And the really depressing thing is that the whole save-our-scheme campaign

is wrapped up in rhetoric about female empowerment. Here’s the relevant bits:

The scheme I’ve invested in is known as Hearts, and it’s for

women only. It calls itself a ‘gifting scheme that benefits all women’.

Men aren’t allowed in because they’d ruin it with their incessant

cynicism and greed. They aren’t even supposed to know about it. That,

in a way, is the point.

Rich or poor, however, these women are responsible for their own actions.

That in a way is what this little scam is all about: allowing women the responsibility

to make financial decisions and giving them the rather glorious feeling of

naughty financial independence.

I’m quite looking forward to upgrading my horse for something that doesn’t

try to buck me off every time I sit on it. And my boyfriend would never notice

— as far as he’s concerned, Hearts isn’t the only pastime

that’s strictly for the girls.

"My boyfriend," it turns

out, is Rod Liddle, the editor of Radio Four’s Today programme, and the

father of Royce’s two children. Royce herself is a television journalist. Could

it be that the whole article is basically an anti-anti-BBC slap at the woman

who wants to make pyramid schemes illegal? Note the way that Royce spins the

opposition:

Hearts is heartily disapproved of by boyfriends, partners, husbands, and

by the government, which wants to ban it. Ministers say that it doesn’t

work and women are being conned. They say it’s a form of pyramid selling

where those at the top do very well and those at the bottom lose their entire

investment. Tessa Jowell, taking a break from attacking the BBC, said a few

weeks ago, ‘I feel particularly concerned that many women have lost

thousands of pounds of hard-earned savings, and many more may lose out. There

is no doubting the misery these schemes can cause, and my advice to women

contemplating joining is simple: “Don’t do it.”’

Basically, the government (which hates BBC journalists), along with other killjoys

like husbands and boyfriends, wants to deprive women of "the rather glorious

feeling of naughty financial independence". How dare they? This is the

21st Century, and women should be making their own mistakes "having

a flutter on their friends".

Inevitably, when Hearts collapses, its members will blame the government, for

scaring off potential new investors. Many fewer people will blame the Spectator

for the inevitable financial catastrophes that will result. But they should.