The Allure of Wonder Banks and Pyramid Schemes
Wonder banks and pyramid schemes have been around with us for a while, way back to the seventies. It comes in different forms and shape. The boom and bust, disappear for a season, and then return in full force in another shape and form.
They promise mouth watering profits/interest rates beyond the range of commercial banking. People rush in, make money, the late arrivals part with their hard earned cash, the scheme collapses in a cloud of dust, the owners disappear into thin air while depositors lick their wounds.
Over and over again, the cycle continues, and over and over again, people rush in, lessons of the past lost in the face of promise of juicy returns. How come people dont seem to learn from history?
The ones in town now have their acts together, their schemes covered by seemingly legitimate business. The tiniest of due diligence will expose them as a fraud, but people seem to switch of their brains the moment easy money looms in the horizon.
There is one particular one that claims to be into petroleum marketing, buying petroleum products cheap from the South and bridging it to the North where there is perenial scarcity. Few people bother to ask why a serious business will collect money from the public at 10 - 30% per month (240 - 360% per annum) when they can easily get the money from their bank at 2% perm month (24% per annum). Are they Santa Claus or are they nuts?
Secondly, talking about oil business, these guys a obviously smarter that Total, AP, Oando, Chevron etc rolled up together, as the oil majors have refused to import finished products due to slim/non existent margins, and their end of year results have not been fantastic, while so smart Alecs from nowhere are making a profit of 20 - 60% a month (to be able to give dividend of 10 - 30% per month). It makes absolutely no sense. Even Dangote is not aware of this goldmine!
If something is too good to be true, it definitely is. A pyramid scheme typically lures in people through out of this world promise of returns on investment. The first batch gets the the promised reward and take word to town. They don't need to advertise. Word of mouth advertising is the most powerful form of advertising. More "investors" rush and and the party continues. This goes on as enough money from new and existing "investors" keep pumping in cash.
A time comes whereby the number of "investors" coming in cannot sustain interest payments. When that happens, payments start getting delayed due to "administrative challenges". When this happens, the bubble is about to burst. With caution is in the air, the inflow of funds start to go down and the smart Alecs perfect their exit strategy.
This cycle seems to repeat itself every decade, but supposedly educated people keep falling for one of the oldest tricks in the book, time and time again.
CBN has come out to warn the public about wonder banks, but it should go a step further and actually shut them down and hand over the operators to EFCC.
The harm caused by these sleek operators are manifold.
a) "Investors" lose their hard earned money (sometimes life savings) . Some greedy "investors" use other peoples money to deposit and lose everything
b) It distorts the economy. People pull out money from banks, stock market, other investment and sink it into the wonderbank
c) "Investors" never learn to become real investors, and remain at the level of gamblers. They never put their brain to use, but continue to look for short cuts, and pay for it dearly when they retire poor.
d) "Investors" leave a bad example for their children, raising a new generation of gamblers looking for short cuts
Galleria Finance Team
Connect With Us
 |
 |
 |
 |
