Pyramids are losers

Another anonymous letter from Dec. 15, immediately launching a personal attack on me, gives the real game away about pyramids by his phrase "must have belonged to a fortunate person at the top position of the pyramid". That's the whole point. Let me explain by using an imaginary scheme.

A simple pyramid, for example, with a five level program built on recruitment by fours might work like this:

A new recruit would pay US$100 to "join" the organization. That money would then be disbursed at regular intervals by the company: $25 to the recruiter, $25 to the company and $50 to the recruiter's "upline" in the form of $10 payments to the recruiter's recruiter, and so on through the five levels.

The new recruit would recover the $100 "fee" by recruiting four more people, each of whom would pay the recruiter $25. From this point a participant would then make money from all recruiting done by the four recruits and their recruits. Assuming the four people down through each of five levels can successfully recruit new members, a participant could (but probably never will) make a cumulative total of $54,560.

Here's how that total would be achieved:

1. $160 on the first level e.g., four people each recruiting four others at $10 a person (4x4=16x$10=$160);

2. $640 on the second level e.g., 16 people each recruiting four persons at $10 each (16x4=64x$10=$640);

3. $2,560 on the third level (64x4=256x$10);

4. $10,240 on the fourth level (256x4=1,024x$10);

5. $40,960 on the fifth level (4x1,024=4,096x$10).

Basically, a pyramid scheme is formed when a single promoter (or a small group of promoters) collects money from a certain number of "friends" and instructs them to collect more money from more of their "friends". The cycle goes on from there. As the pyramid grows, the number of people involved becomes too large to sustain the pyramid. Some people will fail to send in their money, or recruit the required number of "friends", and the pyramid crumbles. The majority of people end up on the "bottom" of the pyramid and inevitably will lose their initial "investment". They won't get their money back or earn their promised fortune because no one is beneath them in the pyramid adding new money to the pot.

Pyramid schemes collapse when a few people drop out or refuse to pay, and new members are not recruited in their place. In order for a pyramid scheme to profit, there would have to be a never-ending supply of potential (and willing) participants. In reality, however, the supply of participants is limited, and each new level of participants has less chance of recruiting others and a greater chance of losing money.

As an early joiner you will have had some good cash flow, but what about the downline. Money flows up the chain to the people who started it, and if you have friends in the downline when the inevitable collapse of the pyramid occurs, what will you tell them?

Pyramids are illegal in many Western jurisdictions. Pyramids are deceptive. Participants in a pyramid, whether they mean to or not, are deceiving those they recruit. The scams work partly because most people do not do the math, and do not realize how fast the scam burns through the population. Few would pay to join if the odds stacked against them were fully explained.

Pyramids are losers, and based on simple mathematics: many losers pay a few winners. They inevitably collapse because it is mathematically impossible to recruit the number of people required to support the pyramid. A nine level pyramid, which is built when each participant gets six "friends" to join, would involve over 10 million people.

BILL GUERIN

Jakarta

Note: This letter should end the pyramid debate.

-- Editor