Since the crisis beginning the world finance system is no longer the favorable environment for spreading of finance pyramids.
The reason for the Madoff pyramid failure and of all the alike structures is similar. The crisis does not encourage and support charlatans. Two circumstances that previously guaranteed development of the pyramids have already been erased and the pyramid infection was cured
Change #1 is less investors and less investments. Financial pyramids are built by the principle: join and fetch your friends. The dividends for the people who were the first to come are paid due to the investments of those who were the next to join. The greater is the number of those who join, the higher is the dividends. But in the crisis period people are willing to take back their investments and the structure of alike investment funds is getting hard to pay back all the investors. Under such circumstances it’s the pyramids have no chance for surviving: considerable investments are being paid back and no new investments are made.
Change #2 – trust crisis. Normally the finance pyramid’s success is based on the financial illiteracy of ordinary people. The investors are invited to join and are offered lucrative interest rates. Nicolas Cosmo, for example, offered his investors 48 – 80% income annually. Stnford International bank has as well been paying 2-digit interest rates to the investors for 15 years. Ukrainian King’s Capital offered 36% interest rates annually. Lionebank Interntional – even 54%.
Once the crisis came investors all over the world started loosing a lot. The trust to international banks with long-lasting traditions was erased, and to misleading pyramids was totally ruined.
Safety not guaranteed
Madoff and Stanford cases blasted the audience. Internet sites are full with instructions of how not to get in trouble with investments and so. Even those who have enough cash are afraid to spend.
