What are the financial pyramids?

Very often news about financial pyramids schemes that have collapsed causing severe losses to its participants reported.

According to economist Peter Vander Nat, an organization is judged to as a pyramid scheme if participants get their monetary benefits recruitment of new members rather than selling a product or service.

In the vast majority of cases, these are fraudulent systems that promise strong profit margins, and therefore it is important to recognize and avoid falling into these schemes.

Its structure resembles a pyramid, hence its name, where the person initiating the scheme is at the top, it recruits a second level of people, they to a third level of people and so on. Each of the recruited persons must give an initial amount of “investment” to belong to the pyramid, the same that will benefit the person who recruited her.

This way when you start your recruit, it is possible to multiply your winnings. For example, if you pay $ 100 to belong to a pyramid and recruits 20 people, you will generate $ 2,000 for the organization. Now, suppose that 20% stay with you and the rest go to recruiters who are above you, it means that your earnings will be $ 300. In other words, your initial investment triplicastes simply bring more people.

The process continues until the base of the pyramid can no longer be expanded due to the difficulty of recruiting new people. This causes the base to break and the pyramid collapses, generating losses especially among those who were the last to join the scheme.

These schemes promise huge profits and the recruitment process begins familiarse and friends, which in turn are bringing more people to expand the pyramid. In other words, the trust factor plays a very important role in the scheme.

Also place advertisements in different media under the title of “Business Opportunity”, “Earn Big Money” or “Needed Distributors”, and many people with the aim of financially independent or to the lack of jobs fall into the pyramid.

Ponzi scheme

Derives its name from Charles Ponzi, who created a fraudulent investment scheme in Boston, the same which collapsed in 1920. Ponzi took money from investors by offering them huge profits in interest, paid the same as taking money from new investors.

This scheme is characterized by attracting new investors by offering high yields, very difficult to obtain in any other type of investment. This is necessary to continue to meet investors already committed payments until there comes a time when the necessary new investment exceeds the capacity to attract new investors, precipitating the inevitable collapse of the operation.

In recent years a similar operation was managed by Bernard Madoff in New York, where several celebrities fell victim to the scheme.

There are several organizations whose way of selling their products or services is through multi-level marketing or network marketing.

This scheme is to recruit people to sell products or services, and recruit more distributors. If most of the profits obtained through sales of products to the final consumer, we are talking about a solid organization.

But if most of the profits are generated recruiting people, this is an indication that the organization is involved in a pyramid scheme that may collapse at any time.

With the Internet, they have expanded through the use of emails. If you ever get one of these cards will be asked to gifts or you deposit certain amount of money to persons designated in a list. Then you must remove the name of the first person on the list and add your name to last. Then you must send a certain number of people who must do the same. The purpose is that all people on the list to receive money.

All pyramids are doomed to collapse because it is virtually impossible to maintain a constant supply of new people or investors who want to enter. So before making any investment, try to get as much information as possible and detailed information about the organization and the people who run it, especially how to do to get the high yields they offer.