March 2, 2022 In financial, scams

7 Financial Scams, Bubbles, and Boondoggles That Are Definitely Nothing Like Cryptocurrency and NFTs

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I’m not saying that cryptocurrency, “meme stocks,” and NFT are gigantic scams. They’re neither multi-level marketing schemes for computer nerds, nor fancy pyramids that are likely to end in heartbreak for anyone who puts money into them. Other people are saying these kinds of things. But I’m not.

All I’m doing is putting together a list of historical scam, bubbles, and financial frauds so you can decide whether you see any similarities. Maybe you’ll be like, “Bitcoin is nothing like tulip mania! There weren’t even computers back then!” Or “You’d be crazy not to invest your life savings into an internet-meme-dog!”

But maybe you’ll be more like, “What. Have. I. Done?”

Tulip mania

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Back in 17th century Europe, investors were crazy for tulips. The flowers were exotic and hard to grow, with any number of different varieties possible—and they were expensive. Soon after the tulip bulbs were imported from Turkey, rich people started buying them to show off their expensive flowers. Then they became investment vehicles, and that’s where the trouble started.

Tulip bulbs can be uprooted and moved around from June until September, so physical bulbs were bought and sold then, but during the rest of the year, investors would buy and sell future bulbs, effectively creating a kind of flower-based future commodity market. Soon the contracts for bulbs were bought and sold at a rate of up to 10 transactions per contract per day. Prices went to the moon—the most coveted bulbs sold for upwards of $750,000 in today’s money. People made fortunes and heavily leveraged themselves to get bulbs, which seemed like they would go up in value forever. But the Keynesian “animal spirits” that animated the market disappeared (partly because of the bubonic plague) and tulip millionaires suddenly found themselves heavily in debt, with their only possessions a few tulip bulbs. On the bright side, unlike NFTs, at least tulip bulbs can grow into flowers.

Beanie Babies

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In 1993, toy magnate Ty Warner created a line of beanbag animals to sell at gift shops in parts of the country I never go to. They kicked around for a bit with no one noticing, but eventually, Beanie Babies caught on, and by 1996, they were a nationwide craze. A combination of clever marketing and burgeoning internet-driven connectivity resulted in a secondary market for the toys, with collectors and speculators poring over online price guides and buying up as many beanies as they could, then flipping them on eBay. The balloon inflated as more people entered the market, then exploded quickly when people said “this is kind of dumb” (those animal spirits again), leaving bag-holding beanie lovers broke, but for a collection of stuffed toys. On the bright side, unlike bitcoin, at least your kids can play with Beanie Babies.

The Albanian civil war

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The story of Albania’s civil war is flat wild. Albania was an isolated European communist dictatorship from 1945 until 1991. When the yoke of oppression finally lifted, its desperately poor citizens were unfamiliar with the intricacies of a market economy. But they got schooled pretty quick.

Albania’s state banks paid a reasonable amount of interest on deposits, but credit was tough for them to extend. Citizens began to take advantage of “unofficial” lending institutions, which led to these firms taking investments too. The returns were amazing, so Albanias started flocking to turn over their cash and get rich, selling their houses, cattle, farms, and everything else that wasn’t nailed down to buy into Albania’s future. It looked like it was working, too. The investment companies started building hotels, shopping centers, and other businesses (and engaging in smuggling and other crimes), and Albania thrived. Before long, almost all Albanians had bought in—in 1996, two-thirds of the country’s citizens had money invested with private financial companies.

But here’s the problem: It turns out those great returns consisted of money from newer investors, and once you extend a pyramid scheme as far as it is logically possible to go—like to 2/two-thirds of an entire country—you run out of suckers. The house of cards started collapsing in January 1997 when runs on the fake banks revealed there just wasn’t any money there.

To say this destabilized the country is an understatement. The people took to the streets in droves. Within a few months, the prime minister resigned. Civil order broke down. Anarchy reigned. Criminal gangs took over large parts of the country. King Leka I, a member of the royal family who had been exiled since 1939, returned from Australia and declared himself king. Thieves stole the contents of the Albanian national treasury. Welcome to capitalism, Albania!

Then a trio of unlikely heroes emerged to save the day. No, not The Powerpuff Girls—the United Nations, the International Monetary Fund, and the World Bank. A UN-led multinational peacekeeping force stabilized the country enough to hold elections. The IMF and the World Bank worked with the new government to clean up the financial chaos and set up sane banking regulations, and by August of 1997, Albania’s nightmare had ended.

A financial system hardly anyone understands propped up by legions of new investors and not subject to any kind of regulation—I know that reminds me of something.

Lotteries

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Please stop playing the lottery.

Lotteries are legal in most states, but winning one is so unlikely, they’re effectively a tax on people who are bad at math. Thanks for helping fund public schools and colleges, lottery players, but seriously, stop. You’re not going to win, and if even if you do, winning the lottery isn’t a good way of getting rich—a jackpot winner is more likely to declare bankruptcy within three to five years than a person who doesn’t win a lottery all.

There’s something dark behind the glitzy, dream-facade of lotteries. Maybe it’s that they’re usually played by people who are the least likely to have money to throw away. Or maybe it’s the fact that they’re run by the state, who should have some interest in not encouraging citizens to take bad bets.

6 / 9

Star names and extra-terrestrial real estate

Star names and extra-terrestrial real estate

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Remember on your twelfth birthday when your weird aunt and uncle from Florida gave you a framed certificate that said a star was named after you (instead of a skateboard)? Well, sorry; there isn’t really a star named after you.

Anyone can sell the name of a star (or claim a plot of land on Venus), but those names and claims aren’t recognized by any official bodies so they don’t really mean anything. Star-name-selling companies (and there are a bunch of them) keep a list of what they call different stars (including “Stephen Johnson Is A Double-Rad Skater Dude”) on their “official star registries,” but no one else cares, not even competing star-naming companies. Astronomers call my star “GSC 0139-01372” for instance because they are lame. The scheme is still popular, though, I guess, because people like to point to a star and say, “that one’s mine!” But you can do that anyway, without sending some jerk 45 bucks.

Selling parcels of the moon or other planets is a slightly different thing. In spite of 1967’s Outer Space Treaty proclaiming the moon belongs to “all mankind,” various weird entrepreneurs still claim and sell parts of it (and other planets). Most notable is Dennis Hope, who makes the (dubious) claim that he discovered a loophole in the treaty law. He says he’s made over 12 million bucks selling the moon, but he actually seems to sell pieces of paper that say you own part of the moon. Again: You can print that up yourself in five seconds for free and cut out the middle man.

Can you imagine someone willing to pay real money just so they can say an intangible thing belongs to them? *coughNFTs *cough*

The redemption movement

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An offshoot of the “sovereign citizen” movement, proponents of the redemption theory believe a secret fund is created for every U.S. (and sometimes Canadian) citizen at birth. You can get your hands on this personal fortune at any time, but only if you know how. Attempts to do this have included trying to use a birth certificate as a bond, asserting copyright on your name, paying bills with self-printed checks not backed by a financial institution, and using red ink to sign things. (I don’t know either.) For the record: none of these methods work and many of them could be considered fraud, tax evasion, forgery, etc. Interestingly, while some people have been jailed for taking advantage of people through these ideas, it doesn’t seem that Redemption is a centrally planned scam designed to take people’s money. It’s more of a grassroots, patchwork idea that stays alive because the thought “What if I was super rich already?” Is very powerful to people. It lives in their minds right next to “Maybe I’ll find a big bag of money in the street one day.”

NESARA/GESARA

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Understanding NESARA/GESARA requires a trip through very strange conspiracy territory, and I’d leave it out because it’s too silly if it wasn’t becoming so popular among our nation’s dingbats.

Here goes: Back in the 1990s, Harvey Barnard (who was just some random guy, not an economist or government official) self-published a book where he laid out NESARA, a series of economic proposals designed to make the U.S. economy perfect (dumb crap like returning to a precious metal-backed currency, getting rid of income tax, abolishing compound interest, etc.) He sent the book to members of congress. They didn’t care. Readers didn’t either, so Barnard published his book on the internet. In 2005, he died—that’s where real life ends and the madness begins.

Throughout the 1990s and 2000s, a woman named Dove of Oneness spread the idea that NESARA was passed by congress in a secret session, and would be implemented soon—all debt would be abolished and peace would reign on Earth. Any day now. (I omitted a lot of stuff about aliens, 9/11, “ascended masters,” lizard people, etc., for space) GESARA is the same idea, but for the entire world!

Fast forward to QAnon. In the absence of regular posts from Q, QAnons have embraced a wide range of conspiracy theories, including NESARA/GESARA. Q-people and other kooks who believe in this particular flavor of crazy are (among other things) converting U.S. dollars into Iraqi dinars (a nearly worthless currency outside of Iraq) because they believe GESARA’s imminent enactment will result in a revaluation of the world’s currency—or maybe something else will lead to the re-evaluation. It’s not clear. But it’s happening, and when it does, three million Iraqi Dinar will be worth three million dollars, instead of the $2,000 it’s worth now.

An unrelated story: A considerable number of people on the internet are purchasing and holding shares of GameStop, the brick-and-mortar video game store chain, because they believe the MOASS (the Mother Of All Short Squeezes) is right around the corner, and they’ll get crazy rich if they just hold onto their shares. You see the only thing keeping GameStop’s stock price from hitting like $5,000 a share or more is a coordinated conspiracy between the SEC, hedge fund managers, and reverse vampires to manipulate…you know what? I’m too tired for this. You can try to figure it out if you want.

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