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Tuesday, August 21, 2012

A Sickening Disease

I guess it is that time of the year again. . . . It has only been a bit over a year since my last Get Rich Quick in the frum community post went up when a company MHA collapsed.  

Three Ponzi schemes in a week have hit the news and my accounting journal emails.  Seems that one in particular, Zeek Rewards, has hit many in the frum community.  Those of us who go to work and take our savings and stick it in CD's, IRAs, and diversified mutuals funds and basically forget about it since we won't need it for 10-40 years anyways probably aren't hearing about all of these irresistible opportunities.  

The "get rich quick" mentality is alive and well and it is a cancer that destroys wealth, time, and all moral compass.  My heart aches to read comments over at COL Live and it should be a number one priority of leadership to nip this "get rich quick" disease in the bud.  Of course, it is more fun to fill up a baseball field to yell and scream about the internet!  Nipping this cancer in the bud isn't going to be easy and it isn't going to be fun because it involve real soul searching and a 180 degree turn in the relationship to money.

I'm going to cut and paste a few of these diseased comments for educational purposes and in hopes that leaders can start to understand this mentality and the destruction that it brings and I hope and pray that when VIN reports the next ponzi scheme, the first comment won't be about one about people in Israel or America losing their bucks.

Timing is everything! You gotta know when to buy and when to sell. I went into this company, made a small fortune, and got nearly everything out. I only left a small amount. Right now, I am ahead over $25,000! It's like everything else - nothing lasts for ever.

No, timing isn't everything.  A well diversified portfolio takes advantage of cost averaging and the investor can take a vacation knowing that things will generally be just fine.

Like #2, I also made money. So did some of my friends. I told everyone to get out and those who listened didn't lose a dime, a few even made some money. The GREEDY ones stayed and lost everything. The stock market is also a gamble and you make money off the other guy who buys your stock for much more than you paid. The real estate market is the same. You sell your land for much more than you paid. Sometimes the stock or real estate market collapses, no one knows in advance.

Oy vey.  Where do you start with this drivel?

A ponzi scheme is like a lottery. People put in money on the hopes of a payback. A few win, most lose their money and the organizers get the windfall. 

Whether a government run lottery or a tzedakah lottery, they all work the same way. They promise the chance of being a big winner knowing full well that nearly everyone will lose their money. The winners are getting a piece of the lost money of the "investors" into the lottery! 

If you play in lotteries and think that is okay, why not play in Ponzi schemes too? 

By the way, casinos also work on the same scheme - paying out to a winner from the losers money while the house always keeps most of the money.

No, a ponzi scheme is not like a lottery.  The lottery is a game of chance and is not billed as an investment.  It has no investors, just people voluntarily parting with their money.  Same with casinos.


Anonymous said...

High schools- including frum schools need to start teaching money basics. Money is not a dirty word, but a tool to achieving a lifestyle. Until we start discussing money- saving, earning,investing, budgeting, donating and more, in school, many people will remain ignorant. Some families are financially savvy and the kids who grow up in these families will have an economic advantage. School helps give an education in areas where the parents may be lacking and thus serves as a great equalizer of knowledge. Money ( read: personal finance- not abstract banking theories!) needs to be taught in school to help prepare young adults for the realities of the world. If we fail to give our kids financial tools, we set them up to be scammed...

Anonymous said...

I think a tremendous part of the problem is the size of the intentionally-poor community puts unreal pressure on everyone else (c.f. tuition). Additionally, the intentionally poor community have little secular education - including math - and are part of a mystical (bordering on superstitious) culture (c.f. simanim, segulot, etc). Those two things in concert make this population extremely vulnerable to this sort of appeal: they lack the math sense to see why the promised returns are impossible, and also respond with credulousness rather than skepticism.

Anonymous said...

I doubt that orthodox jews are any more vulnerable to these schemes than other less educated/sophisticated groups with the exception of affinity fraud - i.e. you think something is ok because other people with black hats/kippas are doing it or selling it so it must be ok. Even very sophisticated people can fall prey to affinity fraud/marketing - look at many of Madoff's investors.

The only way to fight back is to make sure these schemes get exposed and prosecuted where laws have been broken, and to push for better financial education.
My office participated in a city-wide summer jobs program for high schoolers, hiring a few 17 year olds. Part of the program included weekly seminars - I was so happy that some of those seminars were devoted to personal finance and investment. Our schools need to do the same. (I would also love to see 17 and 18 year old oj's doing summer internships to get exposure to real (i.e. adult) jobs in lieu of being camp counselors, but that's a topic for another day.)

JS said...

I agree with all of the above. I'd just add that there's a basic yashrut/morality problem at play here as well. Many people recognize that these are schemes, but think it's OK because the money is coming from people outside their community. As evidence, you see a lot of posts and comments regarding how it's necessary to get out at the right time, etc.

Orthonomics said...

I don't know if we are more or less vulnerable, but "we" are definitely desperate for money and have a lot of people that prefer not to "work for the man." All the factors combined are a bad combination.

Miami Al said...

Look, the stock market has bubbles. If you buy/sell at the right times, you can make money in a flat market. Now, if you successfully time the market, you make money. The mathematics claim you can't, and if enough people are trying to time the market, statistically, some percentage will do it... Someone wins the lottery, if you have one million people flip a coin 20 times, one or two may get 20 heads or 20 tails...

The difference is inducement. If you are attempting to time a screwball market, whatever, go nuts. But if you induce others to get in so you can get out, a pump-and-dump, you've entered the realm of fraud.

Anonymous said...

Why are there so many poor by choice frum people now whereas the poor in my youth were poor by misfortune? I'd be curious if anyone has any theories.

In my experience, frum people who were European Holocaust survivors had at most two children in the postwar years. They had starved, and they had no intention of impoverishing themselves by choice. Subsequent generations have never experienced poverty so are vulnerable to the idealism of frumkeit, including the community standard of 7 to 9 children per family, even if their grandparents are Holocaust survivors.

Belief in miracles is much stronger now, as Sephardi Lady correctly points out. Holocaust survivors used to say they were saved not because of a miracle, but due to pure mazel. But subsequent generations believe in miracles with great fervor. They feel that Hashem will provide. Meanwhile they are poor. That is a temporary matter, because their belief is so strong they know Hashem will come through for them, if they just enter a Ponzi scheme.

Any thoughts on this subject? Why are frum people widely impoverished now, whereas in the 1960's they were not?

Anonymous said...

I do think there's a lot of post-Holocaust PTSD that's driving irrational behavior. It may be that some children and grandchildren of survivors were raised with lots of attention as the apple of their parents' eye - not surprising, given what the parents went through. Much of today's unusual behavior among young frum people is based on entitlement and self-centeredness. "I'm entitled to learn in kollel... I'm entitled to a $5000 wedding dress... I'm entitled to have several human hair sheitels... I'm entitled to have a lot of kids and a nice home to raise them in." Perhaps children of survivors who were raised in small families passed along a sense of "specialness" and entitlement to their own, larger families.

Anonymous said...

I think that's true of certain communities, especially the Boro Park Hungarian group. I've seen it. But for poverty to be so widespread, it can't just be one community, and it can't be just a sense of entitlement. There must be a sense of responsibility that is lacking, not only a sense of entitlement.

Why do families with huge responsibilities have so little sense of responsibility?

Another possibility is that kollel has become the standard, the community standard, in the frum community, whether the families can afford it or not, especially if they can't, in which case they get special schar, reward from Hashem. So large families have taken on responsibilities (kollel) that preclude the father's earning marketable skills. The kollel communities survive on ragtag schooling, and lack of reading and writing in English compounds the problem. I have been appalled at the lack of literacy of kollel men. Where do they begin to solve their poverty problem? They collect. They buy segulot. They enter Ponzi schemes.

And best of all, they qualify for every government program for the poor. Including the poor-by-choice.

Miami Al said...

Cause and effect... you're blaming Kollel for people not taking responsibility for themselves, wrong, Kollel is the symptom, not the cause.

The "cause" of having large families you can't support and therefore go on welfare is NOT a "symptom" of Kollel, it's pretty common in certain lower income groups.

The justification and reasoning is different, but these behaviors are common amongst urban ethnic poor, Appalachian white poor, and urban Frum poor... the specifics are different, but the situation is the same... moral rot...

Mark said...

Any thoughts on this subject? Why are frum people widely impoverished now, whereas in the 1960's they were not?

In some segments of the frum community, secular education is frowned upon. Because of that, a low average level of secular education exists in those segments. And low average education = low average income in most cases.

Contrast that to other segments of the frum population that do value a good secular education and you will see that incomes in that segment are above average, often significantly above average.

Mark said...
This comment has been removed by the author.
Mr. Cohen said...

About getting rich quick, King Solomon taught us:

Mishlei, chapter 28, verse 20 (see Rashi and Metsudath Tzion):
“...he who tries to get rich quick will not go unscathed.”

When one Jew asked Rabbi Avigdor Miller ZTL about Amway (a multi-level marketing organization, which might be categorized under “get rich quick”), Rabbi Avigdor Miller answered:

BaltimoreYid said...

Hashem will provide..... I am so sick of hearing that from young men who intend to shteig in kollel rather than work. If Hashem "provided" for everyone then everyone would be frum. Since I know droves of poor frummies this statement is clearly wrong. A major attitude adjustment is needed quickly if the frum world is to remain viable. Many frum kids who go OTD have told me they were tired of never having anything growing up.

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