In the happy world of fraud­ulent schemes, my favorite scam is no doubt the pyramid. It’s the most elegant, the classiest, and the cleverest of rip-​​offs. There are many vari­ations of it, but here’s the prin­ciple that cor­res­ponds the best to the needs of this article…

Let’s admit that I want to start a pyr­amidal system: I put on my broker’s suit and introduce myself to some clients (you!) as an investor. I tell you about appealing interest rates of 30% a year.

You give me an amount of money (you "invest"), let’s say $2,000. After a year, I present you with $600, your so-​​called interests. The scam lies in the fact that this money does not come from some juicy investment made with your capital, but is simply a fraction of your own money (I’m giving you back $600 from your initial $2,000 input). Every year, I give you back $600.

Of course, after three years I’ve given you back $1,800 out of your $2,000 and I’m broke. In order to go on paying dividends back, I need to find other suckers; it’s their capital that will allow me to pay for your dividends. And to pay back those guys the fol­lowing years, I’ll need even more "investors". Never is there any cre­ation of wealth; at every step, it’s the capital of new­comers that allows me to pay back pre­vious investors.

The system is clever for many reasons. If it’s well admin­is­trated, no one feels like one’s loosing any­thing. Each actor reg­u­larly receives great interests and I get my com­mission. Most of the time, pyr­amids stop because of the police getting in the way. Activ­ities come to a stand­still and therefore inputs stop, pre­venting me from reim­bursing anyone, and thus everyone looses money. You see the trick? You’re ruined, but not because I didn’t do my job well. It’s the inter­vention of justice that did it. All con men have the same excuse: "if I had been given the time, I would have paid everyone back", which can also be trans­lated to "if the law hadn’t pre­vented me from working, I would have made my investors richer", a sort of cry for lib­er­al­iz­ation of the markets. Another cause for stopping activ­ities is when "investors" get scared and ask for their capital back. That’s what we refer to as "market con­fidence", or lack thereof.

Things look already great so far. They become just sublime with what follows, you’ll have to admit. Of course you know it’s illegal (oth­erwise all banks would be offering interest rates of that scale) and you’re a willing victim. Better yet, since you can only keep earning dividends as long as the system expands, it’s in your best interests to make other suckers enter the pyramid. From being victim, you become an accom­plice. That’s where the bril­liant part of the scam lies: trans­forming all its victims into accom­plices. Every par­ti­cipant becomes a devoted organ of propaganda.

But, alas, this system is illegal. The reason is simple: when a pyramid reaches its maximum expansion, it totally col­lapses and whole coun­tries (Albania) went down this way. Indeed, when there aren’t enough new suckers joining the pyramid, the interests paid back to the "investors" decrease until they finally become null. Since the people who are in the pyramid do not earn any money anymore, they ask for the resti­tution of their capital. The pyramid can reim­burse the first few people (thanks to money that hasn’t been given back as "dividends"), but after a while it goes bankrupt and nobody gets any­thing back anymore. Since the dividends are paid thanks to incoming money, in the end everybody has lost some dough. The sub­tlety lies here: at each step of the pyramid, the par­ti­cipant thinks he’s earning money; but, on the whole, the system doesn’t create any income, it just moves around more and more money (at a local level, one thinks one’s getting richer whereas at the global level one’s just running in circles).

The pyramid is the most important scam of the century. It’s according to this blue­print that the stock market has been working for approx­im­ately 15 years.

More than ever before, fin­ancial markets have been observing growth ratios larger than the true growth of the economy. Activ­ities have grown only a few per­cents every year, but the stock markets have been showing two-​​digit ratios. Here’s a dif­ference that must be justified.

The stock market in itself does not create any wealth: in a sane system, it cent­ralizes cap­itals to invest them in the industry. The global value of the market increases only through the aug­ment­ation of activity in the industry, the dividends paid to the investors being a part of the profit obtained from the activity. Thus, logically, the stock market should pro­gress according to the same rates as the activ­ities (it’s these activ­ities that create wealth, the stock market being only a reflection of it). This is the naïve theory of capitalism.

Since the markets do not create any wealth, how can the growth rates of the pre­vious 10 to 15 years be jus­tified? Money has to come from some­where, right? Stock market money is not born from the market itself, because that would be tan­tamount to simply printing more bills.

This is where the con­nection with the scam men­tioned pre­vi­ously becomes evident: the pro­gression of fin­ancial markets comes from nothing else but the injection of new money in the system through new suckers. Stock values do not increase because the activ­ities increase (we all know it’s not the case), but because the total sum of money going through the system grows reg­u­larly. The large amounts of money involved in the system do not enrich it, because there isn’t any cre­ation of goods. As with the pyramid, the fin­ancial move­ments serve only to justify the existence of the system. In order for everyone to feel like he’s getting richer, we need to increase the global amount of money that cir­cu­lates thanks to the arrival of new suckers.

The new suckers are, in this case, the transfer of riches from the pro­ductive activity towards the stock market through dif­ferent methods: the search for maximum prof­it­ab­ility, the privat­iz­ation of common goods and world glob­al­iz­ation. Finding new suckers is simply liberalism.

The first step is to get more money from the pro­duction activity than the simple cre­ation of goods would make pos­sible. Investors only had to ask more from the firms they finance. That’s what is called, in lib­er­alist pro­pa­ganda vocab­ulary, the search for "prof­it­ab­ility". This prof­it­ab­ility can be obtained by lowering the costs of the firm (wages, for example) and by lim­iting invest­ments to reap more dividends. Thus, the money exits the work-​​world (salaries and devel­opment invest­ments) to enter the stock market-​​world. A good firm is therefore not a creator of activity, but of money. It becomes a mean of trans­ferring money from activ­ities to fin­ancial places. The acme being the devel­opment of firms that provide useless ser­vices (the model being Microsoft).

But the sole transfer of money from firms towards markets isn’t enough to gen­erate the huge dividends demanded by the investors. The second method used to introduce new money into the system is the privat­iz­ation of common goods. This con­sists in giving a stock value to things that didn’t have any before. The "thing" itself did exist, but its social aspect made it untouchable. Privat­iz­a­tions of public ser­vices give a value to whole sectors of activ­ities that pre­vi­ously escaped the system: privat­izing train and bus systems didn’t only mean giving a value to state firms, but to the entire cor­res­ponding sectors. Trans­forming social pro­tec­tions (health, retirement funds) through redis­tri­bution (the incoming money being imme­di­ately redis­tributed, the global "value" of the system being null) into hedge funds (through cap­it­al­iz­ation) comes from the same basic idea: increasing the amount of money inside the system without cre­ating any real activity, to give the impression of a growth.

Finally, once the prof­it­ab­ility of these firms has reached its pin­nacle and privat­iz­ation has been taken as far as it could be, the system needs to find new sources of money to justify itself (as in a pyramid). It simply expands geo­graph­ically. That’s glob­al­iz­ation, which is only the expansion of the system for its own sur­vival. We saw in the 80’s new suckers arrive, eleg­antly dubbed "emerging markets" (South-​​east Asia and Latin America). The 90’s saw the arrival of an enormous other sucker: the Russian fed­er­ation. That’s the best example: one day, a whole con­tinent found itself given a market value whereas it didn’t have any the day before. The wealth that existed before (firms, ser­vices, people), through their own value, helped increase the value of the global system.

To make the com­parison com­plete between the stock market of the 80’s and 90’s and the pyr­amidal scam, we must recall that, in that fraud­ulent scheme, the sucker is willing and becomes an accom­plice of the system. To get his capital back, he needs to con­vince other people of the validity of the system. This is the last brush­stroke to the picture of lib­er­alism: to the search for extreme prof­it­ab­ility, the privat­iz­ation of all sectors of activity and the glob­al­iz­ation must be added a great tool that helps to keep the system going: propaganda.

Thus, what we’re dealing with is indeed a scam of the type of the pyramid: people partake, in the naïve belief that they’ll make a lot of money but, in its entirety, the system is only moving more and more money in circles, expanding without cre­ating any wealth. When it cannot expand anymore, it col­lapses, people finally real­izing that the riches they had been splitting amongst each other never grew and that they’re not any richer than before.

We’ve wit­nessed the first signs of wear of this system in the last few years. Expansion endeavors became harder and harder, as well as more and more irra­tional. The last unex­ploited sectors were conquered at all cost, thanks to an unbe­lievable brand of pro­pa­ganda. The salaries of indus­tri­alized coun­tries would have to be lowered (in spite of auto­mation) and more "things" would need to enter the stock market (why not pol­lution?) to keep the system growing.

This month (September 1998), we saw the logical con­clusion of a pyramid reaching its expansion limits: crum­bling. No more suckers to enroll, no more fresh money to pay back pre­vious investors, the system is bankrupt.