Making Fraud Legal

The big bad word that is normally reserved for illegal pyramid schemes – COLLAPSE – is now referenced daily in discussions about our stock and credit markets. How could legitimate and regulated markets that are watched over by the Securities & Exchange Commission (SEC) “collapse”? Isn’t the whole idea of federal regulation to prevent such a disaster? Isn’t the SEC supposed to stop irresponsible or fraudulent activities that cause collapse?

If these markets really were on the brink of collapse before the federal bailout, does it mean that there are fundamental similarities between our securities markets on Wall Street that sell credit, stocks, bonds and insurance and the pyramid schemes running rampant in neighborhoods and churches that sell fruit juice, soap, and the “opportunity of a lifetime”?

There are more similarities than most people realize. Pyramid selling schemes are Main Street’s own version of “Wall Street Greed.” One major similarity is the effort of promoters in both fields to get fraudulent business practices
legalized.
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Burned Again and Again and Again

There is a counter-intuitive rule in the world of scams. It is that the easiest person to fleece is someone who has recently been fleeced.

Wouldn’t the loss suffered previously cause the consumer to be more vigilant, plus experienced now? Sadly, for many, no. To the contrary, stronger motives and forces drive consumers, once burned, to fall again, often harder. Those forces – anger, disappointment, shame and confusion – instill in many consumers a burning desire to rectify their plight, to redeem themselves in their own eyes and perhaps to their friends and families. They must prove themselves right.

One other factor is at work. This one is even more disturbing. It is that many consumers, once burned, do not understand that they were in fact the victims of a scam, a calculated money trap. Rather, they believe – as they were told by the promoters – that they “personally” failed in a viable, even excellent income opportunity; hence, their shame and the need for redemption.
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