What’s the Big Deal? It Just Might Be a Scam : Fraud: Tall tales that take in otherwise shrewd investors are nothing new. But they still work.
There’s something about bigness--big dreams, big returns, big promises, big bucks--that lulls the senses of generally vigilant people.
It happens every day.
Apply for a small condominium loan well within your ability to repay and your entire financial history may be scrutinized, with the loan committee paying special attention to the three times you incurred late-payment fines.
But hire a lawyer and walk into the same institution with grand plans for a seven-figure real estate development and you may be viewed as a person of substance, ushered into an office and assured that the pesky details can wait.
This curious behavior has perplexed mankind since the primitive days when money was denominated in beans and pebbles.
Create a good story (the bigger the better), tell it convincingly, and a lender might pay you for it. Tell a stale old tale of wanting to buy a condo and you may be viewed with the suspicion that precedes a full credit check.
It happens all the time. Hundreds of banks and other lenders were taken for hundreds of millions of dollars in the 1980s by real estate promoters. But, while homeowner defaults did rise, such loans remained among the safest of any.
The evidence, therefore, suggests that the best-paid storytellers are not those whose bylines appear in books and periodicals but the creative developers who talk big, borrow big and settle for a fraction of their liability.
By the same criteria, the biggest mistakes are made by the biggest names in finance, and you need only run down a roster of big brokers or big banks for documentation of miscalculations that you wouldn’t make in your checkbook.
Evidence of this psychology and behavior is woven through most financial to-dos, and the latest, the huge imbalance of assets and liabilities in the Foundation for New Era Philanthropy, is a clear illustration.
New Era had a big story: Lend us your philanthropic funds and we will find matching donors. The story sold, and some of the biggest names in charity and some of the wealthiest financiers, individual and institutional, bought it.
The question now is whether New Era, in bankruptcy, was a Ponzi scheme in which recent contributors financed payouts to earlier contributors.
If so, it will have snared not just big money but big names too--Laurance Rockefeller, a board member, and John Whitehead, former co-chairman of Goldman, Sachs; and professionals, such as accountants, who should have known better.
Still another big-money curiosity is the desire of some charitable, philanthropic and benevolent institutions for big, sometimes outlandishly big, investment returns, a desire that tempts beyond the dictates of prudence.
In the 1970s, McGeorge Bundy, then head of the Ford Foundation, gave a widely cited speech in which he urged philanthropies to consider greater risks in their portfolios. In following the advice, some learned a bitter lesson.
All this does not mean those nameless little people don’t suffer the same temptations. They too, as Charles Ponzi of Boston demonstrated in the 1920s, can fall for a story so long as it is very, very big and artfully told.
Ponzi’s scheme was so simple and was told so grandly and confidently--aided by the tales of those who had doubled their money--that few people at first could believe it was just the ages-old scam once more. It was.
The trick has been pulled innumerable times since then.
A couple of decades ago Tino DeAngelis convinced big-money traders that tanks in New Jersey were filled with salad oil, confident nobody would bother to check their emptiness. For many weeks nobody did, and the storyteller got rich.
Right now, many thousands of chain letters circulate, each one promising a fortune to recipients if they mail money to names on the list, add their own names and mail another 200 copies to newcomers.
But that’s small stuff. The big deals with the big stories and the big names-that’s the stuff of which really big scams are made.
