Wednesday, 30 October 2013

Ponzi and pyramid schemes

Some people starting their own business decide it's a lot easier to get money with no actual products than actually working for them.

The simplest, the one Bernie Madoff is now doing life for, simply takes a portion of the money people think they are investing with you, give them back the rest with interest, as long as new people keep putting it in to pay the interest. His carried on so long it lasted until a chance discovery got him raided, but does prove they needn't be short term once new funds dry up. A pyramid scheme is also illegal, and is pretty much the same but shifts the money around in the same form as a chain letter, with everyone at the bottom paying up to the top who get the money, again till the new arrivals dry up. The major difference is pyramid schemes usually offer products, but make their money from recruiting new arrivals and use the products to give the impression all the money comes from selling them. The product only needs to attract the attention, and even if useful normally costs far more than in the shops as it is an instrument to pay the top level so needs an extra markup. There are also pure pyramid schemes where the first wave get paid a fortune and the last lose the lot, which is just a way of arranging a pure Ponzi scheme simply because, unlike the Ponzi schemes which pretend they are investing your money, Hearts or Women Empowering Women don't pretend to do anything, they just rely on the hope and greed of the punters who come on board in hard sell meetings.

In the current world we have perfect examples of both. I have already described Enron's Ponzi scheme, offering future profits for current investments, which never existed at any time. This now runs legally as carbon trading and whatever the false excuses given for it it simply steals money. Solar panels however are a perfect pyramid scheme. The performance is fairly predictable, unlike wind. They are currently around half the potential conversion factor from sunlight, although unlike the satellites which run on solar outside the atmosphere, the sunlight on the surface is 25 times reduced by the atmosphere. A typical year's performance provides the most in the long days of the summer when the sun is high, and energy use is the least. This gradually reverses over six months, to the shortest and coldest days of winter have the weakest sun and the shortest days. The storage only stores surplus and can't make more than is produced, so doesn't do more than a partial coverage of the day when they stop working directly, every day. Existing estimates by sales staff claim anything from a hot bath to an hour's TV per £6-8,000 panel seems about right, although for some strange reason if you look on their websites hardly anything on this is in writing. But if you call a representative as a potential customer they will usually put you straight.

That's odd in itself. Why would a sales person openly admit diabolical performance figures? Well if the purpose of a solar panel is to make money taken from other people, then like all pyramid schemes, the actual product doesn't matter. Therefore what they are quite honestly selling you is a means to get guaranteed payments for a number of years everyone else is paying you for. The official and fully online breakdown for annual accounts show the profit per year being around 80% from those payments and the rest from additional power saved off your bill. The only difference is the payments are guaranteed while the savings are an added bonus and not. There's a small problem though, they wear out over anything from 5-20 years, and need cleaning every year or so. Being on the roof you can't do it yourself, so each year's power saving usually goes on cleaning. Proving you really can't make money from nothing.

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