The Pyramid Game: It's a Lie, It's a Scam, and It Won't Work

Written in spring of 1993. Santa Cruz. 

It started among my friends in April, by July, it should mostly be over--for a while. My friend told me about a "financial opportunity." I was invited to invest $250, and in a few days I'd stand to get back $2000. I only had to get two other women to invest too. This would be easy, because they could make so much money.1

A few years ago, I remember many women playing The Airplane Game, and they were all waiting to get $15,000. What happened? Why did that game stop? Did everyone eventually become a "pilot"and "bail out" with their $15,000?

The "airplane game," "financial networking" "golden circle" "Friends Network," "pyramid games": they're all the same. They're also called "ponzi schemes," named after Charles Ponzi, a man who perfected the game in 1919.2 No matter what they"re called, pyramids are a lie, a scam, and they won't work.

The lie

All ponzi schemes work the same way, regardless of the particular details of any one game: they pay off old investors with the money from new investors. Paying off old investors with the money from new investors is a dishonest way to make money, because no money actually gets "made."

There are two ways to make money. To sell money, or sell stuff.

Selling money:

Banks and other usurers who sell money pay depositors a fee, called interest, which is much, much, less than the fee they charge other people who buy money (take out loans). For example, saving accounts currently pay 2% while personal unsecured loans cost 10%. This difference between 2 and 10 percent is the profit the bank makes after it pays off your investment. You are at the top of this "pyramid,"but the amount you take out of the bank is four times less than the amount that stays in and makes the bank directors rich. "New money" comes into this "pyramid"from people who eventually pay much more back on their loans than they take out.

Gambling casinos make money the same way, paying out much less to winners than they keep from losers.

Selling stuff:

The other way to make money is to invest with a company that sells something: a service, information, or objects. If your investment is successful, then the company has found consumers for its things, and received more money than it must pay back to you. New money comes from consumers who are willing to pay a marked-up price. As an investor you take a risk that the company will be able to pay you interest with its profits from the added value consumers create.3

With a ponzi scheme, there is no earned interest or added value. The only profit comes from having an ever-increasing number of players. New money to pay off old investors comes from new investors. No degree of wishful thinking will make money out of no money. If anyone tells you different, they are lying. New investors must be found, or the game collapses.

The Scam

Oh, but there will always be new women, I'm told. In fact, I'm told many things:

This game is different. Women are responsible to those below them, they're re-investing their money; they buy the slots of the women below them; they're helping their friends take advantage of this great opportunity.

This doesn't change the fact that new money comes from new investors. This practice will prolong the game, because there are more "slots" on the pyramids than women playing, but reality still holds. Unless the "winners" are reinvesting every dollar of what they "win," (which they don't) someone is going to eventually lose.

Because money is always being taken out of the game by winners, the winners can't help everybody. So who gets helped? The people who are liked, the people who have friends. Who gets left out? The very people who get screwed in most social groups: the misfits, the difficult people, the people with few friends. And this is supposed to help our diverse community?

If women work hard at getting more investors, they will get their money; if women don't work hard, then they deserve to lose what they invested.

This sounds familar, like those other scams that put women into a situation where they might fail, and certainly many women will fail, and when women do fail, they are told it is their fault.4 This is a common political tool to make women feel worthless. The tool is only more insidious when it's wielded by women we trust.

These are women we know. They have gotten their money. They're helping other women get theirs.

The trust part, I hate that. Pyramids are a con game and that means confidence. Ponzi schemes thrive in homogeneous communities of people who trust and care about each other. In fact, the tighter the community, the better it works, and therefore the more damage it does when it collapses. I've seen specialized ponzis first-hand as a lesbian and a woman. I've read articles about how they run through the African-American communities, and I'm sure every group has its own con artists. Ponzi schemes wouldn't work if people didn't trust each other. Would you give $250 to some stranger on the corner who said she would pay you back $2000 in three days?

If women don't play the game early, then it's their fault, they just didn't luck out like we did.

The odds of winning get worse and worse the longer the game is played. Some people think this recent pyramid is just a form of gambling, but no. It's a game for suckers and crooks. Encouraging your friends to gamble in a game where their odds of winning their money is worse than yours were, because you got in the game first, should make you feel uncomfortable. Oh, but that must be why winners "help" those on the pyramid below them.

Well, I signed something when I put in my money, saying it was a gift, and I didn't expect anything back in return.

This is a new twist, to protect the people already in the game from criminal prosecution and civil lawsuits. Early ponzis had one person at the top who raked in the cash. These "new age"pyramids turn our friends into criminals who must be protected by lies on paper. If this game is so good for communication in our community, why must we lie to our friends immediately upon entering the game?

This is a great opportunity to talk about our money stuff.

If you want to deal with "money stuff,"try buying a house with your friends. Or loan someone a large sum of money. Or borrow a large sum. Co-sign a loan. Start a business with a friend. These are real opportunities to learn what patriarchy taught you about money, and discover how you can do it differently. Scamming your friends is diminishing, not revolutionary.

It won't work.

If the ethical reasons don't appeal to you, let's do the math.5

In these examples, I'm using the pyramid that was pitched to me. The dollars needed to invest, and the levels between payoff vary from game to game. But the examples can be extrapolated to your favorite version.

Let's suppose I put my $250 in at the bottom of a pyramid and so do seven other women. At that moment, there is one person at the top (I'll call that Level 1) , getting $2000, and fourteen women below her, for a total of 15 people in the game. Me and my seven buddies are at Level 4.

             A

            B B

        C C C C

D D D D D D D Me

At this point, the lucky woman at the top of the pyramid gets her money, the pyramid splits into two new pyramids, and I move up one level:

          B

         C C

    D D D Me

E E E E E E E E

         B

        C C

    D D D D

E E E E E E E E


When more people are found to play, the two lucky women at the "B" level get their money, the pyramid splits again into four pyramids, and I move up another level.

C

D Me

E E E E

F F F F F F F F

C

D D

E E E E

F F F F F F F F

C

D D

E E E E

F F F F F F F F

C

D D

E E E E

F F F F F F F F


Fourteen more players need to be recruited in my branch of the pyramid before I get paid. But each woman who began the game with me needs 14 players to "win" her money. (In the recent games, people are encouraged to play more than once, but you still need to find 14 X $250 worth of players to get paid off.)

Finding these 14 people gets tougher as the pyramids age. If you joined at Level 4, there are eight of us looking for, on an average, 2 more players each. At the next level, 16 players are looking for 2 recruits. At the next round of winners, if the recent 32 players are looking for 64 new players, and if they collect all 64 players for Level 7, those 64 are looking for 128 more players, in a town where 127 people are already involved. Here's how it grows:

Players in the game                 Level #                                           Players needed to pay off

already                                  1                                           

                                              2                                           

                                              3                                           

        15                                  4                                           8

        31                                  5                                           16

        63                                  6                                           32

        127                                7                                           64

        255                                8                                           128

        511                                9                                           256

        1023                              10                                         512

        2047                              11                                         1,024

        4,095                             12                                         2,048

        8,191                             13                                         4,096

        16,383                           14                                         8,192

        32,767                           15                                         16,384

        65,537                           16                                         32,768

        131,971                         17                                         65,536

        263,943                         18                                         131,9726

The first payoff happens at level 4. In the particular pyramid that I am describing, the money each player is waiting for is concentrated in the hands of the person three levels up the pyramid from each player. As you enter the game, people at your level must recruit two times as many players as themselves, who must in their turn recruit two times as many players as themselves, who must recruit two times as many players again before you and all the other players of your level get paid off.

What happens if one of the various branches of the pyramid dies out? The people in the last three levels lose their money. Suppose the 512 players needed at Level 10 fail to recruit 1024 more. Level 11 fails to complete. Therefore levels 8, (128 people) Level 9 (256 more people ) and Level 10 (512 people still more) lose all their money. That's 896 people who just lost $250. And this is assuming that all the Levels before Level 11 survived, and no one had lost money yet.

And eventually, the game will fail. Theoretically, there won't be anyone left to put in money at the bottom of the pyramid. There aren't enough women in the world.

But that won't happen until the game has gone through our town and is in some other place.

Yes, theoretically. Pyramids fail long before the theoretical limit is reached precisely for the same reason that they live as long as they do: trust. After a while, no town's or group's collective address book is big enough to dupe 16- or 65- thousand more people to play their round of the game. In a few years, a new game will start, and swindle a couple of thousand more people. Maybe the new game will have a slightly different structure, or a different philosophy, but it will won't work the way they promise.

But let's say everyone in Santa Cruz county wins their pot of money, and only people somewhere else lose. Isn't this just the kind of colonial situation many of us in various social justice movements work to end?

But I'm broke, and I'm going to use this money for so many good things, the world needs the good use I'm going to put this money to.

The people who will be paying for your philanthropy are the very people who, just like you, can?t afford to lose the $250 or $1500, or whatever the amount. When they lose their money, they will be hurt as much as you would be if you lost.

In my experience with chain letters and pyramid games, the losers are the same women who asked me to participate. Except that--and this shouldn't surprise anyone--no one calls up their friends and talks for hours, excited that their money didn'tcome in. The whole aweful thing just fades away. Perhaps a few friendships are ended or damaged. I know of an astrologer and a massage therapist who pitched pyramid games to their clients; they'll probably lose more business from this breach of ethics than they would have gained from the game. And they deserve to.

If you don't mind ripping off your friends, study the diagrams above and start your own pyramid game. Stay in for the first three cycles. You can't lose. On the other hand, you might just break into your friends' houses, steal quarters off their dressers, loot jewelry from their boxes, and sell their VCRs at the flea market. Financially, odds are you'll make money. Ethically, you'll break even.




1. I am philosophically indebted to Judy Freespirit for publishing the excellent article "Chain Letter Massacre" in Lesbian Ethics. In her example, the pyramid took the form of a chain letter which started "To the women friends in my life who know how to dream and create their own reality."I've gotten this letter several times.

I gained insight into the racist element of these schemes after reading "Of Pyramids and Pipe Dreams" in Black Enterprise, August 1988, by Virgil Burke. An interesting source for the law enforcement angle (the games are illegal) is the August 1993 FBI Law Enforcement Bulletin. "FundAmerica" was a sophisticated pyramid game that swept the country, and duped many professional investors. It unraveled in July 1990, and many newspaper and magazine stories of the time trace its demise.

2. In seven months Ponzi went from being destitute to accumulating $9 million from 30,000 investors in 1919. After he was convicted, but while on appellate bond, he was involved in sellling underwater lots in Florida.

3. Other kinds of investments are just giving your money to other people who will either sell money or invest in businesses. People also invest in governments, but they work just like companies. Instead of paying their investors off with profits, governments pay off investors with taxes.Which is why goverment bonds are low risk investments. There will always be taxes.

4. Like life-long relationships, like small business, like corporate america.

5. De Clarke contributed to the form and substance of this explanation. She explained the mathematical expansion to me accurately; she also worked out the mathematical progression, and much of the logical argument of this section.