With news about Bernard Madoff’s widespread $50 billion Ponzi scheme reverberating throughout the world, I thought that this parable is a good reflection of financial scams and how they work. The simplest ones are often the most effective.
A man offered to buy monkeys from a village. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them.
The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort.
He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.
In the absence of the man, the assistant told the villagers. Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell it to him for $50.”
The villagers combined their savings and bought all the monkeys from the assistant.
Then they never saw the man, his assistant or their money, only monkeys everywhere!
The morale of this story and a way to spot all scams is that if it looks too good to be true, then it probably is.