Original sinners

Published April 26, 2021
The writer is a journalist.
The writer is a journalist.

BERNIE Madoff is dead. For those unfamiliar with this legendary fraudster, here’s a quick refresher: a former Nasdaq chairman who was once feted as a self-made financial guru and a veritable Midas of the modern age, Madoff was the darling of hundreds of thousands of investors including celebrities like John Malkovich and Steven Spielberg.

At his peak, he handled close to $17.5 billion worth of investments and claimed that his portfolio was worth upwards of $60bn. But in 2008, Madoff was exposed as running the biggest scam in the history of Wall Street and a year later pleaded guilty to securities fraud along with other charges and was sentenced to 150 years in jail. Essentially, he had perpetrated the greatest Ponzi scheme in the history of financial fraud, far beyond the wildest dreams of our own Ponzi scammer, the infamous ‘Double Shah’ who also bilked people out of millions of rupees in the early 2000s.

It’s called the Ponzi scheme after the man who first came up with it in the 1900s, one Charles Ponzi. Ponzi did initially make good on his promise of delivering ridiculously high returns to his investors and then word of mouth did the rest by attracting new money, while the older investors reinvested. It was only much later that it was discovered that he was paying his older investors with the money he had received from his later investors, creating a pyramid with himself at the top as the sole actual beneficiary.

This got me thinking that just about every fraud that exists today must have started somewhere, with one enterprising conman coming up with the idea in the first place. Take insurance fraud, for example: the first known incident of this dates to Greece in 300 BC with a corn merchant called Hegestratos. Given that most Greek trade was maritime and prone to risks, merchants could avail ‘bottomry’, a proto-insurance policy in which the merchant borrowed money to finance the ship and cargo; if the ship arrived safely the loan was paid with interest and on non-payment the ship and cargo would be confiscated.

Every fraud that exists today must have started somewhere.

Hegestratos came up with the idea of surreptitiously selling the cargo of corn and then sinking the ship (along with passengers and crew) to safely default on the loan. Caught in the act, he drowned while attempting to escape the wrath of his intended victims, though history does not record how he intended to survive the sinking of the ship (he was also on board) to begin with.

Then there’s insider trading, where one manipulates markets relying on ‘inside’ information. While this term currently relates to the stock market, we do see an incident (again in ancient Greece) where elites did something very similar: The reform-minded Athenian lawmaker Solon (630-560 BC) eliminated the practice of taking loans with the debtor’s own person as collateral; previously, defaulting on such a loan meant enslavement or permanent bondage. Unfortunately, Solon made the mistake of discussing his proposed reforms, and his intention to forgive all such debts, with his ‘friends’ who then promptly went and took out huge loans against their own persons, knowing that they would be waived in short order. Solon took the flak while his ‘friends’ laughed all the way to the bank.

But perhaps the oldest documented fraud is that of counterfeiting and forgery, and this practice began before money was even invented! Prior to 1,900 BC, trade in the larger Middle East was paid for by silver, and quality was controlled by the major powers of that age, the Egyptians, Babylonians and Hittites, among others. But then came the invasions of the mysterious ‘Sea Peoples’ which saw the empires of the age weaken and fail, leading to the Bronze Age collapse and a regional shortage of silver due to disruption in supply lines. In crisis there is opportunity, and so began the practice of creating counterfeit silver by mixing small amounts of pure silver with cheaper alloys like copper.

Now you may think this was an agreed on practice given the shortage of silver, but then note that these ancient forgers added arsenic to the mix to give the copper alloy a silver-like sheen making it clear that the purpose was to deceive. It’s only now, millennia later, that this scam has come to light thanks to the efforts of intrepid archaeologists which makes it possibly the most successful sustained counterfeiting project in all of recorded history.

If there’s a lesson to be learned here it is that the fundamental nature of humanity has never really changed, and likely never will. We could reach the stars and colonise other planets but there will still be someone trying to bilk you out of your hard-earned money. As showman P.T. Barnum said rather dismissively, “there’s a sucker born every minute”, and in a world of predators and prey, odds are one of these days, that sucker will be you.

The writer is a journalist.

Twitter: @zarrarkhuhro

Published in Dawn, April 26th, 2021

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