Last night, I finally got around to watching The Big Short. I had rented it on Amazon for a $1, but it sat around. Yesterday I got an email from Jim Wang of Wallet Hacks that he had just watched it on Netflix. He wrote the following:
"When it came out in 2015, I'm sure a lot of people got angry at bankers for living high on the hog, nearly imploding the economy, still getting paid off, but no one going to jail. I understand that's upsetting but being upset doesn't accomplish anything and certainly doesn't help you or me. What can? Learning something from it.
... The second takeaway is to challenge assumptions. Moody's and Standard and Poor's rated these financial instruments as triple-A, top notch, but they weren't. People assumed the instruments were safe because of the agencies...
All of this has all happened before and it will happen again."
[If you haven't seen the movie, this article might contain some minor spoilers. However, they'll be a little like the movie Titanic, right? We have an idea of what happened in these historical pieces (if we're interested in the events).]
We all view things through our own lens, right? I think my lens might be a little unique. It's unique enough that I'm going to make a pitch for a sequel. Because as far as I can tell (to paraphrase Jim), "all of this has been happening for decades." (Later, I support this with a quote from Dr. William Keep, a recognized expert in the industry.)
Hopefully someone out can put me in touch with Michael Lewis or Adam McKay who can take my proverbial straw and spin it into gold.
The best part of the sequel I'm proposing... is that you don't have to change much. It's like The Hangover sequels... they work well... so just leave them alone.
We can even begin it with the same quote: "It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so."
The Big Short Part 2: Attack of the MLM/Pyramid Schemes
Yep, this article is about MLM. These are the kinds of things that you see crowding your Facebook. These are the things that typically collapse in about 5-8 years... or even faster. Over the years you've probably seen MonaVie, ViSalus, and Vemma. There's a bunch of smaller ones that you were most likely fortunate enough to ever encounter (Xowii and One24).
Fortunately, we can keep the same title and even the same Wall Street angle. Vanity Fair described The Big Short War. Here's a little snippet:
"[Bill] Ackman has called Herbalife a 'fraud,' 'a pyramid scheme,' and a 'modern-day version of a Ponzi scheme' that should be put out of business by federal regulators."
[The rest of the paragraph is great, but I didn't feel it was fair or fitting with the point to quote it all here.]
Yes, Bill Ackman has put a billion of his dollars (similar to some of the characters in the real movie) that there's something wrong here. The difference is that Ackman sees and documents the fraud he finds on Facts About Herbalife.
Celebrity Cameos to Explain MLM
The Big Short has a great gimmick of bringing celebrity cameos to explain complex financial topics. Anthony Bourdain, Selena Gomez, and Margot Robbie each come in for about 2 minutes.
In my movie, I'd get golfer Dustin Johnson and his fiancée Paulina Gretzky to explain it. This is a perfect fit, because I'll use a golf analogy to explain how I view MLM. It will go a little something like this:
[Dustin speaking]"Let's say that success in MLM is getting this golf ball in the hole. The first people joining get to take very short puts. So short that anyone, even Paulina, can make it. [Cut to her nailing an easy put.] However, it quickly gets exponentially more difficult since everyone is trying to recruit everyone else... and everyone interested would already be a part. So instead of a short putt, for more than 99% of the people, it's like trying to get a hole-in-one at TPC at Sawgrass's Island Green... during a hurricane. [Cut to show how difficult the hole is.]
The MLM recruiters like to show off Paulina's success as if it is representative of what will happen if someone 'plugs into the plan.' After all, if they explained that more than 99% of people are doomed to fail, they couldn't recruit anyone. They like to say things like, 'In MLM the only variable is you.' This is a way to make you feel like a failure if you quit and deflect blame from the scheme.
People typically lose money by overpaying for what they think is a legit business opportunity. You can buy a golf ball for 50 cents, but if you want to have success, you have to buy specific golf balls for $5.00 a piece. The MLMers will tell you they are much better golf balls, but typically only the people playing the game believe them, since they don't a good job at showing why they are better.
Month after month, people tend to hit dozens of golf balls into the water. Even with all the practice I've had over the years, I'm not likely to get a hole-in-one to succeed. Paulina's odds at the short putt are much higher than having years of practice and my circumstances.
Just like in the original The Big Short, the reality is more complicated with nuances, but I think this conveys a fair introduction.
Where is Law Enforcement?
We might be able to recycle part of this admission from an actress playing an SEC executive in the original movie:
"Oh we don’t investigate mortgage bonds. Truth is since we had our budget cut we don’t investigate much."
See this Bloomberg article: "An Insider Explains Why the FTC Can't Put an End to Pyramid Schemes"
It's a similar story with it costing years of the FTC's time and money to go after a single one. It's hard to put too much blame on the FTC, as they really need a Federal pyramid scheme rule according to the FTC insider. Let's just say that I haven't met too many people who have faith in politics lately.
The FTC does have some guidelines for consumers
about MLMs/pyramid schemes, but the average person isn't likely to stumble across the article.
Imagine if law enforcement didn't go after murderers and instead gave you tips on how to avoid being murdered. Now imagine they took it a step further an implied that murder might be legit. That's how I feel.
And if that sounds crazy, please read Dr. William Keep's article on MLM here. He's just the Dean of Business at the College of New Jersey, and one of the foremost experts on MLM/pyramid schemes. I'd love to quote the whole thing, but I'll just stick to this:
"Business fraud undermines markets and misallocates financial resources. Managing it can be difficult. In the guise of MLM companies, pyramid schemes are the perfect fraud storm that has swirled around U.S. consumers for decades, transferring small amounts of wealth from hundreds of thousands of victims using face-to-face deceptive marketing. As a result, a small number of perpetrators reap large rewards."
Where Do I Stand on All This
I found myself identifying with almost all the characters in The Big Short. However, I particularly found myself identifying with Mark Baum played by Steve Carell. Almost everything he says is quotable, but there are a couple that caught my attention, and we can recycle them for the sequel:
" You have no idea the kind of crap people are pulling, and everyone's walking around like they're in a damn Enya video. They're all getting screwed, you know? You know what they care about? They care about the ball game, or they care about what actress just went into rehab."
"We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball... What bothers me isn't that fraud is not nice. Or that fraud is mean. For fifteen thousand years, fraud and short sighted thinking have never, ever worked. Not once. Eventually you get caught, things go south. When the hell did we forget all that? I thought we were better than this, I really did."
The above is my opinion which I believe is protected under the First Amendment. As Homeland Security has trademarked, "If you see something, say something." I see something, so I'm saying it, which has thus far lead to four serious legal attacks (including three lawsuits) upon my free speech to express these views.
I leave you with two motto's:
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