Pyramid Scheme Founded by a Man Who Drowned His Baby
Pyramids Everywhere
Pyramids Everywhere
American media blamed the massive collapse of Albanian pyramid schemes in 1997 on greedy pocket-sized-fourth dimension investors unschooled in the free market. It could never happen hither.
Tales from Albarado: Ponzi Logics of Accumulation in Postsocialist Albania
by Smoki Musaraj
Cornell University Press, 2020, 216 pp.
One solar day a villager was walking by Akşehir Lake when he saw Nasreddin Hodja pouring a bowl of yogurt into the water. "What are you lot doing, Hodja?" the villager asked.
"I'g making yogurt," he replied.
"Come up on, Hodja, that won't piece of work," the villager said. "The lake can't turn into yogurt." Hodja looked up, and said with a gleam in his eyes, "But what if it does?"
—Nasreddin Hodja, c. thirteenth century
In September 1996 a woman named Drita did the sort of thing many Albanians were doing at the time: she sold her family unit'south apartment for $25,000 and poured the coin into investment firms that promised to double her funds. The Los Angeles Times interviewed her a few months later on, after the plummet of the firms, which turned out to be pyramid schemes. Trying to make sense of the frenzied financial speculation much of her country had participated in, Drita recalled the thirteenth-century Turkish folk hero Nasreddin Hodja. "We thought the water in the sea would turn to yogurt," she said.
It was a time of spectacular transformations. Albania was rapidly transitioning from a Stalinist command economy into a pro-Western capitalist democracy. From "the offset atheist state" where religion was criminalized, it became a playground for Moonies, Mormons, and Jehovah's Witnesses. In Tirana, the upper-case letter, a grand marble pyramid housing the Enver Hoxha Museum—built after the dictator's death in 1985—sprouted a Voice of America broadcasting antenna and became the local offices of George Soros's Open Lodge Foundations. For a brief period, Hoxha'southward onetime villa turned into a fast-food restaurant called "McMarriot," consummate with gilt arches. Anything was possible.
In 1995 the International Budgetary Fund (IMF) declared Republic of albania a "success story of free market reforms." Meanwhile, local media was lauding the owners of the pyramid firms as trailblazers of homegrown commercialism. The firms' monthly rate of return grew from around half-dozen percent to 44 pct—enough to more than double the principal in two months. Past tardily 1996 roughly half the land had invested. A number of Ponzi schemes popped upwardly across postcommunist Eastern Europe, but the scale of the Albanian pyramids was unprecedented. At the fourth dimension of their collapse in Jan 1997, their nominal value amounted to $1.ii billion, equal to half the country's Gdp.
The effects of the 1997 crash were similarly unprecedented. Anti-authorities protesters in the country's southward stormed war machine depots deserted by the law and army. The president responded by opening upwards depots in the north for his supporters. In all, 656,000 arms and 1.5 billion rounds of ammunition disappeared from government stockpiles—peculiarly staggering numbers for a state of 3 1000000. Effectually 2,000 people were killed in the ensuing violence, which, aslope the devastating financial losses, accelerated an already massive exodus from the country. Thousands of Albanians piled into unseaworthy vessels bound for Italy. Hundreds drowned. The give-and-take nëntdhteshtata (year xc-vii) remains today a heavy cultural symbol, weighted with the trauma, loss, and uncertainty following the pyramids' collapse.
How did such fraudulent enterprises take over an unabridged country? For the American correspondents who parachuted in, the respond was obvious: Albanians were "emerging from the nighttime ages" (Chicago Tribune) and were besides ignorant to understand capitalism, which they regarded "with childlike naivete—and grown-up greed" (Washington Postal service). What can you expect from a country where, according to the Los Angeles Times, "the term 'work ethic' is an undeveloped concept"? Against this portrait of a grotesque aberration from "real" capitalism, major U.S. newspapers reassured their readers of American savvy: "Past Western standards, the schemes are breathtakingly transparent. The guarantees of huge profits were incommunicable," the New York Times reported. "The advertisements, dwelling on images of fast cars or exotic embankment vacations, would raise an firsthand cherry flag in the U.s.." Albanians, it seemed, were overcome past mania, too eager and unsophisticated to recognize an obvious con. It could never happen here.
"When I began my research in 2008, the stock market had just crashed in New York City, sparking a global financial crisis," Smoki Musaraj writes in the introduction to her book Tales from Albarado: Ponzi Logics of Aggregating in Postsocialist Albania. "Information technology was no longer possible to recollect and write about the Albanian firms as an isolated speculative chimera." Musaraj, an economic anthropologist at Ohio University, instead points to the booms and busts that have followed neoliberal economical reforms across the Global South. Though such speculative bubbles are oft dismissed as the upshot of mania, they are the product of mutual underlying conditions: political and economical transformation, rapid majuscule expansion, and unregulated informal fiscal practices. Musaraj argues that in the case of the Albanian pyramids, the underlying atmospheric condition were largely the outcome of devastating economical programs imposed by the IMF and the Globe Bank. Rather than blame the bubble on an Albanian ignorance of capitalism, she examines the people, the organizations, and the ideas on which Ponzi logics of accumulation thrive.
In the 1990s, Republic of albania underwent a raucous transition from a i-party communist land into a multiparty, unstable democracy. Student protests, hunger strikes, and stormings of foreign embassies were everyday events. At one point in 1997 Prince Leka, the son of the late deposed King Zog, showed up to reestablish the Albanian monarchy, initiated a gun battle in downtown Tirana, and then fled the country.
Republic of albania's economic transformation was perhaps the most desperate and sudden of whatsoever postcommunist state. In Communist Republic of albania, all forms of making money from money were banned, and most private belongings rights were abolished; all housing, land, and livestock belonged to the state. The full lack of whatever marketplace-based practices in Hoxha's Albania, far beyond the norm in other Communist bloc countries, made it particularly unsuited to the rapid changes demanded by the conditional loans of the IMF and the Globe Bank. Nonetheless, Albania became i of the nearly enthusiastic implementers of daze therapy, a set up of policies that included, every bit Musaraj writes, "the liberalization of markets, strict monetary policy, and privatization of public services and infrastructure."
Manufacturing plant closures and unemployment soon followed. Inflation and currency devaluations wiped out savings and welfare entitlements. Similar to privatization in other postcommunist countries, politically connected businessmen appropriated the profitable parts of land assets in an upwardly redistribution of wealth of earth-historic proportions. Food subsidies were slashed; hunger rose. The protestation symbol of tardily '80s and early '90s Albania was a bundle of leeks—often the only available nutrient—in an upraised fist. Shock therapy was so ruinous that the flow of the brandished leeks would exist a loftier-water mark; it wasn't until the early 2000s that GDP returned to its tardily-1980s levels. In the 1990s, Albanian capitalist democracy survived on foreign loans, oil smuggled into sanctioned Yugoslavia, and remittances sent home from undocumented workers in Greece and Italia. Those remittances, to the tune of $300 million annually (as much as xv percent of GDP), were the fuel for a speculative bubble emerging from breezy finance firms.
International organizations similar the IMF privately supported the appearance of breezy finance in the early on 1990s; the firms, the thinking went, provided an important source of credit and liquidity in a country where country banks weren't lending and private banks didn't exist. It wasn't until 1995, after the pyramids had finer taken over the unabridged country, that international economic advisers became concerned. It would be another twelvemonth before they understood the firms' full scale and nature.
To ensure a lack of oversight, pyramid firms accumulated political and social legitimacy in familiar ways. They sponsored soccer teams and the 1996 Miss Republic of albania pageant. They owned radio and telly stations and were frequent newspaper advertisers. From their beginning, their status was ambiguous, obfuscated with official-seeming contracts of unclear legality. No meaningful financial regulation or monitoring interfered with them. They openly funded political campaigns and gave kickbacks to politicians. 1 of Musaraj's interviewees, a manager at Vefa, ane of the largest firms involved in the bubble, recalls voicing concern at the more than $xxx 1000000 in bribes the company had paid out. The house'southward owner, Vehbi Alimuçaj, dismissed it as an insignificant business expense.
Every bit return rates skyrocketed in November 1996—two months later Drita sold her apartment and ii months before the pyramids' plummet—Alimuçaj hosted a televised, star-studded spectacle in which he bestowed medals of laurels on the prime minister and the speaker of parliament. Later that month, President Sali Berisha gave an impassioned oral communication defending the informal firms, insisting on the "cleanness" of Albanian money. Investors took this as a sign that the firms had the full bankroll of the government, at least until the upcoming elections in March, and continued to cascade money into them. The entanglements went even deeper. In his book Mod Albania: From Dictatorship to Democracy in Europe, Man Rights Lookout researcher Fred Abrahams notes that information technology was widely assumed that the Socialist Political party, the Communists' successor, had a direct hand in running some of the schemes.
Musaraj's book is replete with details that help us empathise how the pyramids established their social credibility. The cash flowing into the schemes was mediated through kinship networks, relying on familial bonds of trust to convince people to part with their money. Near depression- to mid-level managers in the firms handled money exclusively from family or hamlet connections. And while unfamiliarity with money in the commodity form and the absence of investing norms certainly played central roles in the growth of the pyramids, Musaraj shows that many of their victims assumed the firms were fraudulent; they merely thought they'd be able to pull their coin out in time, peculiarly given Berisha's full-throated support. It was less a case of ignorant hysterics believing in magical gains than of gamblers making unwise bets.
Though the desire for rapid fiscal gain was obviously a motivation for investing in the pyramids, virtually everyone Musaraj spoke to said their goal was to achieve a life of European modernity—a degree of stability and a firm larger than the cramped Communist apartments where two or three generations might live together. The principal motivation wasn't unbridled greed, merely a desire for common nobility.
Musaraj also notes the cosmos of a "historically specific annals of entrepreneurship" that legitimized the pyramid schemes: a kitschy and awkward pastiche of a patrimonial ethos, moralizing nationalism, and capitalist notions of fiscal apprehending and power. The firms claimed to be "the incarnation of humane capitalism," promoting "dynamism and intuition," and representing a "gimmicky tendency in the field of the application of technology"—cringeworthy and meaningless marketing blubbering that nonetheless wouldn't be out of place in a Silicon Valley pitch deck. Newspapers portrayed the firms' bosses every bit trailblazing entrepreneurs "dominating" foreign hard currencies—their "inevitable casualty"—and showed them smoking cigars and buying yachts.
Following the pyramids' plummet, local media outlets changed their narrative. They presented Maksude "Sudja" Kadëna, a Roma woman and the only female person pyramid boss, as the face of the unabridged phenomenon; suddenly, the firms were no longer modern displays of masculine power simply an instance of fraudulent magic. American journalists joined in, fixating on "the gypsy fortune-teller" who came "consummate with a crystal ball." The Baltimore Sun wrote that "Sudja the Gypsy Woman" was "tiny and unattractive" and that she "charms" people out of their money. In fact, her business firm was relatively small, and she was the only pyramid boss to confess to a criminal offense and plow herself in. But in one case the blame was focused on Kadëna and cast in gendered and ethnic terms, the systemic issues behind the bubble—including the spectacular abuse and complicity of politicians who were praised every bit champions of free-market republic by the The states and the European Spousal relationship—could escape closer inspection.
A 2001 IMF study on the pyramid schemes provided both an analysis of speculative bubbles and unintentional insights into the neoliberal logic that shaped Albania and the rest of postcommunist Eastern Europe. Rather than assign arraign to the Ponzi victims, the report highlighted the "corrupt relationships between the companies' operators and the highest levels of the Albanian government." Information technology also stated that
The pyramid schemes were not a production of circumstances unique to Albania. It is tempting . . . to believe that [the pyramid schemes] could not take happened in a more adult country. The isolation of Albania until recently and the population'south unfamiliarity with market institutions seem to reinforce this statement. Simply it does non agree water. . . . Information technology is worth remembering that nearly of the British aristocracy, including the then Master of the Regal Mint, Sir Isaac Newton, fell for the South Body of water Chimera.
Nevertheless, the study's central finding was that "the straight effects of [the pyramids'] rise and autumn appear to have been limited." Within a year of the collapse, macroeconomic indicators were back on track, partly because the crisis gave the IMF leverage to implement shock therapy even more aggressively. (It granted emergency loans on the condition that the government increase the value-added tax from 12.5 to 20 pct, at a fourth dimension of unprecedented poverty.) The written report ended that the master effect of the pyramid schemes was on nugget distribution. "A few thousand people got richer, some of them much richer; many more got poorer, some of them much poorer, but on aggregate the real wealth loss to the economy was very express." In other words, the consequences of a monumental pyramid scheme collapse on asset distribution were identical in form to the consequences of IMF market liberalization.
Just as the Imf had been premature in declaring Albania a "success story of costless market reforms" in 1995, it was premature in celebrating the end of the fraudulent practices. Its report failed to mention that the minister of finance put in identify to implement the post-collapse reforms was a old high-level employee of 1 of the larger Ponzi schemes. Berisha, meanwhile, made a political improvement as prime government minister from 2005 to 2013 and reinstalled the same finance minister who oversaw the ascension and fall of the pyramids. The decade also saw the emergence of new speculative financial practices.
With the finish of Communist residency limitations, Albanians flooded into urban centers. Tirana's population quadrupled in ten years. The attention construction boom has been the principal growth sector in Albania's economy since the plummet of the pyramid schemes. Much of this structure is financed through klering contracts, in which a developer pays for land, materials, and labor with the hope of a given number of apartments in the future building. It functions as a form of speculative finance whereby developers shift risk down onto subcontractors, and subcontractors onto workers. If the building isn't completed (a common occurrence) or the apartments fail to sell at their predicted value, a concatenation of debt is activated that often leaves the suppliers and workers bankrupt. Even in the best of cases, contractors mostly can't pay for labor until the allotment of apartments has been sold, then construction workers may go without pay for months or even years.
1 reason Albanian developers rely so heavily on klering is because it's difficult to proceed enough cash on hand, given all the bribes necessary to secure permits or public structure tenders. As with the pyramid schemes, the political elite are the ultimate beneficiaries of the pyramidification of the structure industry. In Modern Albania, Abrahams shows how the meteoric ascent of the two most powerful politicians in the country today, Prime Minister Edi Rama and recently impeached President Ilir Meta, was enabled by their control over the construction industry. As mayor of Tirana in the early 2000s, Rama gained the nickname "Mr. Ten Percent," a reference to alleged kickbacks for construction permits. Meta—who was described in leaked American diplomatic cables as "spectacularly corrupt" and whose aide was extradited to the U.s.a. on murder, arson, and drug smuggling charges—was known to command public construction tenders in the early 2000s and briefly stepped down from authorities in 2011 after being recorded discussing a €700,000 bribe related to the edifice of a hydroelectric dam. "The pyramid way," as Musaraj's interviewees refer to it, is live and well in Republic of albania's construction manufacture, to the benefit of many of the same politicians who oversaw the pyramid schemes of the 1990s.
The similarities betwixt klering contracts and the pyramids go beyond their common beneficiaries. An informal financing organisation of cryptic legality, klering enables speculative financial behavior without liquidity. And like the pyramid logic of space gain, the klering-based edifice boom is driven by an endless upwardly projection for the real-estate market, fueled past diasporic Albanians. By linking the pyramid schemes of the 1990s with "the pyramid manner" in the Albanian structure manufacture, Musaraj makes it easier to run across the Ponzi logics of aggregating all around us.
American foreign correspondents' dispatches from Albania in 1997 are fascinating not so much because they reveal a full failure to understand Republic of albania across preconceived notions and received wisdom, but because they reveal a deep hubris near American capitalism. While the New York Times was making assurances that Albanian-style speculative bubbling could never occur here, the United states was in the midst of the dot-com bubble, which would outburst dramatically 3 years later. Journalistic coverage of Albania and the broader region hasn't improved much since the 1990s. Type "Albania" into many publications' search confined, and yous will find sensational manufactures about the hundreds of thousands of Hoxha-era concrete military bunkers, the pyramid schemes, the actual pyramid in central Tirana, and little else. The editorial focus on these topics cements Albania'south reputation as a wacky and weird place whose foibles and problems are a hopeless joke—and irrelevant to broader international currents. In this context, Musaraj'south book is an of import corrective. The Albanian pyramid schemes can't be dismissed as some isolated occurrence.
Musaraj often mentions Bernie Madoff's $18 billion Ponzi scheme to testify that losing your life savings to a massive con isn't the sectional territory of Albanians emerging from communism. And in the decade since Madoff, the Securities and Exchange Commission has brought charges against Ponzi schemes accounting for over $31 billion in losses. But the Albanian pyramid schemes remind one less of individual brazen Ponzi crimes and more than of the speculative fiscal logic inherent to our economic organization. It is incommunicable to read Musaraj'due south book without thinking of Silicon Valley start-up culture and the ruinous speculative boondoggles that were Theranos and WeWork. Even less overtly fraudulent companies begin to resemble "the pyramid way." Uber, for instance, benefits from breaking local livery regulations and offloading adventure onto its drivers, who suffer nether an ambiguous legal condition. Its hereafter profitability is based on unrealizable projections of monopolizing all road send. And its existence depends on its backers' willingness to watch billions of dollars evaporate every quarter, a patience afforded to them past a rapid expansion of capital.
In that location is a faddy in Balkan studies to debate that the wars of the 1990s weren't a relic of the by, as they've often been portrayed, but a sign from the time to come. The violent nationalism that destroyed Yugoslavia is the precursor to what Trumpism, Brexit, and rising correct-fly populism beyond Europe accept in store for the residual of united states of america. Musaraj wouldn't fence anything quite and then crude, only her volume makes the convincing case that places on the margins of global capital have an urgent lesson for the heart—if just we can hear it.
The pandemic effected a historic upward concentration of wealth in the Us at a time when tens of millions lost their jobs and hundreds of thousands succumbed to the virus. Total ending was held off with eviction moratoriums, stimulus checks, and emergency unemployment payments. Simply we watched as expiry, layoffs, and the stock marketplace all perversely skyrocketed in seeming unison. With college degrees and employment less and less sure to provide a life of financial security and common dignity, why not cascade some Trumpbucks into a hive-mind pump-and-dump scheme facilitated by a loosely regulated stock trading app? Why not bet on a cryptocurrency of cryptic legality? Why not sell your flat to invest in this hot new business firm Vefa that everyone's been talking most? Why not pour your yogurt into the lake? It might not work, but what if information technology does? What other options do we accept?
Daniel Petrick writes nearly the Balkans. He is Senior Editor at the Prishtina-based magazine Kosovo 2.0.
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Source: https://www.dissentmagazine.org/online_articles/pyramids-everywhere
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