Herbalife - Pyramid scheme or not?

[Trebuchet]

Social Security is a legal pyramid scheme.

Ponzi scheme would be a more accurate description.

 

[Craig B]

Ponzi scheme would be a more accurate description.

Why? In an investment scheme the purpose is to collect funds from people, employ them in some profitable way and distribute the proceeds, less reasonable costs, to the contributors. A Ponzi scheme pretends to be an investment scheme, but is instead a fraud.

The collection of taxes for relief of poverty doesn't pretend to be an investment scheme, so how can it be a fraudulent one?

In a publicly funded operation of that kind, why should individuals get out in proportion to what they pay in? If I pay taxes in the U.K. to fund the National Health Service, but I don't fall ill; have I been swindled? If I pay taxes to cover social security, but I never require relief, have I been defrauded? If I pay a fire insurance premium and my house doesn't burst into flames on the spot, is the insurance policy a scam, because I paid money in, but didn't get money back out?

 

[blutoski]

Ponzi scheme would be a more accurate description.

Possible I guess... but that makes it no different than any other pension plan I'm aware of.

So, if it's a Ponzi Scheme, then Ford has been involved in one for four generations of assembly line workers.

Seems like maybe Ponzi Scheme is hyperbole.

 

[Trebuchet]

Why? In an investment scheme the purpose is to collect funds from people, employ them in some profitable way and distribute the proceeds, less reasonable costs, to the contributors. A Ponzi scheme pretends to be an investment scheme, but is instead a fraud.

The collection of taxes for relief of poverty doesn't pretend to be an investment scheme, so how can it be a fraudulent one?

In a publicly funded operation of that kind, why should individuals get out in proportion to what they pay in? If I pay taxes in the U.K. to fund the National Health Service, but I don't fall ill; have I been swindled? If I pay taxes to cover social security, but I never require relief, have I been defrauded? If I pay a fire insurance premium and my house doesn't burst into flames on the spot, is the insurance policy a scam, because I paid money in, but didn't get money back out?

SS, into which I paid for 50 years and from which I'm now collecting, isn't a pyramid because there are only two levels: The feds and everyone else. It's a classic Ponzi scheme because current beneficiaries are being paid by money coming in from those hoping to collect in the future.

ETA: Forgot to add that I'm pretty flaming liberal these days, despite being an old, well-off, white guy. I'm all in favor of SS, and vehemently opposed to proposals to privatize it. The Federal Government just needs to fund it more sensibly.

I agree, however, that it isn't technically an investment plan. It's just funded like a Ponzi scheme.

Possible I guess... but that makes it no different than any other pension plan I'm aware of.

So, if it's a Ponzi Scheme, then Ford has been involved in one for four generations of assembly line workers.

Seems like maybe Ponzi Scheme is hyperbole.

No. Any private pension plan funded like SS would find the directors imprisoned. Or at least should. They are required to have funds invested to cover future payouts. That doesn't always happen, of course, but it's a scandal and a crime when it does.

 

[Craig B]

SS, into which I paid for 50 years and from which I'm now collecting, isn't a pyramid because there are only two levels: The feds and everyone else. It's a classic Ponzi scheme because current beneficiaries are being paid by money coming in from those hoping to collect in the future.

Is it indeed? Americans are odd people in that case, who "hope" to require health benefits or poverty relief! Who regard their tax contributions to these causes as "investments" which they "hope" to receive pay outs. People here hope not to require the NHS. They hope to remain in good health. They hope NOT to require housing benefit or unemployment benefit, or medical treatment.

Also they recognise that payments of tax and national insurance are not to be compared with investment schemes. Social security payments are made on the basis of applicants' need. They are not paid back to contributors in proportion to the amounts contributed. This is nothing like a real investment scheme, therefore it in no way resembles a fraudulent one. (These are designed to look like real ones, for purposes of deception.)[/QUOTE]

 

[Joecool]

Has anyone noticed that "icerat" has disappeared now that the FTC has said that there must be a majority of sales to people who are not distributors?

That was his defense, that sales to dsitributors were ok because they were "end users".

But the FTC said it was not ok. He's been AWOL ever since.

 

[fuelair]

Yes, they are still and always will be a pyramid scheme..............

 

[applecorped]

Thanks Egypt!

 

[Craig B]

Thanks Egypt!

You mean the construction of the tomb was financed from current revenue, contributed by people hoping to collect in the future when Cheops would become a god and answer their prayers? What a scam!

But they should call it "The Great Ponzi" not "The Great Pyramid".

 

[dasmiller]

Social security payments are made on the basis of applicants' need. They are not paid back to contributors in proportion to the amounts contributed.

Then the Social Security Administration seems to be very confused on this point. For instance, their retirement date recommendation include statements like "We calculate your basic Social Security benefit — the amount you would receive at your full retirement age — based on your lifetime earnings" and "When you reach your full retirement age, you can work and earn as much as you want and still get your full Social Security benefit payment."

 

[Craig B]

Then the Social Security Administration seems to be very confused on this point. For instance, their retirement date recommendation include statements like "We calculate your basic Social Security benefit — the amount you would receive at your full retirement age — based on your lifetime earnings" and "When you reach your full retirement age, you can work and earn as much as you want and still get your full Social Security benefit payment."

Also, they say

Security benefits, which last as long as you live, provide valuable protection against outliving savings and other sources of retirement income.​

That looks like a "need" criterion to me. An investment scheme would produce a reward which would be included in the "savings and other sources ... " that you may outlive.

 

[dasmiller]

Also, they say

Security benefits, which last as long as you live, provide valuable protection against outliving savings and other sources of retirement income.​

That looks like a "need" criterion to me. An investment scheme would produce a reward which would be included in the "savings and other sources ... " that you may outlive.

Ah, I'd assumed that your use of "need" referred to some financial need, rather than simply being a shorter word for "survival."

 

[Trebuchet]

Let's take the SS discussion elsewhere. I'll start a thread this afternoon if someone doesn't beat me to it.

Also, for JoeCool: Are you aware Icerat owns this forum?

 

[Craig B]

Ah, I'd assumed that your use of "need" referred to some financial need, rather than simply being a shorter word for "survival."

Why do you say that? I used the word need to mean need. Lifetime payments are need payments. There are other kinds of need payments too, as you imply, like means tested ones. But the profit derived from an investment scheme usually doesn't work that way.

 

[blutoski]

No. Any private pension plan funded like SS would find the directors imprisoned. Or at least should. They are required to have funds invested to cover future payouts. That doesn't always happen, of course, but it's a scandal and a crime when it does.

? Not sure I believe that. Is that a special American law I've never heard of?

I contribute to my pension's strategic planning, originally as a union rep, but for the last decade as a representative of the managers. (we're a 110 year old utility - a Canadian equivalent of an RBOC). Even after five generations, there is no expectation that the accumulated contributions will yield enough to cover 100% of the payouts. We rely on inflow from the current employees for part of it sometimes. In fact, having too much established capital is itself a sign of mismanagement.

There's a difference between malfeasant mismanagement versus simply forecasting and using working members' inflow as part of the model if necessary.

There will be periods where the investment does not yield outflow without eroding capital, for example, and cashflow from contributions become a larger proportion of the model, especially if the pension fund is young.

You may be conflating the different models. Defined Benefit versus Defined Contribution?

DB have rules, that part is true. In the USA, there appear to be some laws like ERISA, and PPA. Scanning them, I cannot see anything that specific. Just that generally the plans have to be intended to pay out what they say they will, while appreciating there are different ways to actually do that.

 

[blutoski]

? Not sure I believe that. Is that a special American law I've never heard of?

I contribute to my pension's strategic planning, originally as a union rep, but for the last decade as a representative of the managers. (we're a 110 year old utility - a Canadian equivalent of an RBOC). Even after five generations, there is no expectation that the accumulated contributions will yield enough to cover 100% of the payouts. We rely on inflow from the current employees for part of it sometimes. In fact, having too much established capital is itself a sign of mismanagement.

There's a difference between malfeasant mismanagement versus simply forecasting and using working members' inflow as part of the model if necessary.

There will be periods where the investment does not yield outflow without eroding capital, for example, and cashflow from contributions become a larger proportion of the model, especially if the pension fund is young.

You may be conflating the different models. Defined Benefit versus Defined Contribution?

DB have rules, that part is true. In the USA, there appear to be some laws like ERISA, and PPA. Scanning them, I cannot see anything that specific. Just that generally the plans have to be intended to pay out what they say they will, while appreciating there are different ways to actually do that.

Just out of interest, I compared AT&T USA's pension ratio (75%) with the federal government's Social Security ratio (74%). Public and private pension strategies seem practically identical. Not sure why any or either of them would be considered 'criminal'.

 

[Joecool]

Effective May 15, 2017, an FTC injunction comes into play requiring Herbalife to prove that they have actual retail customers before they can compensate those "higher up on the pyramid". Also, a compliance monitor will be in place for 7 years to ensure that Herbalife complies with the injunction.

Herbalife apologists deny that there will be any impact but Herbalife could not even prove minimal retail sales to people not involved in the "biz op" so they had to pay 200 million in restititution to previous Herbalife victims.

 

[applecorped]

Also, for JoeCool: Are you aware Icerat owns this forum?

And?

 

[Joecool]

Herbalife's Q1 report was just issued and their sales in the US was down 7% and even more importantly, their number of new members declined sharply. It looks like the FTC injunctions are having an effect on Herbalife.

https://seekingalpha.com/article/4069605-herbalife-q1-good?v=1494008881&comments=show

 

[Foolmewunz]

Is it indeed? Americans are odd people in that case, who "hope" to require health benefits or poverty relief! Who regard their tax contributions to these causes as "investments" which they "hope" to receive pay outs. People here hope not to require the NHS. They hope to remain in good health. They hope NOT to require housing benefit or unemployment benefit, or medical treatment.

Also they recognise that payments of tax and national insurance are not to be compared with investment schemes. Social security payments are made on the basis of applicants' need. They are not paid back to contributors in proportion to the amounts contributed. This is nothing like a real investment scheme, therefore it in no way resembles a fraudulent one. (These are designed to look like real ones, for purposes of deception.)

I don't mean to pile on, but you're generally better informed than this. Be certain: SSA most definitely pays out on the basis of the amount you paid in over as much as 35 years of working (they'll take your highest quarters of contribution). I get about a thousand bucks less than a person who earned much less than me, p.a. and paid in much less per paycheck because I spent 80 quarters (20 years) working overseas.

There's an emergency stipend for people who haven't worked the requisite quarters but it is in the hundreds per month - might help with the grocery bills but you can't survive on it.

Your SSA administration also has various links to Medicare based on your start-up benefits date, but the programs are not funded or managed the same.

Generic SSA retirement benefits are specifically geared to your contributions.