Be Your Own Boss

In the last 4 weeks, I’ve received numerous e-mails from readers, friends and family asking me about the popular HYIP sites out there. HYIP means “High Yield Investment Programs” and you’ll find dozens of links all over the Internet, especially on forums and on financial recommendation sites. The HYIP is sold as a very high risk very high reward investment program — you put your money in, and you quickly take it out and reap a huge return.

The average HYIP company is offering almost 1% return on your money for every day it is in the system. Because many of these HYIPs have existed for months and continually pay people out, they seem to have a degree of reliability to investors.

I don’t have insight into how the HYIP companies actually work, but I have numerous theories — conspiracy and otherwise. I’ll tell you right now that I have no faith in any of these programs, and I do believe that many of them are backed by people who have an enormous amount of money to spend in order to reap huge rewards over a year or so.

Let me get the conspiracy theory out of the way first. A few years ago I forced myself to think about how people with a massive amount of currency could double it quickly. The scam I came up with that was the best scenario would be to take the enormous amount of money and use it to pay out investors in a gigantic pyramid scheme — give them big payouts, make sure the investors number in the thousands or tens of thousands, and get them to keep reinvesting the money. With a big enough currency base, you could pay them out bigger and bigger and bigger until you ended it with a bankruptcy in your favor.

Imagine 100 millionaires each putting up a million dollars into a pool to pay out the average HYIP. The average investor is putting up a few hundred or a few thousand. They make their 10-12% after 2 weeks, and reinvest even more money. The initial members of the program would be taking big risks with their million each, but they know that the average worker is greedy. Why let the state lotteries take all that money when they could get it themselves? Over a long period of time, the system would seem stable and real — everyone wins, so why not put your house up to really reap the benefits? The casinos work the same way.

The only problem with my conspiracy idea was the law — pyramid ponzi schemes are illegal. So I believed you could get around the law by making the people do some work for the money. I never came up with a way to clear that problem, but the HYIP guys have — autosurfing programs. In order to be part of the HYIP, you join an autosurfing group that performs some work for half an hour a day. If you don’t do the work, you don’t get the reward. This seems to get around the anti-ponzi laws, as the HYIP scheme admits that payouts are partially funded by new investors.

The other way that I see HYIP programs possibly working is to use the investors money in the very high interest and fee loan industry — the payday loan business. When the mob ran “payday loans” they were illegal — they’d charge about 3% a week in interest. The payday loan places got around this by charging a reasonable interest rate (0.5% a week generally) but tacking on fees to let you have another pay period to pay the loan. Once you add in these fees, you see the interest rate be higher than your mob loan would have been. The problem with payday loans is coming up with the capital. HYIPs might be an interesting way to finance the payday loan businesses — but in the long run I believe the economy is heading to the trash, so the HYIPs won’t last in the payday loan business, if that is the case.

I also see HYIPs as being able to operate solely on the ponzi system — pay out what you get in and hope that more people will continue to enter the system. This may be the case, but without the conspiracy theory dollars I previously mentioned, I think the system would collapse very quickly. You could prop the system up longer if you were able to keep the payouts in the system for a few days — telling someone they made a profit, but not letting them have the profit until other new investors put money in. This would mean collusion between the program managers and their payment processing company.

In the long run, I don’t trust anything that pays a profit without offering a real competitive service. I believe you make money by providing others with a time-saving service or product. The more time your product or service can save someone, the more you can charge them for your time. To make the most money, you have to either have a high quantity of people saving a little time (sell to everyone), or a small quantity of people saving a lot of time (sell only to the very wealthy). HYIPs and other high risk/high reward programs always tumble in on themselves.

I believe they’re working initially because of the big conspiracy idea I covered, but only time will tell — once they’ve fallen apart and you’ve lost a huge chunk of money that you convinced yourself you could lose.

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