In 1634, tulip bulbs were traded in a special exchange in Amsterdam. People used these bulbs as means of exchange and value store. They traded them and speculated in them. The rare black tulip bulbs were as valuable as a big mansion house. The craze lasted four years and it seemed that it would last forever. But this was not to be.

The bubble burst in 1637. In a matter of a few days, price of tulip bulbs was slashed by 96%!

This specific pyramid investment scheme was somewhat different from ones which were to follow it in human financial history elsewhere in world. It had no "organizing committee", no identifiable group of movers and shakers, which controlled and directed it. Also, no explicit promises were ever made concerning profits which investors could expect from participating in scheme - or even that profits were forthcoming to them.

Since then, pyramid schemes have evolved into intricate psychological ploys.

Modern ones have a few characteristics in common:

First, they involve ever growing numbers of people. They mushroom exponentially into proportions that usually threaten national economy and very fabric of society. All of them have grave political and social implications.

Hundreds of thousands of investors (in a population of less than 3.5 million souls) were deeply enmeshed in 1983 banking crisis in Israel.

This was a classic pyramid scheme: banks offered their own shares for sale, promising investors that price of shares will only go up (sometimes by 2% daily). The banks used depositors' money, their capital, their profits and money that they borrowed abroad to keep this impossible and unhealthy promise. Everyone knew what was going on and everyone was involved.

The Ministers of Finance, Governors of Central Bank assisted banks in these criminal pursuits. This specific pyramid scheme - arguably, longest in history - lasted 7 years.

On one day in October 1983, ALL banks in Israel collapsed. The government faced such civil unrest that it was forced to compensate shareholders through an elaborate share buyback plan which lasted 9 years. The total indirect damage is hard to evaluate, but direct damage amounted to 6 billion USD.

This specific incident highlights another important attribute of pyramid schemes: investors are promised impossibly high yields, either by way of profits or by way of interest paid. Such yields cannot be derived from proper investment of funds - so, organizers resort to dirty tricks.

They use new money, invested by new investors - to pay off old investors.

The religion of Islam forbids lenders to charge interest on credits that they provide. This prohibition is problematic in modern day life and could bring modern finance to a complete halt.

It was against this backdrop, that a few entrepreneurs and religious figures in Egypt and in Pakistan established what they called: "Islamic banks". These banks refrained from either paying interest to depositors - or from charging their clients interest on loans that they doled out. Instead, they have made their depositors partners in fictitious profits - and have charged their clients for fictitious losses. All would have been well had Islamic banks stuck to healthier business practices.

But they offer impossibly high "profits" and ended way every pyramid ends: they collapsed and dragged economies and political establishments with them.

The latest example of price paid by whole nations due to failed pyramid schemes is, of course, Albania 1997. One third of population was heavily involved in a series of heavily leveraged investment plans which collapsed almost simultaneously. Inept political and financial crisis management led Albania to verge of disintegration into civil war.

But why must pyramid schemes fail? Why can't they continue forever, riding on back of new money and keeping every investor happy, new and old?

The reason is that number of new investors - and, therefore, amount of new money available to pyramid's organizers - is limited. There are just so many risk takers. The day of judgement is heralded by an ominous mismatch between overblown obligations and trickling down of new money. When there is no more money available to pay off old investors, panic ensues. Everyone wants to draw money at same time. This, evidently, is never possible - some of money is usually invested in real estate or was provided as a loan. Even most stable and healthiest financial institutions never put aside more than 10% of money deposited with them.

Thus, pyramids are doomed to collapse.

But, then, most of investors in pyramids know that pyramids are scams, not schemes. They stand warned by collapse of other pyramid schemes, sometimes in same place and at same time. Still, they are attracted again and again as butterflies are to fire and with same results.

The reason is as old as human psychology: greed, avarice. The organizers promise investors two things:

That they could draw their money anytime that they want to, and That in meantime, they will be able to continue to receive high returns on their money. People know that this is highly improbable and that likelihood that they will lose all or part of their money grows with time. But they convince themselves that high profits or interest payments that they will be able to collect before pyramid collapses - will more than amply compensate them for loss of their money. Some of them, hope to succeed in drawing money before imminent collapse, based on "warning signs". In other words, investors believe that they can outwit organizers of pyramid. The investors collaborate with organizers on psychological level: cheated and deceiver engage in a delicate ballet leading to their mutual downfall.

Confessions of a Reluctant Saleswoman

By Joyce M. Coleman

Like many of my generation and upbringing, I never thought of myself as a saleswoman.

When I was growing up in Mississippi, insurance salesmen and others who managed to find their way to our home way out in country were met with skepticism. While we were happier to see Watkins man (yes, they were men) who drove from county to county to sell bedspreads, blankets, Watkins products, candy, and you-name-it from backs of their station wagons, it still was a pretty risky business, all things considered.

Can you imagine making a living driving unpaved, country back roads, dodging farm animals, and rugged hunters with large guns? Ugh!

As a black girl in pre-civil rights Locust Hill, Mississippi, I grew up believing that selling was not a desirable or dependable profession. Through example and overt instruction, I was taught that my goal in life was to get an education and become a teacher. If God intervened, I might get a good, solid job with a strong, reputable company and, through association garner even more respect than teachers and preachers. Couldn't get any better than that!

But selling? Not an option. (No one ever explained why sellers, including local fishermen, always had cash!).

So, notion of selling never entered my mind. Although my brother and I were constantly tinkering, and hoped to one day write that great novel, new song, or develop ultimate gadget, it never dawned on us that we'd have to sell our creation. I guess we thought that if we built a better mousetrap, world would magically find out about it and beat a path to our door. Ha!

Childhood notions of our great creations took a back seat, as I made sure that I could get "a good job" (no selling). I earned a degree in Chemistry and Mathematics, but soon discovered by trial-and-error that being a chemist or traditional teacher did not fit with my spirit. That reality check sent me searching for an alternative. While searching, I figured I'd have a good time and see world. I landed squarely in corporate America, where I learned lessons that were not taught in Locust Hill.

One of my first lessons was to live is to sell! The first product I sold was ME. Imagine! It's 1968 and I am convincing an international world-class airline that an afro'ed young black woman is ideal candidate to be one of its stewardesses across Atlantic. It's 1969, and that same young woman is ideal candidate for a management position. This process continued every few years, including selling them on notion that I should be industry's first black corporate female executive.