Did Falu play a ponzi game?

Share Shah

In the early 1920s Charles Ponzi developed an investment scheme based on the greed of the people. He sought investors through advertisement, and who being equally greedy, or probably more, by the prospect of the rate of return and was making large queues to invest in the Ponzi's scheme. The cash flow soon blew out of proportion. As money flooded in, Ponzi paid the earlier investors from the cash received from those who came in later. As is always the case, the early success stories fueled the frenzy, no thanks to the media, until finally the inflow of cash from the latecomers was no longer big enough to pay the earlier investors. Eventually, the whole scheme collapsed, with everybody who was left in the pool holding an empty bag. As the stories goes most of the money went taking care of Ponzi's life style and paying of the early birds. Ponzi was arrested and charged for mail fraud, as securities laws in this respect had not yet evolved.
   People attracted by the scheme saw only the unholy profit and not the means of how the profit was obtained. If people had just stopped to think, they would have realized that this scheme, even if legitimately attempted, could not possibly have succeeded on a grand scale. If Ponzi was doubling his investment in weeks, then somebody else had to be on the losing side.
   The Ponzi scheme comes in many forms in related investment fields, banking products, open ended mutual funds etc. Today generally known as the pyramid game such schemes are usually outside of the stock exchange trading system. The market is essential element of the market economy while Ponzi's scheme has a profiteering motive usually based on fraudulent means. The only similarity being that profits or capital gains of the early birds are paid with the cash of the latecomers. When bubbles, big or small, burst leading to inevitable collapses in prices of shares, latecomers will be left holding a bag of much devalued shares.
   Difference between the Ponzi scheme and stock market is to remember is that once an investment is made in shares the money flow to someone else that is the company, or the mutual fund or the earlier investor and not necessarily the broker who is the middleman. The cash belongs to somebody who was in the market earlier. But in the case of the Ponzi scheme the investors should not really worry about the return on investment but rather than on return of the investment.
   We have had our local and indigenous supply of a few such schemes. The most famous of these was the start up and sudden demise of the so-called Hai Hai Company in early 1950s promising doubling the investment in three months. Some old timers have told me about such floatation in Chittagong in the name of the Chittagong Tram Company. A great idea indeed in the 1950s to think of a mass transit system something even several previous governments have not dared to dream about. During the last decade or so we have had another scam by the closing down of the investment company- Bangladesh Credit and Investment Company which was offering returns to the extent of 25%. Most recent instance in the newspapers has been the so-called "Syndicate Bank" reportedly having disappeared with the depositors' funds.
   According to the media Falu's Brotherhood companies have raised millions of taka on the basis of promise to give very high return. A lot of this money has gone into senseless investments which may never payoff the promises made. A large portion is said to have gone into lifestyle or has been diverted. As usual the people who invested in this scam will never get back their money, this being the standard demise of a Ponzi game. Should not the government do something about the damage control before everything disappears?
   The other game in town is the government's sale of saving certificates and instruments at various rates of return generally more than what banks or the capital market can offer. None has found any bank coming up with a better than governments offer or return on investment. Is something wrong with the banks that they cannot have better returns than the government? Than again how does the government employ the funds to generate that kind of profit? Is some how our future and that of our progeny tied up to the redemption of this debt?

^ TOP OF THIS PAGE ^ MAIN PAGE

Budget will hit manufacturing sector hard

Holiday Desk

Eight leaders of the country's major trade bodies in a press statement said that the proposed budget will adversely affect the country's export-oriented and backward-linage industries. They suggested that the government maintains the status quo in respect of duty on raw materials.
   They felt that the tariff changes in the new budget would hurt the country's industrial sector. According to them, strong import bias of the budget will encourage importers at the cost of local industries. "Export-oriented and backward linkage industries will also be hit because of increase of duties on raw materials and capital machinery. It is claimed that unbound tariffs create disincentives to enter international markets", they observed.
   The chamber body leaders further stated that import of 400 items, mostly raw materials, used by the domestic industries have been denied of zero tariff facility and subjected to 10 per cent tariff, in addition to some 1200 more raw materials and machinery have been subjected to 100 per cent increase in tariff rates, which have been increased from 5 per cent to 10 per cent, they say. "On the other hand," they observed, "import of all finished products has been given significant tariff concession by withdrawing 4 per cent infrastructural development surcharge as well as reduction in supplementary duties."
   They infer that with such tariff handicaps the budget's expectation of 7 per cent GDP growth in 2007-08 will be difficult to achieve as the industrial sector is due to be hurt.
   The chamber body leaders have urged upon the Hon'ble Adviser in-charge of the Ministry of Finance and Commerce to look into these serious issues and consider maintenance of status quo in respect of import duties on raw materials and capital machinery.
   However, they appreciated different features of the new budget, such as, allocations for different sectors, financial assistance and subsidies to agriculture, income tax administration, safety net for the poor, poverty reduction measures, allocation of Tk. 7.5 billion for diesel subsidy and Tk.15 billion for fertilizer subsidy.
   The signatories to the statement are: Mahbubur Rahman, President, International Chamber of Commerce (ICC) Bangladesh; Latifur Rahman, President, Metropolitan Chamber of Commerce & Industry, Dhaka; Saifuzzaman Chowdhury, President, Chittagong Chamber of Commerce & Industry; Hossain Khaled, President, Dhaka Chamber of Commerce & Industry; Masih Ul Karim, President, Foreign Investors' Chamber of Commerce and Industry; Anwar-ul-Alam Chowdhury, President, Bangladesh Garment Manufacturers & Exporters Assoc.; Md. Fazlul Hoque, President, Bangladesh Knitwear Manufacturers & Exporters Assoc.; and Jahangir Alam, Acting President, Bangladesh Textile Mills Association.

^ TOP OF THIS PAGE ^ MAIN PAGE

Chittagong: Next aviation
hub in Bangladesh

Holiday Desk

The civil aviation ministry sources confirmed that three new foreign airlines would be allowed to operate from Chittagong's Shah Amanat International Airport (SAIA) soon. The three airlines include British Airways, Air Asia from Malaysia and the US-based United Air. The low cost budget airline, Air Asia from Malaysia is likely to be the first among the three to begin its operation from Chittagong.
   British Airways, however, has sought permission for 'technical landing' at Chittagong's SAIA in case of any emergency, said aviation sources. A team of the British Airways came to survey this airport early this month.
   The sources said that while Air Asia is interested in commercial flight service from Chittagong on international routes, the US-based United Air wants to operate domestic flights.
   The case of United Air is different. It is owned by Bangladeshi expatriates in the USA and they want to operate domestic flights from Chittagong in collaboration with some local entrepreneurs.
   According to SAIA's manager Sajjad Hossain, more foreign airlines are interested to operate flights from Chittagong. 'Foreign airlines have become interested to come here because of our open-air policy,' he added.
   Meanwhile, a Middle East-based budget airline, Air Arabia, launched its twice weekly flight service on the Chittagong-Sharjah route from last Monday. The airline is charging 20 per cent lower fare than the market price.
   Another Middle East-based airline, Oman Air, began its flights on the Chittagong-Muscat route from May 1 this year.
   Thai Air, GMG and Biman have been operating flights from Chittagong for a long time.

^ TOP OF THIS PAGE ^ MAIN PAGE

Holiday Desk

Global business wire service Bloomberg quoted the country's largest mobile phone company Grameenphone as saying that it plans to sell the company's shares through an initial public offering in Dhaka next year.
   The company expects the share sale to be Bangladesh's biggest ever, chief executive officer of the company Erik Aas said in an interview on the sideline of CommunicAsia telecommunications conference in Singapore.
   Grameenphone may also sell shares overseas, Aas said, without identifying countries. Grameenphone, 62 per cent owned by Norway's Telenor ASA, has 13 million subscribers now, more than half the country's total of between 23 million and 24 million, Aas said. Grameenphone had 10 million customers at the end of November last, he said.
   Investors 'still like telecoms especially if you have good growth,' said Tan Chong Koay, who manages $1.1 billion as chief executive officer of Pheim Asset Management in Singapore. Tan said he would consider investing in Grameenphone if valuations are 'attractive.'
   The mobile carrier expects to add as many as 2 million users each quarter, Aas said, without providing a timeframe. The listing will also boost volumes on the Dhaka stock exchange, the south Asian nation's main bourse, he said.
   'The capital market in Dhaka is fairly weak,' Aas said. Grameenphone 'will significantly strengthen the market.'

^ TOP OF THIS PAGE ^ MAIN PAGE