The promise: 50% returns on investment from a company involved in onlending money at very high rates of interest to short term borrowers.

This promise enticed 2700 investors to give $155 million to a Queensland outfit calling itself the Wattle Group in 1998, the work of an ex-bankrupt called Geoffrey Robert Dexter. What investors didn't know at the time, was that the Wattle Group was what is known as a Ponzi scheme, a cousin of pyramid schemes.

Ponzi schemes pay out the first investors by taking money off new investors, those down the bottom who join in provide the capital for dividend payments toward those up the top. The whole process works until recruitment slows down, at which point the whole thing collapses. They are named after Carl Ponzi, who collected $9.8 million from 10,550 people (including ¾ of the Boston Police Force ) and then paid out $7.8 million in just 8 months in 1920 Boston by offering  profits of 50% every 45 days. He didn't originate the idea though, such schemes have been around for centuries and used to be known as "bubbles".

  The whole process is about robbing Peter to pay Paul, you keep your first customers happy, hopefully generating plenty of glowing testimonials, so hopefully it takes a while for the late-comers to realise they've been done in. (Similarities to the way governments fund social security via taxes should not bother you at this stage, if the government does it then it isn't illegal. Everyone knows that the government has our interests at heart, even if they have to lock us up in a small cell and hammer bamboo shoots under our fingernails to make us appreciate this simple fact.)

Ponzi schemes are pyramid schemes with a worthless product, or a fictitious product. Sometimes the product behind the Ponzi scheme could be a real asset with a vastly overinflated stated value, the common theme though is that the whole source of profit for the people up the top of the pyramid is merely new funds from new investors, even if the promoters do try some sort of investment with leftover funds.

With the funds left over after paying dividends Dexter ran a number of speculative ventures, none of which involved lending money to short term borrowers. Commissions paid to the salesmen were 50%, which doesn't leave a whole lot of money to invest once the people up the top get their dividends.

What is totally amazing about those who invested in Wattle, what truly sets this apart as a momentous occasion in Australian gullibility is what happened when the ASC (now ASIC) moved in to freeze operations and demand a trustee be appointed for unwinding Wattle.

As ASC was arranging Wattle's demise, agents of the Wattle Group called urgent meetings to break the news to investors that the government was unfairly targeting their wondrous money machine. At the official creditor's meeting in March 1998 ASC explained the whole thing to the investors, letting them know exactly what sort of people these Wattle guys were. The ASIC guys didn't think the punters would be as silly enough to buy any more of the promoter's nonsense. Most of those in attendance had, in fact, managed to arrange their own transport to attend the event, many even drove there themselves.

In a poignant argument for toughening up the criteria needed to attain a driver's licence, the investors advanced a motion to dismiss the trustee and resume business. 68% of investors, representing 71% of the $155 million actually voted in favour of this motion. Fortunately, the motion required 75% of the vote to pass, and now Dexter is bankrupt again, and the trustee is doing his best to recover what he can of the 50% commissions paid to the promoters, including $27 million to Dexter's top two agents.

People are capable of the most incredible stupidity when offered deals that are too good to be true, this is not the only time such a scheme has been promoted, costing so many people so much money.

Add to the great totem of stupidity one last set of anecdotes. On April 1 ASIC has been known to run newspaper ads for completely stupid investment schemes. In the past these schemes have included jelly fish farms, airspace over airport approaches and "geeps" (half goat, half sheep). They always get thousands of replies.