The Pyramid Scheme That Ruined A Country

we've all heard Tales of how pyramid schemes can take advantage of people all over the world but did you know they nearly took down an entire country let's take a look at the wild case of 1990s Albania where a series of pyramid schemes basically ruined an entire nation's economy from 1991 to 1996 the tiny country of Albania developed an economic system that was based both on

Legit businesses official Banks and the like and total scams and amazingly the scams grew bigger and bigger to the point where they basically overtook the economy there were a few varieties but mostly they fell into the classic pyramid scheme they've always been a source of wealth for a few people involved the ones at the top of the pyramid and the source of Ruin and misery for

most people involved everyone else the basic idea behind every pyramid scheme is that people make money primarily from getting other people to join the scheme the new people enter below them if you will creating a bottom that gets wider and wider a AKA You Guessed It pyramid shape generally speaking you only get paid with the money put into the scheme by new people so as a

long-term system it's completely unsustainable as soon as people stop joining for whatever reasons there's suddenly no money to pay most of the pyramid the pyramid schemes were all over the place and they were huge in Albania it hit the point where almost half of the country's GDP was invested in them so that meant when they started to crumble things went South like incredibly fast the result

was not only people losing life savings homes and more but also violence and rioting on the streets two thousand people died in the rioting and it looked like Albania was headed directly into a civil war thankfully they were able to avoid it and have amazingly turned things around in the past couple decades but we'll get into that in a second Albania is a small country in

the Balkan Peninsula tucked on the coast where the ionian Sea and the Adriatic Sea meet sitting right next to the coast of Greece and right across the water from the heel of southern Italy you'd imagine it was a glamorous destination full of money from tourism and so on and spoiler alert that's finally starting to happen nowadays but before the fall of the USSR in the early

1990s Albania was a Communist dictatorship but instead of being sort of an independent state but really controlled by the USSR they went the other way the dictator basically decided they'd be cut off from the rest of the world never a super healthy way to run a country looking at you North Korea the dictator in verhoja refused to trade or have any business relationships with other countries

and it was a full-on communist state so the government simply just controlled everything in some ways the citizens lived kind of unaware of the fact that there wasn't a lot of foreign trade because nobody owned anything anyway like for 50 years no Albanian citizens owned land but at the same time as the Soviet Union started to fall albanians began to hear more and more about the

benefits of capitalism and TBH wanted in on the action speaking of getting in on the action you should subscribe to our Channel just saying so in 1991 when the Soviet collapse happened the Albanian people were all let's go and I can't blame them because imagine living under a dictator all your life and then one day things are suddenly full-on Party in the USA so the entire

country of Albania was amped to dive headfirst into democracy and capitalism like with a nice Bolognese on the stove you have to give these things time you can't just rush into a capitalist system when all the structural elements of a country are set up for only communism they did manage to have a good first step which was to hold free elections the dictator was gone and

the people of Albania elected a man named Sally barisha though I'd like to think his friends called him Sally bear because that's kind of cute you know anyway everyone's sudden energy and eagerness for a western-style democracy convinced Sally to just plow right ahead and there were immediately problems with that for starters the banking system was just flat out not set up for that when you have

lots of money moving around and people borrowing it to invest in businesses and the like there needs to be a lot of it that's liquid AKA Banks need cash to lend out and the National Bank didn't have enough dough to take on the loan requests nor did it have the infrastructure set up to basically give credit to all the people who wanted it on top of

that there was like zero checks and balances in the economic system in Albania at that point why would there be if it was always just the government running things without anyone questioning it but now people were free to spend borrow and invest and there were no laws on the books guiding that process and no regulations on the companies that wanted to get involved and when you

combine these two things it meant Albania was a perfect storm for an informal banking system this meant companies getting quickly started and lending out money or taking in money from investors and honestly it wasn't necessarily a bad thing at first because the alternative was all that investing was done through the national bank and that would likely have meant Financial ruin for the country so it was

kind of an elegant solution to a sudden problem in theory these private companies could help keep the economy afloat for a while while the country's economic infrastructure expanded to where it could be the main lender and creditor and in retrospect most of the informal Banks were not the cause of the financial meltdown that happened a few years later it was mostly the action of a few

unethical companies that used the opportunity to just make money by stealing it from the rest of the Albanian citizens and since there were no regulations and nobody really watching carefully to tell the good Banks from the bad Banks it was chaos for some of the biggest companies the plan was simple take investment money from people promise huge Returns on the money then pay them their interest

payments with the money put in by the next group of citizens sound familiar I'll give you a hint it rhymes with shmira mid scheme interestingly enough there were some pyramid companies that actually used the money they received to invest in real estate the problem was they had promised astronomical returns way more than like the rent from an office building into Toronto was going to pay out

so these companies resorted to smuggling goods into former Yugoslavia but these companies with names like vefa jalika and cumberi were able to pay some of their returns through all their dirty money but ultimately it still wasn't enough to keep the schemes going that's because as words spread more and more albanians wanted in on the Party by 1996 it was insane you guys new businesses and pyramid

schemes were popping up all over the place and competing with existing ones by offering outrageous investment returns they couldn't possibly honor that year two big companies Jafari and populi came into existence and that drove rates up even higher it seemed at the time like it was a win-win for every Albanian it was the dream and people started selling off their belongings and houses just to join

that dream apparently the city of Toronto literally smelled like a slaughterhouse because so many people brought their livestock into town to try to sell them for money to put into pyramid schemes by the end of 1992 6 the total amount invested in the pyramid schemes in Albania was around 1.2 billion dollars billion in November of 96 the only thing that can make a pyramid scheme go

Belly Up defaulting on payments to investors happened the company sued was no longer able to make its payments and suddenly the bubble burst people immediately began to question their Investments and the company is providing them they stopped pumping money into the companies some of the companies tried to offer lower rates so people would think they were like more believable but that backfired too so with no

new money coming in these schemes started going bankrupt left and right there was utter Panic the government to its credit stepped in and made a few tough but important decisions for starters they wouldn't pay people back for their losses this was a hugely unpopular move in the short term but it helped the country restabilize later the government also froze the bank accounts of some of the

major pyramid schemes and limited how much money citizens could withdraw from the National Bank so it didn't come collapse too the economy fully tanked and people were rightfully outraged there were riots in the streets and tensions began to flare there had already been somewhat of a rift between the North and the South of the country after communism fell so suddenly people began to take sides and

prepare for a war in fact a million weapons were stolen from various armories and there were tons of deserters in the Army and the police forces the Albanian dollar tanked inflation skyrocketed and a lot of Industries simply stopped doing business and 2 000 people died in the streets yet somehow things managed to stop short of a civil war Sally bear agreed to hold new elections with

the express purpose of creating a new interim government to stop the violence and Chaos that move managed to curb a lot of the violence but at the same time it was hard to get the pyramid scheme companies to fold up shop but ultimately the new Albanian government passed laws Banning pyramid schemes plus they agreed to bring in foreign accountants from the IMF and World Bank to

help liquidate the pyramid schemes and get the economy back in order these moves were crucial they not only managed to keep the country from falling into war but they set up an economic structure that allowed Albania to bounce back naturally there were serious Ripple effects in the Years following the collapse and a lot of people went through extreme poverty and suffering but careful and prudent government

intervention including those basic structural reforms have had really great longer term effects today amazingly Albania has not only gotten past this troubling era but is now a fairly thriving country it's such a wild tale it seems like it could only have happened in a movie as a matter of fact get on this story Aaron Sorkin I know you watched the vids from the richest my dude

but it really happened and it's a glimpse of how dangerous pyramid schemes and a lack of economic regulations can be do you think it could ever happen in the U.S let us know in the comments section thank you