March 5, 2009

The Great California Pyramid Scheme Mania of May 1980

An almost-forgotten incident in American economic history was the pyramid scheme that swept Southern California during the stagflation of May 1980. Yet, now that we know that about 2/3rds of the Housing Bubble of 2000-2007 took place just in California, it's worth reviewing incidents from California's long history of financial manias.

I missed out on the late May 1980 climax of LA's Pyramid Fever because I got back to LA on May 16, 1980 after graduating from Rice, then left on May 20 for Europe. I recall reading about the early days in the local newspaper with amazement.

When I got home a couple of months later, nobody ever spoke of it again.

The difference between a pyramid scheme and a Ponzi scheme is mostly that the machinations of the pyramid scheme are out in the open. Time Magazine's June 16, 1980 issue describes the mechanics of the Great LA pyramid scheme:

For $1,000 each, 32 newcomers buy slots on the bottom row of a pyramid-shaped roster. Each new player pays half of his $1,000 to the person at the pinnacle, who ends up with $16,000. The new player also pays his remaining $500 to the person directly above him on the next tier, which contains 16 people. Since each person on that tier gets paid by two of the newcomers, he ends up with $1,000, thus recouping his original investment. As more people buy in, the players move up the chart. In time, theoretically, each person reaches the top—and $16,000.

The scheme caught on as only a California hustle can. Pawnshops did a booming business, as players hocked stereos to raise the initial fee. Most players, however, were middle-class suburbanites out to fight inflation. Everyone seemed to know someone who had indeed won $16,000. There were runs on local banks for $50 and $100 bills to be used in the night's gaming. Dentists reported patients, even with mouths full of cotton, soliciting them to join the club. Games were held in unlikely hideaways, including Hollywood sound studios, chartered buses and the Grand Salon of the Queen Mary at anchorage in Long Beach.


The wild thing about this 1980 outburst was that it was the most blatant pyramid scheme imaginable, combining the usual pyramid scheme mechanics with a New Age cult of the Power of the Pyramid.

Back in Gov. Jerry Brown's California, "pyramid power" was a popular New Age concept. (Although there's never anything new about New Age in California -- the lovely coastal mountain village of Ojai has been a New Age center since the 1800s.) In 1977 I went to a fashionable Westwood hair styling salon where for a few bucks extra you could get your hair cut in a special chair under a pyramid dangling from the ceiling. The pyramidal aura was supposed to help you avoid Bad Hair Days or something. (I declined. But, now that I think about it, I did have a lot of BHDs ...)

In May 1980, a vast multi-level cash exchange craze developed in California that explicitly invoked the mystique of pyramids. Every night there were hundreds of house parties hosted by people who had gotten in earlier on this multi-level scam (perhaps the night before). My vague recollection from newspaper reports is that you'd go over to a higher-up's house and sit with him under his pyramid while you gave him cash in return for your very own kit for building a pyramid out of wire and fabric. The Ancient Egyptian emanations from his pyramid would ensure that you'd get even more cash back from the suckers you'd recruit to buy your pyramid kits from you while sitting under your pyramid.

Perhaps I don't have the details right, but pyramid imagery was central to the experience, which made this Pyramid Power pyramid scheme hard to debunk. It was already pre-debunked. Anti-fraud authorities would go on the local TV news to denounce the pyramid schemes as "pyramid schemes," which just served as good advertising. "Well, duh, of course it's a pyramid scheme," participants would laugh. "How do you think those Egyptian pharaohs got so rich that they could afford those giant pyramids? Through tapping the secret energy of Pyramid Power!"

Here are summaries of articles from the Los Angeles Herald Examiner from May 21 to June 1, 1980:

"Get-rich-quick 'chains' multiplying too fast to stop." May 21, p. A3.
[California pyramid schemes. Participants a "cross-section". Los Angeles: hundreds of calls a day asking about legality; at least 100 clubs (c. 30 persons each). Parties busted. Alameda County High school pyramid: ounce of marijuana to buy in, pay-off a pound.

"Pyramids: 'Brother can you spare a dime,' 1980-style." May 22, p. A1+.
About 40,000 attend "pyramid parties" in Los Angeles last night (est. 150 to 400 parties). Accounts of arrests. Most common ante $1000, win $16,000. Studio employee: "Studio people are talking about nothing else." ... Some brought to meetings blindfolded. "I never saw anything like it in all my experience as a bunco detective, completely beyond the scope of my imagination." P. A15: "A pyramid winner tells how she won her money." Elizabeth Kyger, free-lance writer, 24, tells of splitting $16,000. "I've made great business contacts because of this." Says Ventura freeway westbound jammed in evenings because of pyramid parties.

"Mood of pyramid participants turning ugly." May 24, p. A5.
Two accounts of anger at Burbank pyramid party site. Out-of-towners now predominate. State Attorney General's office investigating possible links to organized crime. P. A1+ "Ante goes up to $5,000" Celebrity attendants to day-time pyramid party attempt to deceive or intimidate reporter upon leaving. Photo (p. 1): Policeman holds up "Pyramid Power" T-shirt confiscated in a raid. Letter "A" of "PYRAMID" forms pyramid

"500 rally at Griffith Park to promote money scheme." May 27, p. 1+.
Sign at rally: "Business Concept Power Happening." Attendants defend scheme, claim winnings, exchange pyramid gossip (meeting with 237 buys, a $100,000 ante game). Ventura county brings felony conspiracy charges. Lawyers address crowd - urge no guilty pleas. Petition circulated to DA. Citizen's Individual Rights and Collective Legal Expression (CIRCLE) distributes fliers criticizing police and media. Photo: Bearded man in pyramid power T-shirt, $ sign between the two words.

"I really feel like a sucker." June 1, p. 1.
Young printer's account of collapse of pyramid. Printed 300 pyramid charts. Went in with 3 others at $250 each. Meeting at 8 PM sharp, door locked, a letter was read asking law enforcement and tax collection personnel to admit role. Another person explains pyramid and asks for buy-ins. Last meeting: only people who had lost were present, talk of violence.

My published articles are archived at iSteve.com -- Steve Sailer

38 comments:

Anonymous said...

My parents got in on that, as well as a family friend. They became convinced to try it after he took them to a "party" where he was at the top tier. He got a briefcase full of hundreds, amounting to 40K, walked out the door, put it in the trunk of his Porche, and drove off.
My parents bought in, and by the next week people were getting skittery. Somehow, they got a partial payment of what they were supposed to get that amounted to a little more than they bought in for the week before, because some people didn't show up with their cash. The next week it had collapsed. What held it together, I think, is the people who got reemed were too embarrassed to try to make a case out of it, or name names.
A relative few DID go to the police, but they were only a fraction of all the participants who got burned.
That's the problem with these young whippersnapper's in the mortgage market today. They have no shame.

Anonymous said...

Can I pay for the pyramids in Ponzi bucks?????

RKU said...

How could that be possible??!!

California had very few NAMs back then...

albertosaurus said...

At about that same time in California there was a very bizarre teleevangelist on TV who lectured on pyramids. When I say on TV, I mean on TV 24/7. He sat in a chair wearing odd hats and talked continuously - no guests, no commercial breaks - just him day and night always.

Ocassionally he he would stand up and launch into rant about the Great Pyramid. I later learned that there was a Great Pyramid cult throughout the 19th Century. There were many books written in the US and England about the Great Pyramid. Martin Gardner wrote a famous refutation of Pyramids in in one of his books in the fifties.

It seems that the Step Pyramid, The Bent Pyramid, Sneferu's Pyramid and all the others except the Great Pyramid are pagan. The Great Pyramid however is Christian. So the story goes.

Every feature of the Great Pyramid when measured with in "Pyramid Inches" predicts some event in Christian history. The last of these predictions is Allenby's entrance into Jerusalem. Huh?

The Allenby story was the grand finale to that teleevangesists long spiel on the Great Pyramid.

So pyramid power in California flowed not just from drug addled flower children but also from those who held to that "old time religion" in the form of Edwardian psuedoscience.

as said...

Time: "Most players, however, were middle-class suburbanites out to fight inflation."

Is this true?

You disappoint me, Steve. I was expecting a Saileresque analysis of these schemes.

Who started it? Who participated?

Xenophon Hendrix said...

Albertosaurus,I believe you are thinking of Gene Scott. He ranks up there with the Bhagwan Shree Rajneesh as one of my all-time favorite scoundrels.

michael farris said...

"You disappoint me, Steve. I was expecting a Saileresque analysis of these schemes.
Who started it? Who participated?"

And more importantly, how can he blame it on black people or latinos?

Ronduck said...

The Ancient Egyptian emanations from his pyramid would ensure that you'd get even more cash back from the suckers you'd recruit to buy your pyramid kits from you while sitting under your pyramid. (Perhaps I don't have the details right, but sitting under pyramids was a part of this pyramid scheme.

Wow, this is around the same time that the Mexicans began entering California. Now we know why no one in the political establishment complained, the whole state went crazy.

Between pyramid power, octomom, this and the illegals we now know why California is broke.

Chief Seattle said...

OT: most depressing thing on Yahoo Finance today, even worse than the stock market:

Best Places for Singles to Retire

If you're looking for a new relationship in retirement, you're in good company -- approximately 46 percent of Americans age 65 and older are unhitched. Here's where to go to increase your odds of finding a mate.

Anonymous said...

I've always wondered about who exactly falls for these things after some of my family got hit a few years ago. Were they typical? My guess was they were, but I kept running into "It could happened to anyone" and "...from all walks of life" etc.

In our case, falling for a pyramid scheme was what really brought home how badly my father's stroke had affected him. He has an I.Q. in the high 130s, but is married to a very average woman who has a ne'er do well son. He even served 9 years for heroin trafficking. Well, he got back on the straight and narrow, but fell for this a few years later and introduced it to the family. It got my step-mom, brother, and dad; the first two were no surprise, but my dad was utterly shocking. No matter what we said (and it was Pre-paid Legal) had any effect and they reacted as cultists. I literally cried because my dad was so brainwashed that he trusted my black sheep step-brother over dependable me and he was calling up everyone he knew thus embarrassing himself, his family, and threatening his friendships.

How much my dad really fell for it, I'm not sure, because entangled with his loss of mental function was the severe attachment and mimicking of his wife that is very common after a near death experience.

Anyways, my brother said he listened to everything we said, but pride got in the way; he ended up quitting right away. The others were true believers and it took about two months for them to stop going to the meetings. I've never spoken of it with them since. It's as if it never happened.

One more thing: Pre-Paid Legal had bought off the attorney general of California, but I can't remember his name now.

Anonymous said...

This post took me down an awful trip down memory lane. After posting about Prepaid Legal, I googled to see if they were still around and they were.

Some things I gathered and remembered from research and seen that were key were

a. Legitimacy is conferred by the fact that it is up and running. If it were bad, the feds would have shut it down, right? The older it gets and the more prestigious (bought off) people of status on board, the better its reputation.

b. These people are clueless about economics.

c. They are clueless about the field their product is in, especially their "competitors". Questions like "How does the monthly cost of Prepaid Legal compare with other legal insurance companies?" or "Who are your competitors?" will *always* be met with blank stares. Eyes glaze over and they just regurgitate facts without coherence.

d. From a quick perusal of threads discussing PPL, my guess is an average I.Q. of 95 with few above 110 perhaps 115 falling for it.

See the following I copied from a typical site with no editing; please notice he brings up a dvd. I saw it. It was godawful:

**Hi there folks

I would like to express my opinion and facts to you as not only someone who is an associate but a proud member and one who understands the sales and marketing game since the early 90's in a city that used to be huge in scamming Americans

First of all lets touch on the company itself

This company has been around since 1972
That is approximately 35 years
Now think about that
We have an FBI force, detectives, FTC, FCC, State Consumer Affairs divisions nationwide, CIA, Terrorism task forces, SEC and IRS of course
Not to forget thousands of attorney's nationwide
There are a lot of professional people in this great nation that understand what we represent and what we sell
It is a service that anyone with the exceptions of a few states that are able to get the program and reap the benefits on and on and on
I've spoken to more people happy with the program and results both as a member and/or an associate that have positive remarks than those that have negative remarks

Now to the meat and potatoes

Theres 2 versions of network marketing
A. The right version - where you follow the success formulas of those successful
B. The wrong version - where you deviate and scam people with foolishness to make either the system look bad or scammers who have gotten involved with a legitimate organization and making it look bad
Or at least trying to

2. Let's talk about the DVD
Have you watched the DVD Private Business Reception ?
This dvd is remarkable
It first has 2 top producers Darnell Self and Brian Corothers
Now try to find anything unlawful or unethical that they have done
The dvd has them explain in detail about the membership and associate plans
They show their intimate lives with their family and friends, the nice cars and homes, toys, etc
Their passion and their emotions of how they started and where their at now

And from my own research with online, with the phone conferences, the business meetings, and speaking with all kinds of associates just in the past month is that their enjoying their time with PPL and making good money and if it wasn't a good thing 34 state atty generals would be out and talking bad about it and eventually shut it down long ago
Also with all the network marketing companies I have known about since the 90's I haven't seen such an informative and helpful company where people are there if you need them.

http://www.scam.com/showthread.php?t=3212

Toadal said...

Who started it? Who participated?"
I recall it quite possibly originated a year earlier in Santa Cruz, California among followers of 'Be Here Now' author, Baba Ram Das (Richard Albert) and Dharma Bum, John Panama. Santa Cruz, like Maui, Hawaii, was a hotbed of self-proclaimed New Age yogis and their tweenage, white suburban followers. In the late 70s various New Age personalities could be found in teaching tai chi, meditation, and 'innerwork' in Santa Cruz grange halls, cafes, and community centers five nights a week. Since many tweens had already given up their jobs and homes and given away their money and inheritances to hang out with these Christ-like beings, to participate in and evangelize these pyramid schemes took little effort.

AllanF said...

Hahaha. That brings back the memories of 8th grade! This would have been about 1987 in the midwest. (I guess that's how long it took to trickle down and out of California?)

We called them called planes. There were only three levels: 1 pilot, 2 co-pilots, and 8 passengers. As a passenger, you paid $10 to your co-pilot who was supposed to kick half back to the pilot. It was sold as "can't lose" because you would get your money back as co-pilot, and as co-pilot it was up to you to recruit dependable passengers. If you did a good job, you would get paid, and of course you trust yourself to do a good job, right!

FWIW, I passed because I didn't know anyone I'd trust to recruit to be future co-pilots.

I'm not sure any planes legitimately got off the ground and split. I think those that claimed they'd successfully split and got paid were all lying in an attempt to recruit for a "second" plane. Within a week it completely fizzled out when everyone realized there was no reason to pay some one else to be the pilot and co-pilot when you could create a plane from scratch and start as the pilot. I guess what we were missing was the physical pyramid to keep things orderly. A bunch of names scribbled on notebook paper don't voucher the same sense of authority as a physical pyramid suspended from the ceiling.

CJ said...

The first pyramid scam I ever heard of was Glenn W. Turner's Dare to Be Great operation. That was basically sold as a series of "motivational seminars" where the participants paid money to join and then tried to attract others to pay up for future seminars. The operation supposedly took in $44 million, which in the early 1970s was serious money. There were some "investors" in the area of western Canada I lived in at the time, many of them members of evangelical churches.

I remember two crazy things about it. One, Turner was such a hyperpowered emotional speaker (in spite of a lisp from an only-partially-corrected harelip) that some people figured they got their money's worth. Two, he was finally busted by the ... SEC (!) who succeeded in getting him because he didn't deliver a real product for the money, but failed against Amway because they were at least selling soap. The SEC's position in court was that what is now called multi-level marketing was illegal. If that had prevailed, we wouldn't have Amway or Shaklee or any of the others.

Turner made a specialty out playing the persecuted victim. He actually paid a writer to write a biography called Con Man or Saint? You can see the young Turner here and the just-out-of-jail middle-aged Turner here. A blast from the past, really -- if he'd been born later he would have been pumping stocks on CNBC.

Anonymous said...

I seem to remember the 'pyramid mania' of the early 1980s.
Being a schoolboy in Engalnd at that time, some of the SoCal bullsh*t inevitably seeped over here.What sticks in mymind were many magical claims made for small 'domestic' pyramids ie if you left a razor-blade under your domestic pyramid over night it wouldn't blunt andd other similar claims.

stati_momak said...

True, California had not been inundated with Mexicans and others then, this was white folks being crazy. The difference is it involved, what, tens of thousands of folks at the most, and didn't cost a public dim. No emergency rooms closed because of pyramid power, California school were still among the best in the naiton, etc etc.

The immigration driven property pyramid is infinitely worse.

John of London said...

The basic idea sounds similar to old-fashioned Chain Letters in the UK. You got a letter with a list of names and addresses that asked you to send a small sum of money to the name at the top, remove that name, add your name at the bottom and copy the letter to a specified number of people. The number of people at each level increased geometrically, so the claim that you would eventually recieve a very large reward was plausible to those unaware that the population was finite. When this was made illegal they switched to other stuff than money - but who wants to get a million postcards?
Incidentally, do you think the pyramid on the dollar bill predisposes Americans to believe in pyramid schemes?

dearieme said...

There was a big, transparent pyramid scheme in Britain about 15 years ago. People pointed out the folly, but were told that it's different this time because membership is restricted to women.

Steve Sailer said...

Someday I'll have to write about Robert Heinlein as the characteristic Californian, even though he grew up in Missouri and spent his 1950s prime in Colorado. But he lived in California in the 1930s-40s (a lot in Raymond Chandler's LA) and again in the 1970s-1980s (Santa Cruz).

What made Heinlein a more interesting writer than, say, Ayn Rand was that he didn't actually have strong political opinions of his own, even though he thought he did. He just absorbed his three wives' various dogmas and gave them vivid (if contradictory) expression.

Steve Sailer said...

In Evelyn Waugh's 1932 novel "Black Mischief," the British ambassador to Azania is captivated by a chain letter he receives about the metaphysical implications of the dimensions of the Great Pyramid of Cheops.

So, Pyramid Power has been around a long time.

Ronduck said...

Stati_Momak, my point is that the state didn't protest the first trickle of illegals coming across the border because the state was already swimming in idiocy. I saw an episode of The Rockford Files that showed a long term illegal in a glowing manner.

The whole state of California has lost its mind and is dragging the rest of us with it. Whether it is pyramid power, or immigration-driven real-estate-pyramid-power the whole state is a malignant cancer on the American body politic.

Acilius said...

Terrific post, Steve! You have a real gift for narrative. I vote for more like this.

Anonymous said...

From California the trend spread eastward, in the countless barely-legal pyramid marketing schemes: Amway, vitamins, aloe vera, and that term life/securities scheme whose name escapes me that collapsed in a zillion lawsuits.

Inexplicably, these s****y schemes continue. Two years ago, somebody roped me into some stupid free seminar on an internet-based one. Several years before that, a colleague cold-called me to try and join something similar. For a certain mentality, the concept of market saturation just never sinks in.

--Senor Doug

Larry, San Francisco said...

Do any of you remember the movie Semi-Tough with Burt Reynolds and Kris Kristofferson released in the late 1970's. They spoof a lot of the weird California cults from that era. There was a hilarious scene where one football player tells the Burt Reynolds character about pyramid power and how wonderful it make sex. The next scene is in the bedroom with a very disapointed Burt Reynolds pulling a pyramid out from under the bed.

Anonymous said...

That's a really rotten thing to say about Robert Heinlein, who was a thoughtful man who did the intellectual work to actually develop some political opinions, and allow them to be changed by his experiences with reality over time.

Make up for it by writing something about his ambiguous relationship with white nationalism and eugenics. If he hadn't had the stroke and had survived to see the hbd research, what would he be writing today?

Gene Berman said...

These things are older than we are, folks. I don't know how far back Amway goes but I can remember it at least to the mid-'40s (when it was called Nutralite and sold with the same multi-level scheme. Sometime before, the Justice dept, had gotten a "Consent Decree" against them. The sharpies had their salespeople bragging about the consent decree, explaining it to customers as the Justice's consent to their legitimacy and business practices!

I read not long ago that Greta van Susteren and her husband had been taken by some scam-scheme and then tried to run the same on others to get their money (about $700K) back.

I don't know (or remember) if they were charged with anything but think they had to pay back a bunch.

stari_momak said...

Speaking of cults, I read some web stuff about this David Allen, Getting Things Done guy, and it made sense so I bought his book. Then I noticed some people into GTD were *really* into GTD and did a websearch GTD cult -- in sort of a jocular way, meaning the GTD proponents and enthusiasts were cult-like. Turns out that David Allen is pretty New Age-y , and he lives in ... Ojai. (The slim connection to this thread). The more I read about him, the more perfectly he fit a certain old school California 'nuts and flakes' profile (Berkeley drop-out, drugs, EST or something) . I long for that old California -- whatever its faults it was definitely preferable to what we have now.

Anonymous said...

Everything old is new again

http://www.businessinsider.com/big-on-youtube-sketchy-looking-pyramid-schemers-2009-3

ben tillman said...

Within a week it completely fizzled out when everyone realized there was no reason to pay some one else to be the pilot and co-pilot when you could create a plane from scratch and start as the pilot.

That's what I could never understand, even as a little kid -- why would anyone pay for the "right" to put his name on the second level of the pyramid (or wherever), when he could simply put his name in the same place without paying anything?

ben tillman said...

Do any of you remember the movie Semi-Tough.... The next scene is in the bedroom with a very disapointed Burt Reynolds pulling a pyramid out from under the bed.

Not from under the bed - from under the bedding, i.e., under the covers.

Mr. Anon said...

"Gene Berman said...

I read not long ago that Greta van Susteren and her husband had been taken by some scam-scheme and then tried to run the same on others to get their money (about $700K) back."

Snake-eyed Greta and her hubby are also scientologists. In for a penny, in for a pound.

green mamba said...

"Snake-eyed Greta and her hubby are also scientologists. In for a penny, in for a pound."

This woman is Fox's weakest link, even worse than Hannity and O'Reilly, who at least have a smidgen of intellect and charm. I guess she is supposed to appeal to dowdy housewives who identify with her, otherwise I don't know why she is there.

Anonymous said...

Michael Farris said

And more importantly, how can he blame it on black people or latinos?

I'm not aware that Steve ever blamed anything on black people or latinos.

Anonymous said...

Michael Farris said

And more importantly, how can he blame it on black people or latinos?

I'm not aware that Steve ever blamed anything on black people or latinos.

Anonymous said...

"How do you think those Egyptian pharaohs got so rich that they could afford those giant pyramids? Through tapping the secret energy of Pyramid Power!"

Sounds like History Channel material.

Anonymous said...

"...pyramid imagery was central to the experience, which made this Pyramid Power pyramid scheme hard to debunk. It was already pre-debunked."

Sort of like how you can't kill zombies, because they're already dead.

Linda.G.Henke said...

I was cleaning out an old chest belonging to my husband, and I found a golden yellow T-shirt with a "Pyramid Power" emblem on the back, and a smaller triangle with "We're in the Money" and "$16,000" on the front. Is this a collector's item?

Anonymous said...

Mmk, I was there and I actually had money working in the oil industry. No one mentioned that this was also in the time of Tut mania. And yeah, it was southern california. Gut what really made pyramid mania work was good ole fashioned greed...get something for nothing greed. First I remember hearing of "pyramid parties" and I recall my buddy's wife gushing about how great it was going to be when they got to the top of the pyramid. Haha!
It never added up from the start for me. But when some of the higher ups at work invited me and the other guys to a party and they whipped out a pyramid and lo and behold, their names were in all the top spots. So stupid! Like we were idiots. Some guys did it just trying to curry favor.
Oh yeah. The other thing that kept those things going was the desperation of the fools who bought in. The only way they could get their money back was to hustle their family and friends. Hmmm,sounds kind of like amway or nu skin, doesn't it.
Glad I never fell for that crap. Hey, here's another thing for you to write on that was happening at about the same time. Tax revolt. There was a group going around telling people that their money was not legal according to some obscure old definitions of money that they claimed were still on the books. They got another buddy of mine to claim 99 exemptions on his w4. The leader of that group was a guy named Irwin A. Schiff or Schriff, something like that. Poor guy wound up in big trouble and having his wages garnished for a long time. I was close to falling for that one, but I had the sense to call a tax accountant. Cool guy! Talked some sense into my twenty year old dumb head. Haha!
Thanks for the memories, guy! Write on!