As I was discussing marketing of a product with an entrepreneur he proposed a too good to be true proposition: pay one time amount of Php x and if something happens, he gets the product and service free. I objected to this because it becomes an insurance (if registered) or a Ponzi scam:
What I did not like:
1. There has to be a big universe: There has to be many buyers(suckers) The new buyers of the amount should be able to service the needs of those who need to get out because of death.
2. Thus is risky: the chief has to be responsible for cash flow, and losses of the firm. If the cash flow out and cash flow in stops, the whole thing collapses and is unsustainable
The cash flow becomes long because there is no limit to the amortization. It is one time payment of premium. If there is high returns for financial instruments, then the scheme will work, If there is inflation for the cost of the product or service being offered, and low returns for financial instruments, then there is a negative carry, and the whole financial model collapses.
Ther risks are: CDO from Insurance Commission, SEC investigations, and possible charge of estafa.
It is actually the way scam, Ponzi scams work.
