While watching preview clips of Fox Noise's Daily Show Knockoff "The [so-called] Half-Hour News Hour linked from one of our blogs to the heart of Right Blogistan, I ran across a sidebar ad for what is possibly the strangest and most laughable scams and, what was most striking, several people have fallen for it.
Roll that beautiful bean flippage...
The pitch was for a site called Bet on Iraq.com and is based on the sort of political chest thumping and cutthroat speculation that one would expect from the deepest denizens of Right Wing Hell, but to have both qualities on the same website, often in the same sentence, got my attention.
The initial premise is this: the Iraqi currency was grossly devalued due to sanctions and counterfeiting such that, by 2004, when the scheme was apparently hatched, the Iraqi Dinar was trading at roughly 1/2000th of its pre 1991 level. In late 2003, with the Baathist regime toppled, the CPA issued a new currency printed in Switzerland for general circulation that had many of the newer anti-counterfeiting measures.
Being a bit of a Forex junkie myself (I've been playing the currency markets since I got out of high school and a coin collector for many years before), the discussions on currency policy and new money features piqued my interest. It is the conclusion and pitch drawn from the issuance of the new IQD that caused me to blink a bit.
Their pitch is basically that, given that the factors that led to the devaluation of the currency as defined by the site's proprietors (Sanctions, Saddam, and Counterfeiters) were neutralized but the currency was still cheap, then if one buys a huge amount of the currency on the expectation that the economy improves (as Iraq stabilizes), then the value of the Dinars will skyrocket, greatly increasing the investment return.
This pitch is all designed to try to get reasonably well off Wingers to buy large amounts of Iraqi currency [at grossly inflated rates] both as an investment and a political statement.
The flaws in this scheme are all based on 3 premises, each of which must be accepted in the exact following order or else the argument falls apart. (refutations included)
- Iraq will stabilize economically and financially About half of the site seems devoted to selling this particular snake oil, including what is perhaps the most comprehensive collection of dated "Good News in Iraq" stories that I have yet seen. Really, it's almost like a parade of stories about Soldiers painting new elementary schools. Of Course, I probably don't have to do much beating to this dead horse, given how familiar we all are with the situation with Operation Enduring Quagmire. Let's just say that Civil Wars and Ethnic Cleansing do not lend themselves to economic stability, especially in a country that hasn't had regular power or water supplies since before the invasion.
If you can jump through the logical hoops needed to accept that idea (an easy job for the automatons who reguarly watch Billo/Hannity et al., then you would still have to get around the next premise
- When [if] Iraq stabilizes, the Dinar will bounce back in value and rate to a level much closer to that of the pre 1991 IQD. The big economic posters might do a better job of explaining this one than I could, but here goes. While vast swings in value often happen for stocks, commodities, and many other securities, upward revaluations are much more of a rarity in the world of Foreign Exchange. In fact, an upward shift in value of the magnitude implied in this pitch has happened exactly twice in 3000 years of recorded monetary history and both were highly specialized cases. What happens more commonly is that the value of the currency stabilizes at a much lower level and prices simply change to reflect the devalued currency with limited movement, if any at all. This is why prices in Japan are valued in hundreds of Yen and in South Korea in thousands of Won to name just two examples. All of this is of course predicated on condition one being met, if the economy doesn't stabilize, the currency will soon be even more worthless, as often happens in war zone countries.
Finally one must accept
- Assuming the exchange rate will increase to reach a pre 1991 level, then a great way to pull a profit while supporting the mission would be to buy up a huge stack of Dinars, put them in your closet somewhere Note, the site literally suggests this and wait a several years to cash in those banknotes for the anticipated 2,000,000% return. Here is where the saps really lose their shirts. Even if Iraq were to magically stabilize with cookie trees and happy Iraqi people dancing to Lee Greenwood ballads and the rate of the currency were to move up to pre-1991 levels, the final problem is that usually, when a currency is devalued to due to economic instability and the economy rights itself, the massively deflated currency is demonetized and replaced with a newer higher value currency, making it completely worthless and unexchangeable. The most recent example of demonetization happened in Turkey, where the Lire had devalued to an absurd rate with 1 TRL in 1990 being worth just under half a million TRL by 2005. The central bank simply issued new currency with the last 6 zeroes chopped off and made the older notes worthless after a brief buyback period.
Bottom line, this is a classic scam and has more financial holes in it than a Quarterly Report from Halliburton. The kicker, they have apparently sold over $100,000 in Iraqi banknotes, so lots of pretty well off people probably have gotten burned by this. I don't know whether to laugh at the absurdity of the scam or feel bad for the dupes who bought into it.