Since the last summer Kyiv has been the object of an advertising attack by MMM, one of the 20th century’s most notorious financial pyramids. The three letters appeal to Kyivites’ greed from the city’s asphalt (130 stencils were made for sidewalk advertisements), 100 billboards, and the walls of almost every subway car. The new-old pyramid is also being advertised in Ukrainian social networking sites. Word has it a powerful Moscow-based PR company is “hyping” MMM. Experts estimate that this promo campaign in Ukraine costs almost 300,000 hryvnias a month.
It will be recalled that the MMM bankruptcy 17 years ago adversely affected 10 to 15 million too gullible people not only in Russia. Our compatriots also suffered from the swindlers, for the company had spread its network all over the CIS. The Moscow-based MMM founder Sergei Mavrodi was finally sentenced to serve a long prison term.
MMM was a classical financial pyramid which grew for some time at the expense of its new members’ money. What attracted the neophytes was an up-to-100-percent monthly payout. This trust’s turnover reached a third of Russia’s state budget in the best times. But after all, like any other pyramid, MMM went bankrupt, as did the Seleng House of blessed memory, and other trusts that popped up from the murky waters of the 1990s great Ukrainian depression.
But now that he has done his prison term, Mavrodi is backsliding. Instead of the defunct MMM, he founded a virtual financial company, MMM-2011, earlier this year, which is collecting, however, quite real money off the people – this time with a promise to pay up-to-60-percent monthly dividends. But for the Ukrainian financial market it still means a huge profit – it will be recalled that the banking deposit payment rarely exceeds 10 percent.
It should be admitted that Mavrodi has chosen quite a good moment to capture the Ukrainian market. This country has been in a deep economic crisis for the past three years. The so-called “reforms” have “improved” the life of Ukrainians almost to the dearth level. Entrepreneurship has been in fact stifled, and it is impossible to legally earn serious money in this country. The prospects for the survival of a plundered and corrupt Ukrainian economy are far from being rosy.
On the other hand, the 17-year-old story of the fraudulent MMM is almost forgotten. So when someone comes and promises people rapid enrichment “for free,” they hear what they want to hear without too much pondering over the likely consequences.
A month after the Ukrainians came under a scathing advertising barrage, the authorities turned their eyes, at last, to MMM activities. On September 19 the State Commission for Financial Services Market Regulation announced that MMM-2011 was doing illegal business in Ukraine. The legal entity MMM-2011 has been denied access to the State Register of Financial Institutions, and it is deprived of financial institution status and of a license to carry out certain activities.
The abovementioned commission has emphasized on its official website that, under the law of Ukraine, any financial services linked with a direct or indirect borrowing of money from the po-pulace can only be provided if a proper license has been granted.
Surprisingly, this governmental body is conducting a lackluster counterpropaganda against the backdrop of MMM-2011’s frantic efforts. Officials began to caution the Ukrainians in the broad-based media against being involved in this financial swindle only after half a million people had swallowed the bait and the company’s advertising budget begun to be measured by five-decimal figures.
But the state turned out to be helpless against Mavrodi’s new trick. The government can so far offer nothing but advice to combat the new financial pyramid: “do not invest your money there,” “it is a financial pyramid,” “it is dangerous,” etc. Meanwhile, the national legislative system is in no way protecting the people in the case of MMM-2011. Moreover, as Andrii Lytvyn, First Deputy Chairman of the State Committee for Financial Services, confessed in an interview with UBR, the chief regulator of the national financial services market is also helpless against the spread of information about MMM-2011. In Lytvyn’s words, anybody can advertise financial services in Ukraine no matter whether or not it is registered as a financial market entity.
In a word, the state has proved unable to establish proper financial protection for its citizens in the past 20 years, leaving them defenseless in the face of an obvious danger.
Yet this kind of “surprises” on the part of the state and the national legislation are no longer unexpected. Most of the Ukrainians customarily distrust the judicial system because it is corrupt and the laws because they are being written to serve someone’s interests rather than the wellbeing of ordinary people. So the Ukrainians have been long pursuing the strategy “it is up to you to defend your own interests.” It is therefore surprising that the Ukrainians are making the same blunder that badly bruised them 20 years ago.
It might seem that MMM could no longer be resuscitated after such a dismal failure. But now, at the time of a crisis, when the go-vernment is asking us to “tighten the belts” and be patient while the country goes through the hurricane of financial and economic reforms, a similar structure suddenly emerges. It bears the same name, only adding “2011,” a sign of upgrade, – quite in the spirit of present-day challenges of an information society. It is led by the same Mavrodi who does not even hide it is a new financial pyramid. The laws of logic have it that a business project with this reputation and an extremely difficult monetary history of its manager is supposed to immediately arouse apathy in the consumer. But what do we see instead? About half a million Ukrainians have joined the MMM-2011 scheme in less than six months. Why?
As psychologist Olena Lishchynska explained to The Day, the cause is a lack of social uplifts, the “infantilism” of society, and distortions of the information sources which the Ukrainians trust. “Our present-day society has created the conditions in which an ordinary Ukrainian finds it difficult, to put it mildly, to realize himself both financially and socially,” the expert says. “Hence is an overall social infantilism, which highlights educational degradation of the populace.” Add to this, Lishchynska says, the undeniable fact that the main source of information for most of our people is television which sticks to the philosophy of consumerism and justifies such words as “freebie,” and you will understand the nature of MMM reincarnation.
According to the psychologist, almost every Ukrainian is convinced today that “nobody needs him anywhere” and “nobody wants to see him anywhere.” People come across this all the time – when they come to a hospital, retire, or look for a job, Lishchyn-ska says. “I recently went out of Kyiv and saw what I think is a terrible picture: offices are being traded in Ukraine. While there is a more or less civilized labor market in Kyiv and individuals are usually employed here on the basis of their quality, in the rest of Ukraine, on the contrary, personnel departments are sort of intermediaries that cash in on the employment of ‘right’ people,” the psychologist says. Therefore, the state should not be surprised that such entities as MMM-2011 or even other “sectarian” organizations (either in the financial or the religious sense) are popular among the populace. For they give people the feeling of being needed, a chance to self-realization, which people usually expect the state to do.
And the rationale does not work here because, the psychologist says, infantilism and a huge social gap have affected the Ukrainians’ financial education. Analytical research also confirms this.
For example, the Ukrainian market studies company InMind conducted in October 2010 a representative poll of over 2,000 respondents from all the regions of Ukraine about such things as financial literacy, usage of financial services, and public awareness of the consumer’s rights and their protection.
This survey painted rather a pessimistic portrait of the typical Ukrainian user of financial ser-vices. An ordinary Ukrainian lacks the knowledge of finances, he/she only uses the basic financial services, does not usually know about the rights of themselves as consumers, and almost distrusts financial institutions. Moreover, people show no interest in receiving more information about financial products and put this down to a number of factors, such as lack of funds to invest, low trust in the financial system in general, or just inability to understand how to use financial services. The survey also showed that every fourth user had had problems in dealing with a financial institution. Almost a half of those polled are sure that, should a financial dispute arise, it will be settled in favor of the financial institution.
Conversely, international financial organizations [to which we, incidentally, often turn for a loan. – Author] convincingly prove that financial education of consumers is the foundation that is supposed to maintain the normal functioning of capital markets and the economy as a whole. This question is especially topical in the countries that have switched from centralized planning to a market economy.
The conclusion of a World Bank survey on the financial li-teracy of the population of post-Soviet countries says that the state must be, first of all, interested in its citizens knowing their way at least in elementary economic matters and being financially literate because otherwise it will be impossible to carry out many social reforms, introduce a compulsory accumulative pension system, and solve the problem of investment funds and credits for small- and medium-scale business.