You almost certainly know that two large investment firms which marketed to small savers, Forum Filatelico and Afinsa, have been shut down by the authorities. Some 350,000 people invested enormous amounts of money, more than five billion euros, in what were effectively a couple of Ponzi schemes. The companies sold stamps with no real value to the clients, with the promise that they would buy back the stamps in ten years at the sale price or more; meanwhile, they claimed to pay monthly interest of double or triple what a client could get at a bank.

Naturally, what they were doing is paying off older clients with money invested by new clients. Which is extremely illegal.

Well, it's all crashed. All that money disappeared. The stamps the clients are left holding are worth nothing.

This is one of the all-time classic scams. These companies had been going for 25 years. Amazing how long they managed to keep it from collapsing.

Part of the fun is that, of course, none of the "investments" were insured by the government, as bank deposits are.

We'll see what happens to the economy when that five billion dollars disappears. My guess is that consumer confidence takes a major hit. The victims are all small savers, working-to-middle class people, of course. Some of them are wiped out. Of course, more sophisticated investors avoided these schemes; the victims, as usual, were those who really had most to lose.

Of course, the consumer organizations had warned about these schemes years ago, but nobody paid any attention as usual.

One thing is that these companies had very extensive staffs who used the hard-sell, just like the English-academies scam of three years ago. You know, I'm not more moral than anybody else, and maybe I'm a dope, but I wouldn't take a job selling people crap I didn't believe in. I know this because I lasted two days twenty years ago working at a telephone boiler room called Entertel, and we were hard-selling some useless crap called a credit-card insurance policy. I sold some woman the product and she said, "OK, now tell me what I just bought," and that did it for me.

But somebody out there takes these jobs.

The wacky thing is that certain elements are claiming that the collapse of this scam is some kind of government plot in order to "distract attention from the Bono case and the Catalan statute." Come on, people, the PSOE isn't my favorite political party, but they're not behind this. Let's turn down the paranoia thermostat.

There are a couple of other similar schemes out there selling "tangible goods," one called Arte y Naturaleza selling allegedly valuable "artistic" prints, and another that tries to get people to investigate in tropical hardwoods, of all things. Avoid them, of course, but you already know that. If it sounds too good to be true, it is.

Here's an article from the Financial Times from before the crash that I found posted on a Portuguese financial website, of all places. It explains the scam much better than I can.

Cheque is in the post in stamp scheme
By Leslie Crawford
Published: September 27 2005 03:00

High property prices, low interest rates and a bumpy stock market have driven hundreds of thousands of Spanish investors to place their savings in stamps.

With 10-year government bonds yielding just 3.3 per cent, Spaniards have invested more than €5bn ($6bn) in unregulated stamp-investing schemes that offer annual returns of up to 8 per cent.

Financial chat rooms on the internet are abuzz with the high returns offered by Afinsa - the world's largest stamp dealer and. after Sotheby's and Christie's, the third-largest player in all collectables - and Forum Filatelico, although little is said about the stamps supposed to be underpinning the schemes.

Consumer groups are concerned that the two companies are attracting investors who know little, if anything, about stamps.

"We are talking about totally unregulated financial investments," says Enrique Garcia of OCU, a Spanish consumer defence organization. "If these companies were to go bust, investors would only have their stamps to fall back on. That is why it is paramount to know the true value of the stamps on the open market."

Afinsa has sold €1.2bn worth of stamps to 143,000 clients, who have the right to sell them back to Afinsa at the end of the investment period. The company reported €40m in capital and reserves in 2003.

Forum Filatelico, for its part, estimates it has €3.8bn in outstanding repurchase contracts with its 200,000 clients spread over the next 15 years, compared with capital and reserves of €288m at the end of 2004.

"If all our clients wanted their money back at the same time, we would go bankrupt. But so would a bank," Francisco Briones, chairman of Forum Filatelico, said in an interview. "We have capitalised the company to make it as solvent as possible."

Afinsa says it is not obliged to record the total value of savings schemes sold to investors as a liability, as a bank would, because investors can choose to keep their stamps, or sell them on the open market. The repurchase contract, Afinsa says, is a "residual question".

But OCU, the consumer defence group, says it was unable to find a buyer on the open market for a set of Afinsa stamps it acquired for €600.

"We were offered only 5 per cent of the original purchase price if we wanted to sell Afinsa's stamps on the open market," OCU says in a special report on investing in collectables, which concludes that these investments are too risky for a non-specialist.

Afinsa says its prices are based on the "most prestigious philatelic catalogues in the world". But philatelic experts in the UK say catalogue prices are a reference only, and that it is the norm for stamp dealers to offer deep discounts on catalogue valuations. "Quality is everything." says Andrew Claridge, a partner at Grosvenor Philatelic Auctions, one of the top auction houses in the UK. "The variation in price is extraordinary. A superb stamp might fetch more than its catalogue value at an auction, whereas one in bad condition may be worth only a fraction of its catalogue price."

Forum Filatelico, which only sells sets of Europa theme stamps - series printed by European post offices each year since 1956 to mark the birth of the Common Market - admits that it charges its clients up to 10 times catalogue value for its stamps. "It is normal to charge our clients 8-10 times catalogue prices because of the services we provide, including the custody and conservation of stamps, the drawing up of contracts and the repurchase guarantees," said Mr Briones.

"We publish lists of prices for our clients, in which the sale and purchase price are the same. Our prices have nothing to do with catalogues, they are only for our clients. You could say it is a closed market."

Stamp dealers say it is only by operating a closed market that Forum Filatelico can sustain such inflated prices for its stamps. "There are huge quantities of Europa theme stamps in the market." says Tristan Brittain, a stamp dealer in the UK. "Anyone can buy them, but I would not recommend them as an investment."