TAKING STOCK: Iraqi Currency Scam

TAKING STOCK: Iraqi Currency Scam

Dear Mr. Berko:

I'm a broker with a major financial house and have a dear friend who lost his wife three years ago and his job 18 months ago, and may lose his home this year.

He's deeply in debt, and his only remaining asset is a $63,000 IRA from which he's been taking money to stay above water. An Internet currency firm has advised him to take half his IRA to invest in 30 million Iraqi dinars. They've convinced him that he can make millions of dollars in the coming year because the dinar, "which is backed by oil, is certain to explode in value this year."

I know you have heard this story before, and I can't convince my friend this is a scam. My firm has a huge currency trading desk, and I had my friend talk with the head trader, who also said it was a scam. But my friend believes that Fifth Third Bank is an important player in the dinar market and thinks my firm is "bashing the competition."

He reads your column, and if you think this is a scam, I know an e-mail from you might be more convincing than me or my firm.

J.S.: Waterloo, Iowa



Dear J.S.:

Many of those Internet currency firms make $15,000 to $25,000 per week peddling worthless hope to wide-eyed believers like your friend, who may even get the fake stuff in the mail and never know the difference. Many Americans can't tell the difference between a real American dollar and a counterfeit American dollar.

This dinar con game has morphed into religious fervor with an intensity similar to Islamic fundamentalism. The suckers in this scam steadfastly believe the promise of financial salvation with a spiritual mindset that is immune to logic or common sense. So I doubt there's anything you or I can do because your friend is emotionally involved and he badly needs this to be true.

I learned a long time ago that you can't reason a man out of something he has not been reasoned into. And unlike the yen, the U.S. dollar, the Swiss franc, the Mexican peso, etc., the dinar is not traded on the world's financial markets.

Yes, some banks (including Fifth Third (FITB-$14) will purchase dinars, but there's a huge gap between its buying price and selling price. Think of buying dinars like buying a car from a dealer or a diamond from a jeweler and reselling them back to the same dealer or jeweler a month later. So while FITB may repurchase your friend's dinars, your friend will have chest pains when it gives him 25 percent less than he paid.

A pox on FITB for aiding and abetting this heartless scam -- but I guess they figure that false hope is better than no hope at all.

The Iraqi legislature recently approved a $79 trillion budget, and its treasury is printing dinars like we print postage stamps -- but in bigger denominations. In fact, the Central Bank of Iraq just approved a 100,000 dinar-denominated bill because there are not enough smaller bills to pay the rapidly increasing costs of food, clothing, transportation, fuel, housing and baksheesh.

Meanwhile, the Iraqi economy -- which is oil-driven -- made no progress in 2010. Iraq has an inadequate infrastructure, security is fragile, unemployment is rampant, and the politicians are insidious and corrupt, while the bloody hatred between the Sunni Muslims and the Shiite Muslims continues to create pockets of chaos and pain. And the Central Bank of Iraq gleefully prints new dinars to sell to American schnooks like your friend. It brings U.S. dollars to an Iraqi economy in which the people who have money don't trust their currency. Your friend is in love with the dinar, and telling him it's a fraud makes him love it even more. He's hooked.

http://www.legalnews.com/Detroit/877248

:tup:

this is just like  probably  1000s of  people . the sad thing is there are similar things related greed and hopium. the problem is it will never happen. you will see maybe in the future a value of 5 to 10 cents . this is a huge jump from what it is now but that's it. I would cash  out then bet on a race horse and you would probably make more the you ever will with the dinar jmo

Jayzze wrote:this is just like  probably  1000s of  people . the sad thing is there are similar things related greed and hopium. the problem is it will never happen. you will see maybe in the future a value of 5 to 10 cents . this is a huge jump from what it is now but that's it. I would cash  out then bet on a race horse and you would probably make more the you ever will with the dinar jmo

You joking right?  5 to 10 cents would mean that the ratio of the money supply to the foreign reserves would change by a factor of 50x to 100x.  No way.  10% or 15% eventually?  sure.  5,000% to 10,000%?  just as impossible as 100,000% (i.e. to $1).

no I am not joking once they act together it will happen think of all the  oi gas and minerals it will happen at 5 or 10 cents and this is not me but the Iraqi busisness news speaking

Jayzze wrote:no I am not joking once they act together it will happen think of all the  oi gas and minerals it will happen at 5 or 10 cents and this is not me but the Iraqi busisness news speaking

A pegged currency's exchange rate to its backing currency can not significantly exceed the ratio of the money supply to the reserves.  period.  As exports grow so will imports so the CBI's reserves remain about the same on average.  More comes in, but more goes out.  So the net gain in reserves really does not change very much based on the economy, even if its booming.  If they were to RV at ten cents then one could spend only 10% of your new found wealth and still spend 10 times your previous entire savings.  Iraqis will go into a import buying frenzy and the CBI will be out of reserves in seconds.   And that does not even consider that if this were to happen most Iraqis will want to cash out into USD just like you want to do and then the CBIs reserves will be gone in nanoseconds.  It can't happen.