4 ms·

How are SPACs a ponzi? My understanding is that its a pool of money that gets raised to essentially take a private organization public through a merger with (th

by bko 3y ago

How are SPACs a ponzi? My understanding is that its a pool of money that gets raised to essentially take a private organization public through a merger with (theoretically) less red tape and cost. You buy into the SPAC without knowing exactly what is being bought but at the time of purchase you have the option to redeem you investment. There are other clauses if the organizer can't find a suitable takeover target. You can criticize the fees or the fact that they are essentially trying to get around regulatory and reporting requirements. They did well a few years ago now they are doing poorly. But how is it a ponzi? Not everything that loses money is a ponzi

majormajor 3y ago
SPACs make it easier to get the next round of money for your Ponzi with less due diligence needed (where Ponzi is used in the loose sense of "there's no long term real business model, just sell it off to the suckers before it blows up"). So, sure, more accurate to say "SPACs make passing laughable-business-plan Ponzi schemes off as real businesses and cashing out to public investors" than "SPACs are ponzis directly" but... I'm not sure this hair needs splitting.
- epgui 3y ago
  It's not hair-splitting, a SPAC is simply not a Ponzi scheme. That doesn't mean it's a good investment.
  - mlyle 3y ago
    SPACs may not always be ponzi schemes, but plenty are of dubious, unvetted businesses and for the principle purpose of paying returns to prior investors.
    - epgui 3y ago
      Yes, but that's only superficially similar to a Ponzi scheme. They're just not Ponzi schemes.
      - deleted 3y ago
        [deleted]
      - iancmceachern 3y ago
        How so? I'm genuinely curious, what are the specific distinctions? Many others consider it so: "Holmes duped just about everyone about the efficacy of Edison. For 12 years, she essentially ran a Ponzi scheme by attracting millions of dollars from primarily venture capitalists that saw it as a unique opportunity to cash in on the boom in Silicon Valley." https://www.ethicssage.com/2022/01/fake-it-until-you-make-it-the-story-of-elizabeth-holmes-and-theranos.html https://www.ethicssage.com/2022/01/fake-it-until-you-make-it...
        deleted 3y ago
        [deleted]
    - throwawaymaths 3y ago
      I lot of legitimate businesses fall into that category. Also illegitimate businesss. Theranos was definitely illegitimate (and had the characteristic of little fish investors trying to sell to bigger fish), but it would be a pretty severe category error to call it a ponzi scheme.
      - iancmceachern 3y ago
        I dont agree, many others consider what she did no different than a ponzi scheme. It's not just me and the patent commenter: "Holmes duped just about everyone about the efficacy of Edison. For 12 years, she essentially ran a Ponzi scheme by attracting millions of dollars from primarily venture capitalists that saw it as a unique opportunity to cash in on the boom in Silicon Valley." https://www.ethicssage.com/2022/01/fake-it-until-you-make-it-the-story-of-elizabeth-holmes-and-theranos.html https://www.ethicssage.com/2022/01/fake-it-until-you-make-it... I would appreciate, for my own edification, what specific things you believe are different between what Ms Holmes did and what Maydoff or Ponzi did. I'm genuinely curious.
        throwawaymaths 3y ago
        Theranos was fraud. She made material lies about what the machines do. Ponzis are accounting malpractice that don't even necessarily involve defrauding anyone. It's a problem if you're going to call everything that goes south a ponzi scheme, because it elides failure modes and dulls peoples ability to distingush and analyze bad situations. Is social security, for example, a ponzi scheme?
        iancmceachern 3y ago
        Didn't Ponzi make material lies about what his company did also? It just seems like a dubious distinction. More than what they did being different, I think the laws and terminology around those laws are different now. I don't think there is much pragmatic difference, mostly just semantics no?
        3y ago
sdwr 3y ago
Book smarts vs street smarts You're paying attention to the technical definition. "It's just an investment vehicle!" He's paying attention to the real-world outcome. Insiders made money by offloading bad investments onto retail suckers.
- deleted 3y ago
  [deleted]
- gravitronic 3y ago
  We call those scams
Ozzie_osman 3y ago
I mean... How is VC a Ponzi? Obviously I'm using a very loose definition, not a technical one, but I'm using the same one Chamath used.
- danielmarkbruce 3y ago
  The argument is that VC A's returns a propped up by VC B making an investment at a higher valuation, thereby making VC A's marks look great. They can go raise more money. This can continue for quite some time. While it's not a completely ridiculous analogy to a true ponzi, it's probably better to just call it a bubble. It's closer to a credit bubble, housing bubble etc.
Lazare 3y ago
When people say something is a ponzi, they generally mean that they think it's deceptive, fraudulent, or otherwise unsavoury. They don't mean that it's literally the sort of scheme made infamous by Charles Ponzi. I think there's value in using precise language, so I reget this usage, but it's common whether I like it or not.
- comex 3y ago
  Most of the time I’ve seen something called a Ponzi scheme, there is at least some purported element where earlier investors in an asset make money off of later investors in the same asset, without the asset’s true worth actually increasing. That definition isn’t hard to satisfy – it could be something as simple as a stock price becoming overinflated due to hype – and it may even apply to SPACs, but it’s still a more specific requirement than just being fraudulent or unsavory. YMMV.
  - daveguy 3y ago
    Earlier investors = VCs funding a bunk company. Later investors = SPAC pawns putting up money for a bad investment that doesn't require the normal regulatory scrutiny that an IPO requires. If not Ponzi, seems very Ponzi-like.
- thefounder 3y ago
  Then people should just use the correct term: Rug pull
newshackr 3y ago
SPACs aren't a ponzi scheme but they are set up for the creator to win. Typically they get 20% of the business at lower than market rate and sometimes have clauses for them to still win if it can't find a business to acquire.
daveguy 3y ago
This is the key point: > essentially trying to get around regulatory and reporting requirements. It's just a great tool for a ponzi scheme. A ponzi tool rather than a ponzi scheme. When it gets so tightly coupled to the schemes it enables specifically to get around regulatory and reporting requirements... Tomato, Tomahto.
Fatnino 3y ago
So theres some small startup that seems maybe interesting, you're looking forward to investing when they go public. Suddenly you hear they are going public through a SPAC. Why? Why aren't they going through the usual channels, crossing their eyes and dotting their tees? Laying everything out on the table so everyone can feel confident? The very fact they are going for this SPAC backdoor is a HUGE red flag.

by bko 3y ago

majormajor 3y ago

SPACs make it easier to get the next round of money for your Ponzi with less due diligence needed (where Ponzi is used in the loose sense of "there's no long term real business model, just sell it off to the suckers before it blows up"). So, sure, more accurate to say "SPACs make passing laughable-business-plan Ponzi schemes off as real businesses and cashing out to public investors" than "SPACs are ponzis directly" but... I'm not sure this hair needs splitting.

epgui 3y ago
It's not hair-splitting, a SPAC is simply not a Ponzi scheme. That doesn't mean it's a good investment.
- mlyle 3y ago
  SPACs may not always be ponzi schemes, but plenty are of dubious, unvetted businesses and for the principle purpose of paying returns to prior investors.
  - epgui 3y ago
    Yes, but that's only superficially similar to a Ponzi scheme. They're just not Ponzi schemes.
    - deleted 3y ago
      [deleted]
    - iancmceachern 3y ago
      How so? I'm genuinely curious, what are the specific distinctions? Many others consider it so: "Holmes duped just about everyone about the efficacy of Edison. For 12 years, she essentially ran a Ponzi scheme by attracting millions of dollars from primarily venture capitalists that saw it as a unique opportunity to cash in on the boom in Silicon Valley." https://www.ethicssage.com/2022/01/fake-it-until-you-make-it-the-story-of-elizabeth-holmes-and-theranos.html https://www.ethicssage.com/2022/01/fake-it-until-you-make-it...
      - deleted 3y ago
        [deleted]
  - throwawaymaths 3y ago
    I lot of legitimate businesses fall into that category. Also illegitimate businesss. Theranos was definitely illegitimate (and had the characteristic of little fish investors trying to sell to bigger fish), but it would be a pretty severe category error to call it a ponzi scheme.
    - iancmceachern 3y ago
      I dont agree, many others consider what she did no different than a ponzi scheme. It's not just me and the patent commenter: "Holmes duped just about everyone about the efficacy of Edison. For 12 years, she essentially ran a Ponzi scheme by attracting millions of dollars from primarily venture capitalists that saw it as a unique opportunity to cash in on the boom in Silicon Valley." https://www.ethicssage.com/2022/01/fake-it-until-you-make-it-the-story-of-elizabeth-holmes-and-theranos.html https://www.ethicssage.com/2022/01/fake-it-until-you-make-it... I would appreciate, for my own edification, what specific things you believe are different between what Ms Holmes did and what Maydoff or Ponzi did. I'm genuinely curious.
      - throwawaymaths 3y ago
        Theranos was fraud. She made material lies about what the machines do. Ponzis are accounting malpractice that don't even necessarily involve defrauding anyone. It's a problem if you're going to call everything that goes south a ponzi scheme, because it elides failure modes and dulls peoples ability to distingush and analyze bad situations. Is social security, for example, a ponzi scheme?
        iancmceachern 3y ago
        Didn't Ponzi make material lies about what his company did also? It just seems like a dubious distinction. More than what they did being different, I think the laws and terminology around those laws are different now. I don't think there is much pragmatic difference, mostly just semantics no?
        3y ago

sdwr 3y ago

Book smarts vs street smarts You're paying attention to the technical definition. "It's just an investment vehicle!" He's paying attention to the real-world outcome. Insiders made money by offloading bad investments onto retail suckers.

deleted 3y ago
[deleted]
gravitronic 3y ago
We call those scams

Ozzie_osman 3y ago

I mean... How is VC a Ponzi? Obviously I'm using a very loose definition, not a technical one, but I'm using the same one Chamath used.

danielmarkbruce 3y ago
The argument is that VC A's returns a propped up by VC B making an investment at a higher valuation, thereby making VC A's marks look great. They can go raise more money. This can continue for quite some time. While it's not a completely ridiculous analogy to a true ponzi, it's probably better to just call it a bubble. It's closer to a credit bubble, housing bubble etc.

Lazare 3y ago

When people say something is a ponzi, they generally mean that they think it's deceptive, fraudulent, or otherwise unsavoury. They don't mean that it's literally the sort of scheme made infamous by Charles Ponzi. I think there's value in using precise language, so I reget this usage, but it's common whether I like it or not.

comex 3y ago
Most of the time I’ve seen something called a Ponzi scheme, there is at least some purported element where earlier investors in an asset make money off of later investors in the same asset, without the asset’s true worth actually increasing. That definition isn’t hard to satisfy – it could be something as simple as a stock price becoming overinflated due to hype – and it may even apply to SPACs, but it’s still a more specific requirement than just being fraudulent or unsavory. YMMV.
- daveguy 3y ago
  Earlier investors = VCs funding a bunk company. Later investors = SPAC pawns putting up money for a bad investment that doesn't require the normal regulatory scrutiny that an IPO requires. If not Ponzi, seems very Ponzi-like.
thefounder 3y ago
Then people should just use the correct term: Rug pull

newshackr 3y ago

SPACs aren't a ponzi scheme but they are set up for the creator to win. Typically they get 20% of the business at lower than market rate and sometimes have clauses for them to still win if it can't find a business to acquire.

daveguy 3y ago

This is the key point: > essentially trying to get around regulatory and reporting requirements. It's just a great tool for a ponzi scheme. A ponzi tool rather than a ponzi scheme. When it gets so tightly coupled to the schemes it enables specifically to get around regulatory and reporting requirements... Tomato, Tomahto.

Fatnino 3y ago

So theres some small startup that seems maybe interesting, you're looking forward to investing when they go public. Suddenly you hear they are going public through a SPAC. Why? Why aren't they going through the usual channels, crossing their eyes and dotting their tees? Laying everything out on the table so everyone can feel confident? The very fact they are going for this SPAC backdoor is a HUGE red flag.