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Comment by JumpCrisscross | Hacker News Reader

> These are really old scams – it's just that they're now being applied to a different market

Bitcoin is the Conquistadors landing on the Americas and decimating the natives with foreign diseases.

Mainline markets had pump and dumps. People got wary and regulatory institutions were born to fight the malaise. The regulators were successful. Pump and dumps are largely unheard of in large-cap U.S. equities. With the threat neutered, common memory faded.

Blissfully unaware, investors relinquished the protection of their regulators, cursing them as they shut the door, and wandered out unprotected and unwary. Almost without delay the entire menagerie of foul schemes emerged: pump and dumps, exchange failures, ticker painting, Ponzi schemes, et cetera.

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Around 2000, there was lots of email pump and dump spam in penny stocks. That's when small companies were doing IPOs. I used to get those and forward them to the SEC, which gradually made that stop. Now such spams are rare.

(My favorite two pump and dump spams from that era were BoysToys.com (GRLZ) and XcelPlus (XLPI). BoysToys.com was a strip club in San Francisco which did an IPO. Their SEC filings were detailed and very funny. XcelPlus sold some proprietary lubricant. Their site had a phony FAA endorsement. I sent a copy of that page to the appropriate FAA regional office, and a few weeks later, got a call from an anti-terrorism investigator. XLPI was claiming that the USAF was using their product, which, because their product wasn't approved for aircraft, attracted the attention of the military anti-sabotage investigators. I'm not sure how that came out, but XLPI is now valued at $0.0000010 per share.)

There are many investors blissfully aware that this is going on, they've put their money in only once they believed they could make gains from the Pyramid-Ponzi schemes - meanwhile creating talking points to derive legitimacy or create confusion and cognitive dissonance (at least long enough for them to exit the scheme).

>The regulators were so successful that pump and dumps are largely unheard of in large-cap U.S. equities.

Wasn't the 2008 stock market crash caused by the housing market being "pumped and dumped"?

Not really, that was much more of a systemic issue, so it's difficult to point to one entity responsible. Those problems built up over years.

Pump and dumps by contrast have a much shorter time frame.

So if a pump and dump gets big enough and goes on long enough, it can't be described as such? Even though the price was artificially inflated and investors were fed false information?

In a pump and dump scheme, usually an actor owned the instrument that was being "pumped". In the 2008 crisis, there were a large number of groups that was benefiting from the situation. A guy on Wall Street didn't own the houses that were being bought, nor was he directly lending the money for them.

>A guy on Wall Street didn't own the houses that were being bought, nor was he directly lending the money for them.

Right, it wasn't "a guy", it was banks like Goldman Sachs.

My question remains: if a pump and dump scales up to where "a large number of groups" benefit, rather than just "a guy on wall street", is it no longer considered a "pump and dump"?

What would you consider being the "dump" side of the housing market collapse?

The housing market itself. All the people who lost their houses, jobs and the lost life savings and pensions which were invested in said market.

> if a pump and dump scales up to where "a large number of groups" benefit, rather than just "a guy on wall street", is it no longer considered a "pump and dump"?

Not every fraud is a pump and dump, and not every stupid investment sale and purchase is a fraud. Most of 2008 was stupidity, not fraud. (Some was plain fraud.)

In any case, the pump and dump rules worked. Pump and dumps are trivial to organize. Draconian punishments raise the bar of minimum competence from script kiddies on a message board to LIBOR traders co-ordinating across banks. The complexity of the latter over the former means (a) it's harder to do (b) it's even harder to get away with it and (c) when you get caught, you can be found and fined and jailed.

Post-crisis, rules surrounding swaps and securitisations were modernized and re-written. Our financial system has changed in response. (Banks are, largely, more boring.)

A "pump and dump" scheme is planned around the dump. It is started with the intention that the instrument will be sold with the knowledge that it will have a negative impact on that instrument's price.

The group doing the pumping knows what's coming.

In 2008 banks didn't want it to happen. They would have happily kept doing what they were doing forever. Home buyers would have been happy buying more houses, real estate agents would have been making commission, mortgage lenders getting interest. Happy days!

There was negligence all round and the situation was unsustainable. Do you think the banks wanted it? Some foresaw the collapse and made money out of it but it cost the banks billions, ruined reputations, people lots their jobs. Yes, they got bailed out but they would have preferred to have not needed it in the first place.

There is an interesting Twitter thread pointing it to Chrysler as the root cause https://twitter.com/KashannKilson/status/953740344369102848

>huge twitter thread with tons of gifs

Ugh, kill me.

But this doesn't line up to me, unless there were real estate companies and banks eager to unload their houses? I didn't think there was an excess of housing built that needed to be sold, but I could be wrong, because that would have pushed prices down. I thought the key failure was people being unable to pay their mortgages, and a bunch of financial products built off of expecting people to pay their mortgages, and ratings agencies giving incorrect ratings for those subprime mortgages.

The only connection I can see is people making dumb financial decisions, which is why a rubber stamp for subprime led to a ton of people defaulting. Houses don't really have the same faults as PT Cruisers.

No. In this context "pumped" isn't a synonym for "overpriced". It refers specifically to a few dozens of people buying, then hyping (pumping) a stock to tens of thousands of people, who then buy raising the price, allowing the original dozen of people to sell (dump) at a profit.

Investopedia defines pump and dump as:

>a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements.

Is that not exactly what the ratings agencies and co were doing by giving trash securities AAA ratings?

> Is that not exactly what the ratings agencies and co were doing by giving trash securities AAA ratings?

This is an astute observation. In a pump and dump, someone lies to sell securities they own with the intention of selling into the inflated price. It's special because it requires no assessment of intent to prove. If you own a security, make false or misleading positive statements about it and then sell into the resulting rise, you pumped and dumped.

In 2008, ratings agencies expressed their opinion about a security in exchange for a fee from the issuer. The issuer pointed to those ratings to sell the securities. Everyone knew about the conflicts of interest involved. Selling a stupid product to informed investors isn't illegal. Selling a product you fail to disclose material facts about, or which you knowingly structure to fail, is. Determining whether someone "knowingly" did something is harder than showing they did it.

Side note: many complex, structured securities–like CLOs and CDOs–which lost value in the crisis ended up performing as expected, if one held on to them [1]. The ratings agencies were still very wrong about a lot of things. But fewer than we give them credit for.

[1] https://www.wsj.com/articles/hunt-for-yield-fuels-boom-in-cl...

The ratings agencies didn't benefit from the "pump" in this case. They just did a poor job of assessing the risk by buying into the idea that the risk was lessened by pooling the toxic assets together. If the ratings agencies were not "pumping and dumping" then who are you claiming are the pumper-dumpers?

> The ratings agencies didn't benefit from the "pump" in this case. They just did a poor job of assessing the risk by buying into the idea that the risk was lessened by pooling the toxic assets together. If the ratings agencies were not "pumping and dumping" then who are you claiming are the pumper-dumpers?

I got you. Ratings agencies are the affiliate scammers in this case. You're right, they didn't buy the scammy products or sell them, but they were paid by the product owners to represent the products as legitimate, which they did and made a ton of money. When the products turned out to hurt a lot of people, the ratings agencies/affiliate scammers threw up their hands with a "how could we have known?" while everyone who got hurt was saying "that is literally exactly what you said you were being paid to do, so if you didn't do that, then WTF were you getting paid for..."

Oh.

Wasn't the 2008 stock market crash caused by the housing market being "pumped and dumped"?

"Pump and dump" requires both a "pump" and a "dump". I'm no expert on the housing market crash, but there doesn't seem anything close to a singularish entity that "dumped" after the housing market had been "pumped".

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