This is one of the reasons downturns in markets are good. If the market would've just kept growing then SBF likely could've kept his ponzi scheme afloat without anyone noticing.
The 2008 recession is what really stopped Bernie Madoff.
The 2008 recession is what really stopped Bernie Madoff.
This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2008. The situation is cataphoric enough without people mis-using terms.
It's not literally a Ponzi, but it's Ponzi adjacent behavior, like what Bill Hwang did.
... cite for this, please. I don't recall there being any significant client money problems in that period.
John Corzine's MF Global was a well known case in 2011.
(This is what FTX was offering customers)
And now we know the accounts weren't actually covered by real money (or "value" as they called it). So when person X was asking FTX for their money back, FTX would send person X+1's money to cover
Sounds like a Ponzi to me
Presumably FTX expected that its risky bets would pay off and that return would then fund the interest promised.
Otherwise, would you consider corporate debt a ponzi scheme?
IMO this is key, the interest being paid out to account holders was not profits from any underlying business, it was just paid out from new "customer" deposits.
If a corporation is in debt and paying back interest, it's sustainable as long as the business actually has a plan to grow. If your business is acquiring new users to pay out obscene interest rates to your early adopters, that's a ponzi
(mr ponzi himself didn't mean to scam anyone either way by the way, until he realized his postage-arbitrage plans were going south and he scrambled not to break his promises)
So did Bernie.
>Otherwise, would you consider corporate debt a ponzi scheme?
Depends on what you count as corporate debt.
I'd have no problem buying the debt of a mature, massive company like Apple or Microsoft, because they have hard assets, steady cashflows, successful products on the market.
The debt of a zombie corporation with a useless product that was only sustainable due to 0% interest rates? No thanks. Is that a ponzi scheme? Probably not the classical definition of one, but it's ponzi-adjecent.
No, he just straight up didn't invest peoples money, he paid out "gains" just from other deposits. That's why it was a Ponzi scheme - that's what they are.
Once he started not being able to make those returns did thing start to unravel. His own kids were in denial right up until the end - almost nobody, even inside Bernie's firm, knew it was fraudulent.
It’s amazing what you can fail to know when not knowing it keeps you out of jail.
My fear is they are just Ponzi-ing on Wayne! seeking the next highest interest rate holding the biggest bag, hoping the 'ol Time Value of Money will save their ass.
The whole house of cards has a lot to do with the _velocity_ at which the money moves and whether it's stagnating or generating interest somewhere else.
My rant is over. None of this stuff has affected me.
It is always can you trust the other party.
And that's the basis of society, government and money.
You are correct. Literally every place offering high interest rates on crypto deposits is a Ponzi scheme.
basically the difference is asset quality and proper accounting. Banks are similar to ponzis, but they are HIGHLY regulated to ensure their continued operation.
The silver lining to all of this is that people might actually start listening to Bitcoin maxi's after this year.
Ha, wow. Yeah no, Bitcoin is not a perfect form of money at all. It-
- uses vast amounts of energy
- can only process a few TPS
- confirms slowly
- has limited quantities which warps economies
- is irreversible in cases of theft or fraud
- is lost forever if you lose your keys
For those of us who do not fetishize decentralisation, those negatives are unacceptable in any form of 'money'. Even if you do believe in decentralisation, it's clear that this is far from perfect.
Bank branches, ATMs, armored cars, computer systems for the banks, computer systems for card processors, credit rating firms, etc. Bitcoin replaces all of that and, comparatively, for significantly less energy. This is a surface-level argument intended for shortsighted thinkers.
- can only process a few TPS
- confirms slowly
On main net. Lightning network can outpace Visa.
- has limited quantities which warps economies
By warp, you actually mean makes them fair and natural. It encourages free trade, merit, and competition. Not fiendish scamming and Machiavellianism.
- is irreversible in cases of theft or fraud
Which is good. It increases the need for reliable actors in the world and creates a citizenry that's more discerning about whom they spend their money with (i.e., building strong, trustworthy relationships).
- is lost forever if you lose your keys
Which is good. It makes you value it. If I hold all of my money in cash and have a house fire, it's lost forever. No difference.
> For those of us who do not fetishize decentralisation
Slaves?
No, it doesn't, it doesn't offer 1% of the services those things you mentioned can offer.
> This is a surface-level argument intended for shortsighted thinkers.
Yes, that describes your argument perfectly.
> On main net. Lightning network can outpace Visa.
The fact the lightning network needs to exist shows flaws in bitcoin, or lightning wouldn't be required. Lightning also has massive flaws and is unlikely to be able to scale very far due to routing issues, and requiring the locking of funds. Its main utility seems to be for people to handwave away problems with bitcoin.
> By warp, you actually mean makes them fair and natural.
No, we have a lot of history to show us currency that is in limited amounts is a very poor idea, favouring and rewarding those who hold the tokens over those who actually produce.
> Which is good. It makes you value it. If I hold all of my money in cash and have a house fire, it's lost forever. No difference.
Wow. This is why people don't do that, and use banks, precisely to avoid that sort of catastrophic loss. Though you've just told us in previous comments that you shouldn't trust crypto custodial services either. You're basically saying "this is a huge risk and in my perfect system you just have to live with it, and there's no recourse if it goes wrong and it's your fault"
No thanks!
> Slaves?
Yeah, this is idealogical nonsense at this point, not any sort of reasoned debate.
But regardless of whether you agree with the points I raise, the idea that bitcoin is 'perfect' doesn't really hold up. The huge energy use is not a desirable feature for a monetary system, one that is 'perfect' would not have that. Perhaps we cannot create such a 'perfect' system, perhaps (and this is not my view, obviously) bitcoin is the absolute best we can ever do(!), it's still not 'perfect', because it encompasses a set of compromises.
It can be used as a means of exchange, but due to being unbacked isn't and can't ever become a store of value, which in turns means it's completely useless as a unit of account due to eternal volatility.
The only way to get real wealth in exchange for bitcoin is to hope someone later decides to buy it. That's again a characteristic of something that isn't money. Americans are forced to sell wealth for us dollars, and without that force it would die. That's actual backing enforced by governmental force.
One of my favorite bond films is Goldfinger (1965), starring Sean Connery as James Bond and Gert Frobe as Auric Goldfinger. In the movie, Goldfinger hatches a plan (they always hatch a plan) to destroy the gold reserves at Fort Knox. This will make his own gold holdings much more valuable, but, Bond intones, it will also destroy the world's economy, since the gold in Fort Knox "backs" our money, and if it were to disappear, we'd have hyperinflation.
And I wondered about that a bit. Suppose a meteor filled with gold were to crash onto Federal Property, and they hook up some tractors and drag the thing into Fort Knox. Would this massive new pile of gold cause hyper-deflation?
Bottom line, I don't think money needs to be backed by anything. It just needs to be limited in its quantity. For example, if gold is money, then what is gold backed by? Anyway, Goldfinger is worth a watch -- great film.
Gold has very weak utility today.
>I don't think money needs to be backed by anything.
Which was empirically tested for the last 13 years. What happens is that people get bored of old ponzi schemes and stop buying them, instead preferring to be early in new ones. Which is why inflation-adjusted btc is at the very early Dec 2017 price. Nobody borrows in bitcoin (denominated in it - borrow x btc, pay back x+y btc) for unrelated investments which is one of the main use cases for money.
>It just needs to be limited in its quantity
Artificial scarcity is infinite. Claiming first artificial scarcity is token is somehow special is just a marketing spiel - one that's visibly losing its effectiveness. Which is why bitcoin dominance is dropping so fast.
Yes, it is:
1. Incorruptible supply enforced via a halving algorithm that can't be messed with without creating a hard fork or receiving universal consensus on the network.
2. Proof of work. In order for the Bitcoin network to function (meaning, for new Bitcoin to be minted up to the cap and for transactions to be validated/added to the blockchain), energy must be expanded. There's no way to fake it.
3. Self-custody that's difficult (near impossible if done properly) to confiscate by force. If you control your keys, you control your money. Full stop. Metals, cash, etc. are all subject to confiscation via force. At worst, they can throw you in jail and torture you and still turn up empty handed if they can't get your private keys.
4. Transmittable to anyone, globally, without limitation/permission in a few seconds to ~ 1 hour.
---
These intangible "backings" are identical to being backed by "the full faith and credit of the U.S." or "the U.S. military." Neither of those are impervious to failure. For example, if the U.S. continues to pile on debt or countries start to dismiss the petrodollar concept, as we're seeing (BRICS), that full faith and credit is meaningless. If they can't pay the military (or foolishly discharge them for ideological reasons) because their money isn't of value, the military won't care to enforce anything.
This is why, ironically, fiat is the ponzi scheme. It requires everyone involved to believe the lie that printing infinite amounts of money and burning it on investments with little-to-no return (e.g., socialistic entitlement programs, moonshot nonsense businesses, dragged out government projects) is some genius-tier strategy. When in reality, it's just one giant cult where everyone is pointing a gun at someone else under the table.
It will inevitably blow up and when it does, the very people who protected it will walk around with their hands in their pockets whistling.
Like sure, you can't steal it from me, but you can sure as hell prevent me from acquiring goods/services with it (Governments all around the world have done an amazing job of that whether they tried to or not), so it's only worth something insomuch as you can turn it into fiat.
And it's only worth what it is in fiat because people believe that in the future it will be able to buy goods and services, despite no evidence that it will be able to do that.
Not inherent value.
>energy must be expanded. There's no way to fake it.
That's a negative, not a positive. It means bitcoin actively destroy wealth while giving nothing in return.
>3. Self-custody that's difficult (near impossible if done properly) to confiscate by force. If you control your keys, you control your money.
It's not money, so properly described: a ponzi scheme that's harder to shutdown than more traditional attempts.
>Neither of those are impervious to failure
How fragile or not the backing mechanism is a completely separate issue.
>This is why, ironically, fiat is the ponzi scheme
It isn't. Investors (???) into us dollars don't cash out on future investors that were mostly lied to about what the dollar is. It's a tax token and people are forced to buy it.
>It requires everyone involved to believe the lie
No, it doesn't. It requires the ability to physically enforce the law. Whether people like the dollar or not, is, in itself, of zero consequence as long as the enforcement mechanism works.
>If they can't pay the military
Yes, an incompetent government can kill the economy to the point that no amount of force will work, whether due to violent opposition or lack of any remaining wealth. What actually happens is that people switch to using other stuff for transactions. It can be fiat money that's enforced by another country, or something of inherent value, like coffee beans (happened in Venezuela), salt.
>When in reality, it's just one giant cult
It's not a cult, money is always and everywhere a tax extraction technology. It's going to exist in some form as long as it's possible to tax people under a credible threat of violence. One day in history some human ancestor figured out that collecting rare thing (like seashells) and then forcing people to buy them (with actual wealth) is a good way of living and that's how it goes.
>It will inevitably blow up and when it does
...it won't be replaced by bitcoin, but by some other form of fiat money. Below all the false marketing lies a simple truth: buying bitcoin is a one sided wealth transfer, giving away real wealth in exchange for a printed from thin air token. Some people will as long as they think they will be able to sell to a greater fool in the future.
The problem is that eventually the scheme gets old and it's becoming hard to see where they could come from. People that like ponzi schemes realize that it's better to start new ones and be early. Which is exactly what happened. Btc's returns in the last cycle were pitiful. Now it's bear market and it's extremely weak - both absolutely and relatively. It's an old 13 year old thing that failed in all its stated goals. On top of that it's getting hammered by massive inflation.
Next bull cycle it's going to under-perform even worse and that will be the last time general public will think about it.
> is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.
So if they are paying yield while actually losing money and covering it up by recruiting new clients then it's a Ponzi scheme.
Tell me which retail brokerages lost their customers assets because they gambled them away?
There is no glossing over the fact that all these crypto explosions are a result of largely re-implementing a pre-Fed, pre-FDIC, pre Great Depression style banking system with all its long-patched defects.
Banks are required to keep a percentage of deposits in risk free assets as part of the Basel Accord[1].
Banks were marking risky assets such as Super Senior tranches of CDO's as risk free when, guess what, they were actually super risky. When the value of those tranches dropped, the banks lost tons of value and all of the sudden couldn't cover their debts because they were gambling with what should have been cash.
So to answer your question: all of the banks (who were dealing in CDO's) did this.
https://en.wikipedia.org/wiki/Basel_III#US_version_of_the_Ba...
I first learned the term "bezzle" here on Hacker News and read more about it in the article "Why the Bezzle Matters to the Economy": https://carnegieendowment.org/chinafinancialmarkets/85179
It's an interesting read to those who enjoy economics.
Warren Buffett