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Comment by bko | Hacker News Reader

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

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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.

We call those scams

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.

It's not hair-splitting, a SPAC is simply not a Ponzi scheme. That doesn't mean it's a good investment.

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.

Yes, but that's only superficially similar to a Ponzi scheme. They're just not Ponzi schemes.

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...

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.

I dont agree, many others consider what she did no different than a ponzi scheme. It's not just me and the patent commenter:

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.

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?

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?

There is a meaningful difference. A ponzi scheme involves: schemer takes money from Mr. A. At a later date he takes money from Mr B. He gives some of the money from Mr. B to Mr A, and tells Mr. A that it's "returns". He tells Mr B. all is fine. Then Mr C comes along and his money is given to Mr. A and Mr. B, as "returns". This continues.

It's a very specific type of fraud. Most fraud isn't a ponzi, just like every injury isn't a broken arm. It's silly to go around calling all injuries a broken arm.

It's not because A ==> B that B ==> A. A Ponzi scheme is a fraud but a frauds doesn't necessarily imply a Ponzi scheme. That's is not just semantic, it's a logic falacy.

I think it's still considered a ponzi scheme if you tell people exactly what you are doing.

I believe that may be correct, although in practice there is often/usually/historically-always (?) deception involved, because presumably no morally competent adult would willingly give their money to an honest Ponzi unless they knew they stood to benefit by being one of the first to pull out.

But as you point out, I don't think deception per se is really the defining feature of the Ponzi.

> many others consider what she did no different than a ponzi scheme

I can interpret this in many different ways. Maybe they mean "no different than" in the sense of "no better than", ie.: as a moral or value judgment.

But if I interpret the words literally, then these people are just wrong. Theranos was a terrible waste of capital, and there was plenty of fraud involved, but it was not a Ponzi.

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.

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.

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.

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.

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.

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.

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.

Then people should just use the correct term: Rug pull

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.

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