Wall Street Is the Definition of a Ponzi Scheme (Literally)
So why am I reading that money that should be invested in improving
companies or used to increase employees' salaries, is used, instead, for
increased dividends to investors?
Miriam
Shutterstock
Maybe it makes me unsophisticated, but I don't think about the stock market
that much. I know that many say it's the central nervous system of our
economy. I know its estimated worth is around $30 trillion. And I know that
when it tanks, the lives of millions of Americans are wrecked, ruined and
upended. I know that when that happens, the powerful millionaires (and
billionaires) who caused said destruction generally grab their money and
their well-coiffed dogs and run for it. (Sometimes our government has to
step in to make sure the elites get all of their money and don't have to
share in the devastation they've dispensed to the lower classes.)
But in my day-to-day life, I don't think much about the stock market. So
maybe I shouldn't care that the entire thing is a gigantic fraud. But I do.
I do care. And you should too.
In a few minutes' time you will see that our stock market is a Ponzi scheme.
(And unfortunately, it doesn't matter whether you're happy or sad or
ambivalent about that fact. It will be true nonetheless.)
When you picture buying stock in a company, what do you picture? You
probably imagine a company like PepsiCo, and you are an investor in that
company. You own a tiny piece of it, and because of that, you get a tiny
proportion of the profits, which are called "dividends." Well, that's not
what a stock is. That's what stocks used to be, but that was back when top
hats were worn by non-magicians, and if a lady showed her knees in public,
she was considered a floozy who should die alone.
In modern times, you almost never receive the profits of the business.
Dividends are rarely paid out, and they don't usually amount to much. Plus,
the company is not obligated to pay you anything for your stock ever.
Don't take it from me, take it from someone much smarter than me. Here's an
example about Google from Tan Liu's book "The Ponzi Factor."
"
A share of Google can trade around $900, but Google explicitly states in
writing that the par value of their stock is only 0.001 dollars. Google also
says that they do not pay their investors any dividends, and their class C
shareholders have no voting rights. So, if you own a share of GOOG, you
won't receive any money from Google, you won't be allowed to vote on
corporate issues, and Google isn't obligated to pay you anything more than
0.001 dollars for that share you bought for $900.
So this begs the question, "What the hell do you own?" The gut-wrenching
answer is nothing. You own nothing. You own a slip of toilet paper that you
might be able to convince someone else to pay you for.
Next, if you're feeling cheeky, you might ask, "Then where do the profits
come from? If I buy Google at $20 and sell it for $220, where did that $200
come from?" The answer is it came from other investors who were willing to
buy the stock. As Tan Liu puts it,
"
This is actually a negative-sum situation because the underlying company
isn't involved in the transaction. The investors are just cannibalizing each
other for profits, and there are fees attached to every transaction.
Ah, cannibalizing each other for profits-now this is starting to sound like
an American enterprise! It says it right there on our flag, "America:
Cannibalizing each other for profits since 1776!"
The money you make from most stocks, if you make money, is coming from other
investors pumping new money in. And if there aren't new investors willing to
buy your stock, then you're just screwed, standing there with your thumb up
your ass (which is an odd expression if it's supposed to mean the person is
doing nothing; in fact, it sounds like they're involved in a very
significant event).
So, to rehash, this is a system where you buy into something and the only
way you make money is by convincing someone else to buy it. If no one does,
then you lose everything. Why does that sound familiar? Oh, I know. It's the
dictionary definition of a Ponzi scheme.
Again, don't take my word for it. The Securities and Exchange Commission
(SEC) defines a Ponzi scheme as "[a]n investment fraud that involves the
payment of purported returns to existing investors from funds contributed by
new investors."
The stock market is a Ponzi scheme. A Ponzi scheme is the stock market.
Some may argue that a Ponzi scheme usually involves lying to the investor.
But Wall Street has that in spades as well. Most investors don't understand
that they own literally nothing. They don't know that they are simply
gambling. And they don't know that their profit relies on everyone still
believing the fraud is real.
This means that the only way to get your money back or to profit is to find
another person willing to buy it. Now, don't get me wrong. Your argument may
be, "This is America-there's always another chump! We are based on a long,
time-honored tradition of never running out of chumps! We're infested with
'em."
That's a fair point, but I don't think you see anyone proudly touting that
as the definition of the stock market. I would actually respect the whole
system if right on the front of the stock exchange it said, "Put your money
into the stock market! The only way you'll make more money is if you find a
dolt to buy whatever stocks you just bought. But there are an infinite
number of dolts! This gravy train is powered by morons. So you have nothing
to worry about."
If it said that on the door of the stock exchange, I would invest.
But the fact that our stock market is a house of cards built on idiocy,
stacked on spider webs, hanging tenuously from the Hindenburg, is actually
kind of a big deal. Think about this:
"
As of Sept. 2017, the NASDAQ and the NY Stock Exchange had a combined value
of over $30 trillion. . [This] means investors believe they are entitled to
$30 trillion in real money. But there is only $1.6 trillion of cash
circulating in the U.S. economy, and $3.8 trillion in existence in the
entire U.S. economic system.
Only $3.8 trillion in hard cash, which means the stock market is built
mostly on nothing (much like Jared Kushner). And if a fraction of investors
wanted their cash at the same time, it would collapse.
Let me just say, I don't have any problem with gambling. If you want to
gamble at a casino, then gamble your little heart out. Stay up all night
until you're on your last $2 trying to give a handie to a slot machine in
hopes it might pay ya afterwards. Go for it. But the casinos are honest with
you. They tell you it's gambling. The front of a casino doesn't say "Invest
your pension in roulette. Do you have a child with a degenerative disease?
Then put all your savings on red-32 so that he'll be taken care of after
you're gone."
Casino's don't say that. The myth of the stock market does.
And some people may think that if it were truly gambling, that would mean
it's not predictable. Yet finance professionals claim they know how to
analyze and predict the market. So you put your money in their (greasy)
hands, and they help you grow your fortune. Well, multiple tests have been
done to see whether the professionals know how to predict the market. Liu
referenced one contest that was also covered by Forbes:
"
[The contest] was between amateur students, finance professionals, and a cat
named Orlando, who did all his investing by tossing his favorite toy mouse
onto an electronic grid. Orlando, the cat, won the competition.
I repeat: A cat was able to better predict the stock market. And yet,
trillions of dollars in pensions and life savings are dumped into stocks by
people hoping that whomever they trusted that money to is smarter than a
cat.
Yet they aren't. They aren't smarter than the fucking cat.
What other profession is that true for? Anything from math teacher to
maintenance man to tennis player, if you were worse than a cat, they would
get rid of the whole profession. (And at some point, someone would say,
"Besides, the kitten tennis players draw a far bigger audience anyway.")
But it's true for financial advisers-because the stock market is a Ponzi
scheme. It's a racket, a hustle, a con, a fast one, a hose job, a crooked
calzone! (I think I made up that last one.)
And yet, in many cities gambling is illegal. They'll send in armed police to
break up poker games. You have to get a permit for a raffle. But when a
sociopath in Chicago bets your entire pension and loses, there's no SWAT
team, no arrests. Because it's a legalized Ponzi scheme.
By the way, these ideas are not allowed on our corporate media or financial
websites. The almighty stock market does not permit even the slightest doubt
to creep in. Tan Liu has tried to put his ideas on popular finance blogs and
web forums, and they are often either deleted or he's been banned
altogether. He's been banned from Quora and from editing Wikipedia. They act
like he went on a Scientology website and wrote, "You know Tom Cruise is not
an alien messiah. He's just a short weirdo!"
It's tough to overstate the impact this con game has on our world and our
lives. For example, when the news came out that North Korea had brokered
peace with South Korea, the stocks of the major weapons contractors crashed.
Billions of dollars were "lost." That exerts major pressure on powerful
people to ensure peace does not happen. This is just one example of how
strong the gravity of this Ponzi scheme is.
There are some steps we could take to make the stock market less
exploitative. We could stop speaking about stocks as if they're money. You
know, stop saying you have $1,000 of Apple shares and instead say you've got
"1,000 padoodles of Apple shares." If you sell them, only then do you have
$1,000.
Step two is to realize that the market economy in general is designed to
exploit billions of us while a tiny number get ridiculously rich. It doesn't
care about the health or sustainability of our society as it facilitates the
extraction of all the wealth and resources by sociopaths. Just ask Jeff
Bezos-he's now worth 150 billion padoodles of Amazon stock while his workers
are on food stamps.
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This column is based on a previous segment written and performed by Lee Camp
for his television show "Redacted Tonight."
Lee Camp