I have likened truth-telling in finance to being sober in a house of addicts; when noting irrational, destructive behaviours, you are often dismissed as the problem–too dumb, critical or boring to join the party.
Adoring naked emperors is a common theme. Most now know the story of Bernie Madoff’s Ponzi, and yet, compared with many of today’s financial schemes, Madoff was a small-time operator. Many will be filled with regret when participants eventually hit bottom, but any recourse available is much less clear. When taking recommendations from the sell side, the profits are theirs and the losses are all yours.
The Financial Times offers some smelling salts in Why bitcoin is worse than a Madoff-style Ponzi scheme. Here’s a snort:
“…an economic analysis of bitcoin must recognise its uniqueness in the history of manias. As an object of speculation, bitcoin is unprecedented in the degree to which there is no there there. This post-modern mania features big prices for entries on nobody’s spreadsheet. A zero-coupon perpetual has arrived not as a joke but as a trillion-dollar asset. Unlike a Ponzi scheme, bitcoin cannot end in a run. In a crash, the holders of bitcoin will collectively have lost what they have paid the miners for their bitcoin. This sum may be not far from the sum originally invested with Madoff, after accounting for inflation. But bitcoin holders will have no one to pursue to recover this sum: it will simply have gone up in smoke, a social loss. The holders of bitcoin would then only wish it had been a Ponzi scheme.”
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