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Monday, December 15, 2008

Financial Ninja or Ponzi Ninja?

A comment on the post Ponzi Schemes, Madoff and Falling for it Everytime:

"Ben,

I don't mean this in an offensive way, but a simple thought exercise for you.

You have been a successful trader over the years, I'm guessing with "much better than normal" results.

Trading stocks (not investing capital in a company, mind you) isn't a real business, is it ? check. Abnormal returns ? check. Aren't you also part of a Ponzi scheme ? Well, you maybe be smart enough to time your entry and exits.. just like some guy who sold a buncha houses in 2006 ? Isn't there a very thin line here ?

I'm interested in hearing your thoughts on this."

So, is trading nothing but another version of a Ponzi scheme? Is the Financial Ninja nothing more than a Ponzi Ninja? Fight amongst yourselves...

(I'm traveling. Posting will be weak and sporadic, but I will tackle this subject later in detail.)

17 comments:

Mr. Dinwiddy said...

anyone who uses fiat currency is partaking of an exponential ponzi scheme. total credit market debt is beginning to slow noticeably, suggesting we're close to peak fiat now. we now need to talk in quadrillions to cover the various financial exotica...silver lease rate (SIFO) has been negative for 5 days in a row now...interest on T bills negative too...we're close to the collapse of the grander financial ponzi scheme.

Vizsla said...

I'm at a loss here. Trading is actually the very essence of any mercantile company. Inventories are financial instruments.

One takes positions - i.e. stocks up in inventiory - and one sells.

Just because inventory can be stocked *and* sold in a very short period of time doesn't change the essential nature of the underlying business.

As to whether it's a real business.....well, I suppose that depends on whether is winning or losing....

Anonymous said...

"Fiat currency" does not equal "Ponzi scheme".

Anonymous said...

The extension of credit, which is in essence what a fiat currency is, is not "ponzi scheme",...expanding human activity, by the wise realization that not all obligations come due at the same time, is not a "fraud".
Debt can be forgiven, as well as defaulted.
Bottom line: Money is a human invention.
Roman creditors were entitled to make slaves actual slaves of the debtor, and if many creditors had one debtor they were legally entitled to divide the very body of the debtor amongst themselves, although history has no clear examples of the latter ever actually occurring. Maybe 'cause they were not entitled to kill the debtor in the process.
The Romans had no fiat currency, either. Although coin clipping and debasement by the Rulers happened a lot...

Anonymous said...

The Stock Market,commodities,currency etc. are all forms of "Ponzi" schemes.
Definition of Ponzi scheme is that original players or early players are paid off by subsequent players!
Sound familiar all you players out there!! Now some will say Ponzi scheme's are fraudulent... I say they are only fraudulent because they are not regulated by the government!!! If you make $$ from a Ponzi operation that is regulated by the government...well that is legal!!!

Anonymous said...

if i buy stock in a vaporware startup in 1998...knowing full well they dont make a profit...never will...and i sell my position for a profit...am i involved in a ponzi scheme? what is bullshit? i buy something and sell it to someone that wants it more than i do...

what is illegal is lying about profits/etc...that was the real problem.

most of these problems are just about greed, laziness and stupidity.

navid said...

Financial Ninja or Ponzi Ninja is best left as terms for those brokers/bankers who sold trillions in NINJA mortgages (No Income, No Job, no Assets). That was literally a scam that involved fraud at all levels (giving peoople who had no income debt, relaxing bank leverage through securitization, selling toxic bonds on mortgage debt around the world as AAA rated, CDS swaps beng sold by companies who didn't have the money to back up their sales in the case of default etc etc).

A trader buys undervalued things and sells them for when their value is perceived to be more. That is it. All economic activity is based on such markup of goods/services.

Anonymous said...

he's merely taking a drink from the water hose of "money" flow

Anonymous said...

When countries devalues currencies through hyperinflation, it is a big ponzi scheme.

When governments have the ability to print money based on borrowing from future revenues, it is likely to turn into a ponzi scheme.

The current social security system is probably another ponzi scheme.

When you trade in a ponzi scheme, you are also a participant.

Mark said...

The only thing that actually adds value is productivity increases.

The vapor ware comment above fits my description of Ponzi. "Just because someone wants it more" == greed. Greed drives the Ponzi.

Vijay said...

I vote Ponzi scheme! :)

Stinger said...

Whoa... no publicity is bad publicity, except when you are anonymous. Being the 'anonymous' a.k.a 'complete idiot' who posted this Q., I fully concur with Mark on the 'vaporware' thing. That is a Ponzi scheme. No wealth created, just a mirage of it.

Take the Tulip scandal of a few centuries ago. And replace it by "vaporware" - I don't know why this isn't obvious. If there is a perpetual "false" increase in the perceived value of a piece of junk, you are right in the midst of a Ponzi scheme. What is "false" & what isn't ? I don't know..

I never declared trading a Ponzi scheme- it was a question dammit! I like the explanation that trading doesn't promise "losslessness" and hence isn't Ponzi... or not ?

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