Monday, February 2, 2009

The Greatest Ponzi Scheme of All (stock)

After all the final numbers come in, I wonder if Madoff or Enron will have done more damage. My view is that the greatest ponzi scheme in recent years was the '03-'07 market itself. This includes commodities, housing, and the stock market. Some will have you believe that a market bubble is not a ponzi scheme. However, both things have so much in common. New money covering old money in a way where if you get out early enough, you're fine. Ridiculously high returns during that period. Finally, when it blows up, everyone still holding on to a piece goes down hard.

Some would say that if I choose to classify the '03-'07 market as a ponzi scheme, then surely the tech bubble in the mid-to-late '90s was worse? I don't feel this way because there was so much actual innovation and development during that time. Internet infrastructure, chip technology, and many other actual physical developments in infrastructure for all the new technology. What was created during the bubble this decade besides artificially inflated prices? This isn't rhetorical, if someone can enlighten me I'm all for it. There was so much money pumped into alternative energy and solar industry stocks, and yet I wonder how much was actually built and how many companies actually took advantage of their momentarily high market caps? Of course one can say housing, but I wonder about that too. I'm sure a lot of housing projects were started, but I don't know how many will actually be finished.

All I'm saying is that relative to other bubbles, it feels like so little was done that would lead to improvement in quality of life down the road. Because of this feeling, I'm calling that whole market period a ponzi scheme. Of course it's not the greatest ponzi scheme of all. That would be Social Security. And don't let anyone try to convince you otherwise.

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