Stock market is a Ponzi scheme? This alters entire engine of economy – Lee Camp
Liu has written a book ‘The Ponzi Factor’ - “so dangerous that financial websites, finance shows and blogs…want nothing to do with him and banned him from their comment section,” Camp said introducing the guest on his show.
The author revealed “how our stock market is the dictionary definition of a Ponzi scheme - frauds that end with a lot of people getting royally screwed.”
Lee Camp: What do people think the stock market is? Most people think they're investing in a company and they get a small piece of the dividends, the profit, that's the money they get from it. But that's not really true, is it?
Tan Liu: No, it's not. Those are usually the people who don't actually read the documents in terms of what the stockholders are really entitled to. Basically, as you can see on CNBC in Jim Cramer shows, what they focus on is earnings and growth of the company. Why are they focusing on that? That's because they're trying to predict or …foresee whatever the stock price is going to be by earnings and growth.
The issue, of course, is profits from stocks and what makes a stock price move is not the earnings and growth. It is actually money from another investor. Now, is there a connection at all with respect to the earnings and growth and this price movement? Yeah, it is called a speculative connection: it is not a legal one, it is not a logical one, it is not a definitive or mathematical one. It is pure speculation.
What else is a speculative connection? A Ponzi scheme. I can speculate, a Madoff scam, when people will stop entering with more money. Speculative connections don't mean anything, but the thing is that is actually what CNBC, what school and academic institutions and Jim Cramer focus on.
LC: When your stock goes up, you buy something for $20, it is now worth $200, all that money is not coming from the company's profit, rarely, if ever, it is coming from other people willing to buy that stock from you for that price. But that is kind of the definition of a Ponzi scheme: all the money coming in is from new investors. And if they stop putting that money in, it all collapses, right?
TL: You are absolutely right. It is the purest definition of a Ponzi scheme. First of all, there's a name for this process of buying and selling at that profit. It is called capital gains. Basically, you buy low and sell high. That process itself is the definition of a Ponzi scheme. I didn't make up the definition. It is not my opinion that it is a Ponzi scheme.
By definition, the SEC defines there is three aspects of it. One, it is an investment scenario. Two, the investment profits come from other investors. Three, the investors think the profits come from somewhere else. And what we can clearly observe every single day, every single moment, the stocks are trading, is in the event where the stock seller, an investor, sells it to another investor, taking some capital gains profit if you're lucky.
So we have an investment scenario. We have profits that come from other investors. And those investors who are selling it, according to CNBC, according Jim Cramer, they think the money's come from somewhere else, like the growth of the underlying company. We have an event that we can witness every single day and we have a definition of a Ponzi scheme: the event matches a definition. Therefore, it is a Ponzi scheme.
WATCH THE FULL EPISODE HERE:
Like this story? Share it with a friend!