Contrary to popular opinion, Ponzi fraud has lasting charm, which not only reflects greed and credulity, but also reflects a simple fact: like this fraud, valuable innovation also depends on the snowball effect. FOMO, that is, the fear of missing, may be used by many fraudsters to manipulate their personal interests.
The collapse of the cryptocurrency exchange FTX Bankman and the fascinating rise and fall of its founder, Fred, are just the latest revelations of the risks of financial innovation. At present, it should not be difficult for regulators, financial institutions and investors to find an obvious Ponzi scheme. So why should we learn such hard lessons again and again?
It has also promoted many beneficial progress. Only when enough people join in can progress become a reality. This also explains why many entrepreneurs of Bankman, such as Fred, believe in a philosophy of "making false appearances until you succeed". When this method becomes more insidious, problems often arise in "making false appearances before you cheat on property".
As early as 200 years ago, the earliest perpetrator of the Ponzi scheme was named after him. He is widely regarded as a pioneer of monetary theory. At the beginning of the 18th century, Scottish adventurer and economist John changed the French financial system through a unique monetary experiment during the inflation crisis in the summer of 1720. At that time, France was deeply in debt, and John tried to stimulate the economy by replacing all metal coins with paper money. He believed that the scarcity of gold and silver was the reason why the French economy was in trouble. He successfully lobbied the government to give up the currency.
John's labor theory was widely accepted, partly because of the inefficiency, arbitrariness and unfairness of France's financial and monetary systems. He can also cite a precedent: in 1694, Britain transferred most of its national debt to a private company, the Bank of England. In exchange, banks have the right to issue notes· Lao believed that the reform effect of Britain was not as good as expected, because the metal currency could still circulate, forcing King William III's government to take expensive metal currency recasting action· Lao believes that this continued reliance on precious metals is neither convenient nor efficient.
Much like FTX, efficient marketing, fraud and financial speculation also contributed to the John Labour scam. His first step is to create two cooperative companies to improve the value of their products. In 1716, he persuaded the French government to allow him to open a bank to issue notes. The government can accept this kind of paper money as tax. At the same time, the silver coins still in circulation also depreciated.
Later, John Law founded the Mississippi Company with real business purposes, and established an obvious paradise of natural resources and productivity. The company was granted the monopoly right to trade with North America and French colonies. John could raise working capital by issuing notes or bonds issued by Lao's bank to purchase stocks. Mississippi's shares eventually attracted investors, so the company assumed all French government bonds and converted its paper currency into a new efficient French economic currency.
Three centuries later, Freed of Bankman Rejoice founded two mutually supportive companies, FTX and Alameda Research, including two. FTX issued its own token (FTT) as a credit mortgage. In order to attract investors and government authorities, John Law needs some convincing descriptions. He boasted that his company had saved the French financial system. As capital grew, Mississippi took over the trade teams of competitors, such as Indian companies, Chinese companies and African companies· Therefore, Lao became the last private lender. Another feature, Bankman, in the summer of 2022, Fred also imitated the troubled cryptocurrency issuer and exchange.
John Law also drew on a large number of contemporary literary works and described an incredible vision of how France, exhausted by the Louis XIV War, would become rich through a series of miracles, changes and unlimited consumption. Similarly, it is also selling FTX and cryptocurrency. Bankman Fried is also facing a crisis. He is desperate.
Nowadays, people think that paper currency lacks convenience and is more and more related to criminal acts, including drug trade, arms smuggling, tax evasion and sanctions destruction. This has led many countries to test digital currency. The United States has not joined this trend for a long time, mainly because banks, as a powerful lobby group, fear being excluded· Fred noticed that people were worried that the American economy would be as backward as the French economy at the beginning of the 18th century, and he seemed to have given a solution.
But convincing descriptions are obviously not enough. Political elites need encouragement to participate· Lao and his colleagues who promoted the foam of Nanhai Company in the English Channel gave stock rewards to their supporters· Fred made a large donation to the Democratic Party, while the other party made a large donation to the Democratic Party. FTX executives also made donations to Republicans. Rather than taking a clear stand against regulation, FTX should cooperate with regulators to create a framework to protect their interests.
In his apology letter to FTX Bankman's employees, Fred attributed the failure to excessive leverage and said that he underestimated "how big is the risk of a highly correlated crash?" But like John Bankman before him, Fred needed huge leverage to support his reputation.
ending
Finally, both rise and disappear rapidly. After all, Ponzi schemes and foam can only exist when people believe them. Nothing can damage a person's reputation more than many promises that cannot be fulfilled. Both scams eventually failed because their founders issued too many superior alternative currencies.
