Well, there is a pretty clear distinction between actual transactions between real parties (even though they may be engaged in bubblicious behavior and may be relying on the greater fool theory) and complete frauds where there's no underlying transaction, only lies. If you buy a house, and then sell it a week later and make $10K, that's a real $10K profit for you, even though it may rely on craziness in the housing market, and even though if you keep repeating that you may eventually get burned. Likewise, if Sino-Forest buys 10,000 acres of forest for $10 million, and then forest next door sells at $2K/acre, Sino-Forest can entirely appropriately book a profit of $10 million by marking to market--even though that may be a bubble and Sino-Forest may end up losing money on the deal in the end. It becomes a Ponzi scheme when there's no actual forest, when Investor 1 is paid a profit on their investment and told that it's because of forestry deals, but actually there's no forestry deal making money, just Investor 2's money being handed to Investor 1 to convince Investors 3 and 4 to come in...
There are borderline cases, and even cases where the Ponzi scheme operator manages to convince themself that it will work out and is real (Ponzi himself apparently did not understand that he was running a fraud, even though he clearly was). But while bubbles and bad investment decisions are bad and can threaten the health of the economy, they're also not the same as out-and-out fraud. Of course, they may go hand in hand, as when mortgage originators made fraudulent mortgages for resale because they were trying to cash in on the bubble. But even then, you can distinguish pretty cleanly between the trying to cash in on the bubble (legal, but perhaps stupid and ultimately destructive) and the lying about the characteristics of the people taking the loans to sell more loans (fraudulent, illegal, and destructive).
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Date: 2011-06-06 06:38 pm (UTC)There are borderline cases, and even cases where the Ponzi scheme operator manages to convince themself that it will work out and is real (Ponzi himself apparently did not understand that he was running a fraud, even though he clearly was). But while bubbles and bad investment decisions are bad and can threaten the health of the economy, they're also not the same as out-and-out fraud. Of course, they may go hand in hand, as when mortgage originators made fraudulent mortgages for resale because they were trying to cash in on the bubble. But even then, you can distinguish pretty cleanly between the trying to cash in on the bubble (legal, but perhaps stupid and ultimately destructive) and the lying about the characteristics of the people taking the loans to sell more loans (fraudulent, illegal, and destructive).