A few days ago I reported on a book I was (and still am) reading about the building of the intercontinental railroads in the Gilded Age. For the most part the tycoons who “built” the railroads were actually involved in financial manipulation through which they diverted money, often borrowed from the government, through the railroad, to other entities, and ultimately into their own pockets, while the railroads themselves went into bankruptcy. These schemes at least had the virtue of appearing to be on the up and up; the fraud was not immediately apparent to a potential investor, though the game was exposed soon enough.
Nowadays the grifters seem to announce themselves in advance. I’ve written before about the NFT craze, which involves paying huge sums for the alleged sole ownership of a bunch of pixels. Now we have, and who could have predicted it, Donald Trump launching another grifting operation that involves a financial sleight of hand so dubious that one would think it would alert any potential investor to the underlying fraud. In this case we’re talking about SPACs, or Special Purpose Acquisition Vehicles.
SPACs are an increasingly popular means through which private companies (like WeWork) can go public quickly and with less rigor than is involved in the traditional IPO process. The mechanism is that a shell company raises money through an initial public offering with the promise it will find a promising company to acquire. (This is why they are often referred to as “blank check companies.”) The company then uses that money to buy a private firm, after which it basically hands the business and name over to the acquired company.
I admit this boggles my mind. Apparently the SPAC, which is in essence an entity that does nothing, can get on the stock exchange simply by representing that it will eventually buy another company that will in fact make money. And apparently investors actually buy into this. Presumably the folks behind the shell company get to walk away with a good share of the money garnered from investors, who are stuck, unless they pull out fast enough, with shares in a company almost bound to lose money. At least from what I’ve read, the folks who form the shell company have no legal liability if they buy a turkey, and, when you think about it, only a turkey would need to use this mechanism to get on the stock market in the first place. In this case it’s a media company the sole purpose of which is to allow Donald Trump to have a presence on the internet.
It all seems a bit like a Ponzi scheme, in the sense that the first ones in, who will also be the first ones out, are the only likely winners. In this case, Trump, of course, stands to drain millions from his MAGA followers, who deserve to lose every penny they have. I suppose the scheme is at least somewhat more credible than the NFT scams, but not much more so. Those of us who wish Trump ill can take some comfort in the fact that any ill gotten gains he makes from this grift will likely go toward paying the huge debts he’s accumulated over the past few years, not to mention his lawyers.
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