The Ponzi Factor: Proof by Definition

I talked with the author who has written a book so dangerous if this information becomes mainstream it alters the entire engine of our economy. Tong Lu has revealed just how our stock market is the dictionary definition of a Ponzi scheme. Here’s my conversation with Tong Lu.

"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?"

"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 and Jim Cramer shows, what they focus on is what? Earnings and growth—earnings and growth of the company, right? 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’s called a speculative connection. Okay, speculative. It is not a legal one, it is not a logical one, it is not a definitive or mathematical one; it is pure speculation. Speculative connections don’t mean anything. But the thing is, that is actually what CNBC, what really our school and academic institutions, and Jim Cramer focuses on. 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? It is the purest definition of a Ponzi scheme. I didn’t make up the definition; it’s not my opinion that it’s a Ponzi scheme. Okay, by definition, the SEC defines it. There are three aspects of it: one, it is an investment scenario; two, the investment profits come from other investors; okay, three, the investors think the profits come from somewhere else."

"All right, 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."

"Okay. So we have an investment scenario, we have profits that come from other investors, and those investors who are selling it according to CNBC, a corn gem creme, they think the money comes from somewhere else—like the growth of the underlying company. Okay, so we have an event that we can witness every single day, and we have a definition of a Ponzi scheme. The event matches the definition, right? Therefore, it is a Ponzi scheme."

"There are all these outside arguments—oh, what if a company buys back shares? Oh, what if you know what about voting rights and all that stuff? That stuff? Cool, I can address those, but really, it’s ornamental icing on the cake stuff."

"Okay, what’s hard about writing this book? It took seven years. It’s not explaining why it’s a Ponzi scheme; it’s actually addressing all these ornamental arguments people have and these misconceptions people have. When people say, 'Oh, you know, a stock represents value in a company, a stock represents this,' oh, but this. And the biggest misconception, 'Oh, but the value of the stock is backed by the company.' No, it’s not! They’ve never read these documents; they’ve never read these documents."

"Everything I state, everything I elucidate, comes from SEC filings. I don’t trust newspaper articles; I don’t look at the internet for these stories. Okay, why? Because if I found a story and I put it in my book, somebody can debate it. It is debatable. If I use somebody else’s secondhand source, it is not debatable when it comes from Google’s filings, when it comes from these companies—Tesla, Berkshire’s filings—and all my information, my book comes from these filings."