274 Comments

I told a friend who was investing in it and trying to get me to invest that it was a ponzi scheme. After 35 yrs in Finance & losing my job when Sandy took over Citibank I knew garbage when I saw it. Making money with a computer program, oh yea, sure. Now why is the Fed trying to cause a recession & make middle class people lose their jobs instead of going after the companies that are price gouging. How will mass layoffs bring down the price of a pkg of hamburger meat? The rich don't like it when the middle class gets ahead so they have to price gouge and force recession. This is pure bs.

Expand full comment

Whenever something like this is happening, the question is who are the ;losers and who are the winners.

Losers who were marks have to come forward. "By Tuesday, Celsius hired attorneys to explore a financial restructuring, the Wall Street Journal reported. Fear of systemic risk drove the value of the cryptocurrency market down, now holding below $1 trillion."

"According to its website, Celsius has 1.7 million users. It offers users a very high annual percentage yield (APY)—advertising up to 18.63% APY just yesterday—to deposit their cryptocurrency on its platform. Users can also borrow funds from Celsius so long as they offer other cryptocurrency as collateral for their loans. When investors cannot reach their margin requirement, their position gets liquidated."

Who are the 1.7 million losers? Did they think they were insured? Other "banks" (E.G. FDIC} are covered even if they are only state chartered. The whole enterprise may/may not have been a scam.

Winners need to be identified. Brokers? Is there a "short" market comprised of speculators who bet against Celsius?

If "restructuring" means bankruptcy, I hope a US trustee is involved.

BTW, those 1.7 million losers should be advocates for regulation. Wonder how many are registered Republicans?

Expand full comment

You wonder how many of those 7.5 million were retirees trying to stretch their retirement income, acting with their backs against the wall.

Expand full comment

I think it is more about the Sirens Call and Odysseus than Republicans and Democrats. The younger you are, the louder the call. . . sex or money.

Expand full comment

David Richardson. Follow the data.

IMHO young Republicans more susceptible.

I know some kids who sold them to elderly parents. One ad here in Baghdad By the Sea was telling people to convert their IRAs, 401Ks. Offered more than 10%. interest My parents invested in Mexican pesos when they were getting 20%+ bank interest. The peso crashed. All they got were deductions for losses for about 20 years. That was an object lesson for me. But I had an uncle who put some of his money in a CD that was paying a high rate in a savings and loan was burned during the savings and loan scandal.

Expand full comment
Comment removed
Expand full comment

Not talking about the general population. These people were screwed.

Three card monte. Step up to the table. Marks out life savings in some cases.

Even the cons need religion. Most effective evangelists. Judges at sentence hearings.

Once marks see the cons are "outed" they flip.

Expand full comment

The big haul in three-card-Monte isn’t the buck or two the trickster swipes. It’s the trickster’s pals who size up the looky-loos in the crowd, watching the trickster at work. They lift a dozen billfolds for every buck the trickster lifts. Sweet swindle, eh?

Expand full comment

@ppp - I have never been able to wrap my head around Bitcoin or cryptocurrency. If I cannot hold a dollar that I can deposit in my bank (or my mattress) then… I won’t.

Expand full comment
Jun 16, 2022·edited Jun 16, 2022

Public Service digression:

For any of you who don't know,

JIC you missed it and are interested: https://www.pbs.org/newshour/politics/watch-jan-6-committee-hearings-day-2

(PLEASE NOTE: The previous video announces that the 3rd hearing was supposed to take place yesterday. That hearing was cancelled for some reason and rescheduled for today 6/16/22)

Today's hearing starts a 1:00 PM EDT at: https://www.pbs.org/newshour/politics/how-to-watch-the-jan-6-hearings (At the video link here, you can see today's hearing.)

https://january6th.house.gov/

Expand full comment

You & I are of the same mind on that.

Expand full comment

You know what they say Jaime: “Great minds…” 🌻

Expand full comment

Amen. The stock market is enough of a gamble.

Expand full comment

The wealthy aren't gambling in the stock market; they are manipulating it, for which see Elon Musk's boast. Only those with middle income means are "playing" the stock market. The poor are sidelined, as the middle class gets progressively (!) pulled under. More regulation is needed to protect us all.

Expand full comment

Especially the oil companies. They don't care who they hurt.

Expand full comment

Totally! Chris Krebs said a long time ago that it is also a huge national security risk because hidden, shadow bad actors in foreign countries (and ours) use it. Of course our government should put a stop to it. But our government can't pull back the corporations causing inflation and address the real reason we have it. These damn Democrats are neo-liberalists. Their solution to inflation is what the ruling class wants because it further weakens the American worker and citizen. The rich can take more, get richer, after all, that's what's happening, isn't it? Cryptocurrency is a rich man's game. I always knew we were screwed when Larry Summers was giving Biden advice. Biden is the Obama presidency with the country in the crisis of our lives caught between new-liberal and new fascists annihilating the country from within. There is no one to stop it. I have talked to friends, in my generation, and everyone is scared and horrified at what is happening here. Everyone. We will be fortunate if what's coming now is ONLY a recession. The Democratic party needed to get this right but they are beholden to their donor class and Biden to bipartisanship.

Expand full comment

How strange. I wrote a comment that was going against this massive echo chamber and it got deleted. I was pointing out the numerous flaws and misleading assumptions in this article, but I guess Robert Reich only wants to surround himself with people of the same opinion. Strange because I've learned that this is not how you grow and learn.....

Oh well, have fun staying oblivious to the other side of the medal

Expand full comment

thank you for a wonderfully educational piece. i have long been suspicious of crypto currency, thinking it was a ponzi scheme because i had no idea where the money came from, where it went and anything else about it. it's nice to learn from a real economist that i was right to trust my instincts.

Expand full comment

Such flattery and another nice tribute to Professor Reich. My sentiments exactly. 🌻

Expand full comment

Admittedly I have yet to understand itcoing and crypto currency. However the technology behind the Ponzi scheme can prove to be very beneficial. The true benefit is transparency. While I won’t be investing my life savings(jk there’s no such fund,won’t ever be😅) in crypto, I do believe blockchain technology helps us as a society get closer to our common goals. Imagine if we didn’t have to guess which congress members are receiving their cuts from the NRA in order to keep guns in circulation? If we had transparency would McDonald’s have been able to make mcmillions for themselves off their own monopoly game? All the money everyone made during the pandemic? Furthermore, if your finances were transparent as well, let’s say instead of your bank being able to loan out your money as their “own for profits”, you are able to see where your money is going and you’re the one to benefit if it is loaned out?...while I’m not placing all my eggs in the crypto basket, the technologies behind the concepts of blockchain and smart contracts can prove to be very useful.....I think.

Expand full comment

Bill Maher recently said he doesn’t understand crypto on his program and essentially said, nobody can explain to him how it works. Mr. Reich you should call him and ask to be on his program. You could explain it to him.

Expand full comment

>OUTSTANDING SUGGESTION!<

Expand full comment

This is a wonderful piece, insightful, informative, fun, important. And thank you for reminding us of the great John Kenneth Galbraith and his wonderful term "bezzle"!

Expand full comment

Well said, Adam 🌻

Expand full comment

Yes, I have suspected since I first heard of it that 'crypto' was a huge scam. But, for some reaon - greed, I think- some people always fall for get rich quick schemes. The Republican Party has favored 'open market' and deregulation. I hope to hell, the Democrats won't fall for that "too big to fail" crap again. The only time I ever questioned Obama's integrity was when he agreed to bail out Wall Street. We need Glass Steagle again. Only this time it should be really hard to undo. Besides insider trading the other scheme that needs to be criminalized, is buying short where you put in 10 % , then use other people's money to purchase at a 'low price', sell high and "make bundle".

Expand full comment

Revival of GLASS-STEAGALL long overdue. But not possible in this "captured" climate. Sad.

Expand full comment

I agree with you on Obama. People lost; banks won.

Expand full comment
founding

@Faye. The first in stand to make a lot of money. Then the next crowd thinks "it's still early, I can make a lot of money" then the average guy on the street says "those people made a lot of money, maybe I can get in on this..." that last step is where it tips over, but the early folks (and the inventors) still made a lot of money, taken directly from the pocketbooks of the average guy on the street. Ponzi inventors all know that their scheme will tip over - that's why they take money out at an early opportunity.

Expand full comment

Is that why Elon musk cashed out his Tesla Stock? With an IPO of $22.00 and a 5 for one stock split, Telsa Stock is up 18,000% for a company barely making a profit. Elon is pushing "DOGECOINS" as his next big thing and because Tesla is up 18,000% then DOGECOINS will climb also. The Ponzi scheme was named after a guy named Ponzi so Tesla and DOGECOINS will be the "Musk scheme". If it seems too good to be true...

Expand full comment
Jun 16, 2022Liked by Robert Reich

Totally correct. It was all evident from Day One. By 2018 some London builders who were working in my house were bragging about how much they had made in Bitcoin. Ordinary men who usually believe in bricks and mortar and their own solid practical skills. Such scams corrupt all moral sense.

Expand full comment

I've >never< met a compulsive gambler that ever did anything but brag about how much they won on the lotto, the casino, or whatever. I've >never< heard a peep out of 'em on how much they lost at the end of the day.

Expand full comment

Exactly. Gambling, including state lotteries, produces nothing of value and sucks huge amounts of capital out of communities that need every bit of investment they can get, selling nothing but false hope. The same for crypto: it produces nothing. Likewise the Ponzi schemes that threatened in 2008.

When will humans learn that only producing something that encouraging human flourishing - food, clothing, shelter, health care, community, education, social services - OK, also entertainment, which also creates community! - is worth investing in?

Expand full comment

Profound truth

Expand full comment

The German Philosopher, Friedrich Hegel, said:

"We learn from history that we do not learn from history."

In this moment we find ourselves, we must prove him wrong, at least for once.

Expand full comment

"There's a sucker born every minute....."

How many Trumpers were losers in crypto? Is there a correlation?

Expand full comment
Jun 16, 2022Liked by Robert Reich

Please Wall Street is controlled by American Oligarchs, look at what Musk did to twitter and its stock! The regular everyday American is controlled by the very few, iie: NRA, Big Oil. I am more concerned about their manipulation of the Stock Market then I am of Crypto. I suggest you look up what a Ponzi Scheme is and look at the Real Estate bubble that is happening again with housing that is inflated.

Expand full comment
Jun 16, 2022·edited Jun 16, 2022

And the "student loan backed securities" that seem like they were created almost entirely to drive up student loan rates and tie the rest of the economy back into the con, so certainly someone is out there arguing that forgiving student loans will hurt the economy... only in so much as they packaged them into toxic asset packages again and pawned them off on institutional investors, just like with the 2008 mortgage backed securities.

Wall Street's ability to innovate new dysfunctional grifts apparently has no limit, and no self awareness that they are building the same house of cards over and over again with a different deck. Imagine if any of these people used their keen intellect for anything that actually improved society.

In the absence of wisdom, discipline, and self awareness on Wall Street, regulation is needed to stamp down on some of these pipedreams *before* they are turned loose to ruin everyone else's long term economic prospects.

Expand full comment

Lucille. Got to see what short sellers like Bill Gates did to Tesla and Twitter stock.

I commented below on Sarbanes/Oxley and Dodd/Frank which should be extended to every market.

"Wall Street" is regulated in the main by the SEC. FTC, Commodity Futures, etc. I heard Sarbanes/Oxley Dodd/ Frank whistleblower cases. The SEC has a bounty program for people who turn in wrongdoing. https://www.sec.gov/news/press-release/2021-177

Also most people don't know that speculators are betting against the market and against stocks and bonds. A puts and calls market exists to even cover future value.

IMHO lobbying is legalized bribery and needs to be criminalized. Markets are a form of gambling, subject to scams.

Expand full comment

"Lobbying is legalized bribery." Guess that's why John McCain called it "corruption" when he was campaigning against GWB for the Rep nomination to run for President on the Republican ticket. I changed my registration to Republican so that my vote would count for him, while asking my ancestors to forgive the vote cast out of necessity.

Expand full comment

Bandits can always be heard, “We don’t need no stinking [regulations]!”

Expand full comment

yes ; remember the Texas energy grid failing in a cold snap not too long ago? They did not want regulation to require investments that would protect against the massive failure of the grid in a deep freeze. Some people died.

Expand full comment

And people will die in the heat waves. In Texas this week, the (untruthfully) much-maligned wind and solar sources keep pouring out the KWH, much to the chagrin of those who feed off people's misery in that designed-to-fail grid "system."

Expand full comment
Jun 16, 2022·edited Jun 16, 2022Liked by Robert Reich

I think you are spot on Robert. I have been saying the same. JKG is one of my heroes and his observation on the bezzle also spot on. Interesting if you read the “Pecora Report” and distil the risks it reveals, you find they are cryptos risks today. As I keep on saying there is nothing new here. Great column keep up the great writing. JAS.

Expand full comment

Yes! Enter Liz Warren!!!!!!!

Expand full comment

They must stop all money flowing into government by lobbyists.

Expand full comment

I once read a report by anthropologists that found evidence for a prehistoric tribe carrying an elder with them in their migrations via a travois - a huge expenditure of effort and resources. Why? The anthropologists posited: they were carrying their library. Their map (this was pre-GPS). Their wisdom. Their _memory_. Our culture dismisses anything more than a month old as worthless, practically. We leading-edge Boomers remember the stories our parents told of the Depression, and our own postponed retirements in 2008. But to what avail?

Thanks for the new word: Bezzle!

Expand full comment

The youth today think we “old timers” know nothing because we’re relatively retarded regarding technology. I read that somewhere and that the more primitive the society, the more the esteem for the aged are because of their experience based wisdom.

Expand full comment

Thank you Dr.Reich. Most easily understood explanation I’ve ever read.

Expand full comment

Makes a lot of sense. Regulations=protections.

Expand full comment

I know very little about finance, but I do know something about the history of the ‘29 crash and corporate Dem Clinton and the killing of Glass-Steagal. I do know that in NEw York State the crypto lobby has fought hard to repurpose old fossil fuel plants to “mine” cryptocurrency, and thereby exacerbate the climate crisis.

Expand full comment

Thanks for reminding us of this, Joe. Indeed - perhaps the end to this ecological insanity will be a good thing that comes out of this crypto-crash.

Expand full comment

When will we accept that we have the best democracy money can buy?

Expand full comment

Got to eliminate speech = money! Buckley v. Valeo.

Expand full comment