PT Barnum famously said, “there is a sucker born every minute”. If he were still around, he would love the new investment “products” that have become multi-billion-dollar business categories since the great recession. Here are my three favorites:
- Crypto in its purest forms — meme coins, non-fungible tokens (NFTs). Current market value of meme coins only: $38 billion
- Prediction markets — Polymarket, Kalshi, PredictIt have quadrupled in the last 12 months to a market value of $68 billion
- Zero-day options — now roughly half of all S&P 500 options volume.
Each of these is clothed in language of legitimate investment markets but none has any basis in reality.
For readers who do not geek out on Bloomberg and The Economist, like I do, crypto in its purest forms is perpetual future bets on tokens created in a digital blockchain. They exist solely to be traded and your “investment” bets that someone else will pay you more than you paid for…um, nothing.
Prediction markets are dressed in the language of futures but there is no real exposure. Wheat futures are purchased because wheat is grown and you invest based on the size of the harvest. Buying “X will win an election” is based solely on your opinion, nothing else.
Zero-day options are, again, nothing you take possession of; you just bet on how a certain market will close that day. Options language is used but these options do not even hedge a real business risk, they are simply hours-long predictions.
Following the great recession, John Bogle wrote a book titled “Enough” depicting the risk of creating financial products that have no intrinsic value. He grounds his thesis that there are only three uses of money in commerce – to make something, to trade something and to finance making or trading something. His concern at the time was collateralized debt and mortgage obligations (CDOs and CMOs) which could at least be traced to real loans, bundled up to be bet on.
In the cases of crypto, prediction markets and zero-day options, nothing is made, nothing tangible is traded, nothing is financed. Unlike the CDO and CMO markets of the early 2000s that brought down the economy, these new markets have no house, no farm, no factory—no job created or sustained along the way. One person must lose for another to gain. Pure gambling.
Why should we listen to Bogle? He founded and built Vanguard Investment Management Company, currently managing about $12 Trillion. He knew investments. He was also morally grounded and that’s where this gets interesting.
Instead of becoming the world’s first trillionaire, Bogle structured Vanguard to be owned by its investors, which it still is. His company was worth trillions at his death in 2019, his own estate a substantial but relatively modest $80 million. And therein lies the point of his book, and this article: How much is enough?
“Enough”, Bogle’s book goes further than describing the early 2000s form of rampant speculation that ended that particular bull market and brought the global economy closer to the brink than at any time since the great depression of the 1930s. The greed of manipulators attracting crowds of suckers has ended every expanding economy since the first notable economic bubble burst in 1637. (See Dutch Tulip mania.)
But Bogle used his book to explore a societal illness much deeper than financial markets. He opens the book with a story of successful authors Kurt Vonnegut and Joseph Heller speaking at a Hedge Fund manager’s party when Vonnegut told Heller that their host made more money that day than Heller had from selling 10 million copies of “Catch-22”. Heller smiled and said to Vonnegut, “yes, but I have something he will never have”. Surprised, Vonnegut asked, “what could that be?”. Heller said, “I have enough”.
These, and other purely speculative products are symptoms of something much deeper.
- A society that increasingly prefers the thrill of the bet to the patience of building.
- A financial system that has discovered it can extract fees from motion alone — no creation required.
- A generation taught that “investing” means “trying to guess right” rather than “owning a piece of something that makes or trades things.”
Most Americans prosper as part of an economy that produces, trades and finances those actions. We built a media company, then restaurants and now mission businesses that improve our community—using our well-gotten gains to finance the making and trading of something, and to create opportunities for others along the way.
But I’m a witness, not a preacher. And I have neither investment advice nor suggestions for regulations that might put a fence around these new forms of speculation.
Instead, I can only witness the late Jack Bogle who, I think, would not be surprised by meme coins or Polymarket; he’d more likely be sad.
The warning was clear in his book and we’ve gone farther anyway.
The question he’d ask isn’t how do we regulate this but what have we become that we wanted this so badly?
Peace,
Tim McCarthy
