Tuesday, November 27, 2018

Is Uber Just Another Ponzi Scheme? And Who Remembers Bernie Madoff?

As I write this, Uber is preparing an IPO or public stock offering estimated at a value of $129 billion dollars sometime in the upcoming year 2019.  As some might say, "that's a lot of green cabbage, brother!"  Or maybe its something far more questionable than leafy vegetables, since cabbage is eatable, and Uber's IPO possibly just financial garbage and nothing else, this due to years of unsustainable business practices producing billions of dollars in losses since its 2009 inception, this past quarter alone losing 1.3 billion.  The question now is, just why do so many so-called financially astute investors remain willing to invest money in something hemorrhaging cash, an operation providing no clear signs indicating fiscal profits?

But first, here is what the US Securities and Exchange Commission says about Ponzi schemes in a section entitled "What is a Ponzi Scheme."  Read the following and beware!

"A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed from new investors.  Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little to no risk.  In many Ponzi schemes, the fraudsters focus on new money to make promised payments to earlier stage investors to create the false appearance that investors are profiting from a legitimate business."

The unfortunate answer to my earlier question might be greed, something Charles Ponzi and Bernard (Bernie) Madoff knew much about, historically two characters promising investors huge profits based upon nothing little better than thin air.  Mister Ponzi bilked clients for over $20 million dollars in the 1920s, claiming that discounted postal reply coupons were their financial nirvana.  Madoff,  even more dishonest, defrauded 4,800 individual and corporate investors of at least 65.8 billion dollars, issuing manufactured paper and documents to trusting friends and clients, Madoff finally arrested in December 2008.  At least Uber, financially, has been nominally transparent while flushing billions down the investor toilet directly into the pecuniary sewer, those dollars twirling round and round.

What then makes Uber the equivalent to a Ponzi scheme when it isn't hiding what it is doing, not purposely misleading investors?   This potentially shared definition is based upon two factors.  One, it appears that the TNC (ride-share) model can never create a profit, explaining Uber's diversification into bicycle rentals and autonomous driving technology.  And two, huge investor stake holders like Japan's Soft Bank understand, knowing its investment returns relies upon a successful IPO, granting them all their money back plus a substantial return profit guaranteed.

Okay, initial investors will have gotten their money back but what about all those new public stock shareholders, when will their Wall Street financial wager see returns?   Of course, buying stocks is a financial gamble but usually the investment is based upon sound business premises, for instance knowing that people will keep buying Heinz catsup for their French fried potatoes, or that folks will continue eating McDonald's "Big Macs" despite all the calories and potential obesity.  This is something you can essentially "bank upon."

Uber's product, if you can call it that, is instead giving rides provided by independent operators, rides currently financially supplemented by Uber investor money.  That this can be termed a viable and real industry model is something yet to be explained.  At least the taxi model and operation is well understood, with over a hundred-year long history.  Uber it seems is more "flash in the pan," with that pan riddled with holes.  How can something like this make money?

And that is what I am saying, it probably can't, Uber, and Lyft too, economic fantasies, a financial model equal to hallucination, everyone thinking or believing they see something that just isn't there.  Professor Timothy Leary would be proud, his psychedelic adage "turn on, tune in, drop out" taken on by a new generation of straight, non-hippie billionaire investors, all ingesting some new kind of monetary LSD convincing them that Alice (or is it Travis Kalanick) is actually ten feet tall.  I know Gracie Slick is still alive.  Maybe they should give her a call, asking her opinion.  I would love to hear her response.


  1. Characteristic of Ponzi schemes is selling more than 100% of the equity in an enterprise. This claim hasn't been credibly made regarding Uber or Lyft, so far as I know. Overvalued is not the same as oversubscribed. Selling stock for twice what it's worth is not the same as selling the same share twice.

    What seems to be happening with Uber is an attempt to let some early investors, who are at this point "don't wanters", sell their shares. The coming IPO may be a bad investment, but not a Ponzi scheme. There may other violations, however, which would surprise exactly nobody.

  2. Uber is garbage. They're in business - my opinion - because they've bribed so many local authorities. Their biggest investor is the Kingdom of Saudi Arabia, the most disgusting country on the planet and where women (and others) are treated like crap. Uber drivers are like sharecroppers and they really don't even make a living wage. I recently read that the cabdrivers of Australia are instigating a class action suit against Uber. GOOD FOR THEM! I WOULD LIKE TO SEE A CLASS ACTION SUIT BROUGHT AGAINST UBER BY THE CABDRIVERS OF THE UNITED STATES, EVERYWHERE! THERE IS NO REASON WHY UBER SHOULD BE IN BUSINESS.