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Comment by rsynnott | Hacker News Reader

> the most you can say is that they were front ends for a ponzi. It would be like setting up a front-end to receive investments, and then depositing the money with Madoff.

This was absolutely a thing; most large Ponzi schemes have feeder funds.

https://www.reuters.com/article/us-pwc-madoff-settlement-idU...

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Indirection seems to be very valuable with scams. The 2008 housing crash had a lot of layers:

1. Loan Application (Borrower Lying about income) 2. Mortgage Originator ( Not validating loan application ) 3. Mortgage Back Security Creators ( Obfuscate what is in the security ) 4. Ratings Agencies ( Not being honest that step 3 happened ) 5. Sellers of MBS ( Not being honest that steps 1-4 exist )

I don't know enough about crypto to list out all the layers but I'm pretty sure I understand the first step:

1. Claim that underlying technology will be revolutionary just like the internet in a vague way that cannot be validated.

im pretty sure at this point everybody knows there is nothing behind it, at least 80% people that invest in something like this, so like Ponzi they hope that enough people will come in that they can cash out before everything falls out.

6. Buyer not caring about any of this

7. Absolutely nobody at all caring about this until shit hit the fan.

It's a psychological concept that maybe up to 15% of a deviation from cold hard truth is normal embelishment or puffing. When you line up 5 actors each puffing in the same direction it's easy to get a material total effect, e.g., 75% in the example above, while each actor can maybe feel comfortable themselves with their role in it. This unfortunately is not terribly unusual.

I'd swap 1) and 2). The people writing the mortgages were telling the borrowers to lie, and that the lies wouldn't be checked. It wasn't some oversight.

I understand, there were some cases where #1 didn't even exist, The person at #2 edited the application without #1 knowing. But the #1 situation happened as well, sometimes because a realtor told them that was the only way they would get the house.

I think it was mainly independent mortgage brokers who were telling borrowers to lie, not the actual banks who were providing them

Interesting. I had no idea, but it definitely makes sense. Thanks for sharing.

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