Drew Magary has a point. We’re always predicting the end of things, and that’s particularly true in finance. “The U.S dollar is about to collapse!”, “The fiat system will implode!”, and “Tesla is going to zero!” are just a few of the common sensationalist phrases you’ll hear often. So maybe it’s time we think about what will emerge from all the monetary carnage we’ve witnessed over the past few months rather than what will collapse, fall, and die — like we always do.
Presently, we’re entering the late late-stage of the business cycle which usually involves deleveraging, bankruptcies, and eliminating companies that we thought were cool at the time but that we don’t really need right now. Though with the Federal Reserve and the White House doing whatever it takes to prop up our bubble economy via immense amounts of monetary stimulus, cool but unprofitable, mediocre companies will not only remain but thrive.
Since anyone with a checkbook can borrow money at zero cents on the dollar, we’re about to experience a capital misallocation epidemic. We will continue to throw money at crazy, stupid, and outlandish ideas instead of punishing them, creating monetary imbalances on a scale we’ve never seen before.
To stop the system from imploding, authorities will keep interest rates at zero, and capital misallocation will swamp financial markets. Cheap money will allow anyone with both good or bad intentions to sell their soul to the debt devil and start a company, no matter how unprofitable, inefficient, or bonkers. In fact, in this system, companies that never should have existed will not only survive but prosper with even the craziest business models going public eventually.
The result is the normalization of the fake innovation era: a brief period where the finance elite successfully convinces us that run-of-the-mill ideas are true innovation just to keep the profit machine churning. This period will be all about spreading a narrative that what we're creating is revolutionary while, in reality, it's all about using perception management to rip off investors, not about innovation and progression.
Decades ago, if you asked anyone how advanced society would become, by now they imagined we would be sending men to Mars, driving in levitating cars, and using robots to do all our chores. But instead, we’ve seen a rise in mediocre ideas touted as revolutionary breakthroughs. We’re supposed to believe that attaching televisions to bicycles, ordering dog walks via an app, and monopolizing industries just to make a quick buck is somehow progress.
We’re hiding behind our absence of creativity which is evident by who we idolize as the modern-day heroes of innovation. Something’s gone wrong when the poster child of 21st-century progression is supposedly our lord and savior Elon Musk. A CEO who has failed to turn an annual profit in over 17 years, let alone committing securities fraud halfway through the trading day and calling the man who helped rescue trapped Thai children a “pedo guy”. But still, we continue to hail Musk as a superstar innovator. Which makes you think: where have all the modern-day Edisons, Hertzs, and Franklins gone?
Quite simply, elitist financial engineering has thwarted innovation. Wall Street has banished genuine innovators into the shadows because now, more than ever, it’s all about growth instead of efficiency. Most of the new, well-known companies we know and love are just drawn-out, elaborate pump and dump schemes that end up with insiders jumping ship after the IPO — or after the new kid on the block: SPACs. Insiders create a narrative, sell it to vulnerable investors, and go public. Then, all they have to do is wait for the lockup period to expire and cash out their winnings.
We’re reaching a point where every industry, even tech, has realized there’s no profit in a cure. Take the depression treatment market. Despite mounting evidence that gut health is responsible for depression, doctors prescribe medications that treat the symptoms but fail to correct the underlying causes: bad diet, poor exercise, and stress. We stay depressed while the pharmaceutical industry keeps the profit machine churning. It’s this business model that will eventually become Wall Street’s backbone. Real innovators with real solutions will be ignored in favor of managing symptoms.
We will continue to suck up to the big corporations that perpetuate the fake innovation era. We know this because Softbank — and its $100 billion equity fund — is considered the pioneer of modern-day innovation, yet it’s everything we must hate if we want society to progress.
Softbank’s business model sets out to monopolize and consume a particular industry in the name of profit. They buy a stake in a company then inject billions of dollars of levered up capital into it to outgrow and crush all competition, and, if needed, undercutting them on price. They achieve next-level perception management, creating and maintaining the idea that their company has a revolutionary, industry-changing product or service, while their real aim is to annihilate competition using growth until profitability becomes inconsequential.
The WeWork debacle is just the tip of the iceberg. Softbank has owned stakes in Slack, a profitless messenger app, DoorDash, a profitless food delivery service, and Wag, a profitless $300 million dog walking service. Notice a trend here? Most of its companies have never made a cent. But this doesn’t matter. It’s all about conquering both big and small competitors through inefficiency. And if they can accomplish this, why back anything of real value when it's easy to convince investors that a cool but mediocre money-losing idea will become the next big thing?
One of Softbank’s biggest failures, Uber, will become the poster child of the fake innovation era. The car rental firm continues to declare itself as an innovative tech company. But if it was revolutionary, the company would make money, but alas, it never has. The taxi business was doing just fine without a cool, trendy app.
But since the Softbank business model enables insiders to profit from large-scale pumps and dumps, they will do whatever it takes to persuade the people into thinking this is normal and good for society. Going public with mediocre concepts posing as revolutionary ideas remains the easiest way to make significant money in this market as our cheap money environment forces yield-starved investors to look for their next fix, buying into any idea they think they could sell to a greater yield-starved fool at a higher price.
If this is what an innovative society looks like then we’re doomed. It’s time to call bullsh*t before this faux innovation facade becomes the norm. We must challenge the status quo, challenge everything that perpetuates the fake innovation era. We must reject the Softbank business model and stop touting it as normal, and, instead, promote the real innovators that elitist systems have hushed. It’s necessary to avoid regressing into a society that favors money-making schemes over true innovation.