Stealing is about lowering acquisition costs for the buy-side, but what about maximizing profits on the sell-side? The oldest, simplest formula is a three-step process:

  1. Acquire something that's worth very little.

  2. Market it as something worth a lot.

  3. Sell it for a premium.

I call this Subpriming, where the sell-side player makes a brick of lead look like a brick of gold. It is unfortunately a very common type of Valuation Game, one where the line between marketing and fraud can often get blurry.

Although the name is bound to remind you of subprime mortgages (more on that in a minute), Subpriming is all around us in our everyday lives. It manifests any time someone "puts lipstick on a pig," as the old saying goes. For example, if you've ever bought a car that turned out to have all kinds of hidden defects, you've been Subprimed.

You could say an unhealthy portion of the modern economy is built on Subpriming. In order to generate profits, sell-side players need to create margin for themselves and the best way to do that is often through distortion of value. It is "buy low, sell high" taken to the extreme.

Pump & Dump

The first and most common form of Subpriming is the Pump and Dump (or P&D for short). This is a common strategy in the criminal world, where boiler room salespeople call unsuspecting marks and hype them up about a worthless stock. The marks don't realize that their purchases only serve to enrich the salespeople, who dump their shares and burn the buyers once the price per share gets high enough.

That type of P&D is illegal, as it should be. However, what most people either fail to recognize or are unwilling to admit is that P&D is a core aspect of many supposedly legitimate Valuation Games as well. Much of the early 21st century was a story of Pump and Dumps in the tech world: companies with very little intrinsic value went public, with IPO buyers acting as the "greater fool" exit liquidity for insider shareholders. Even if the stock lost money in the long run, there was nothing illegal about it—but a Pump and Dump strategy was still in play.

Cryptocurrencies have already established a long track record of Pump and Dump behavior as well. One player or a group of players create a token of some kind, pay an influencer to make it sound like the next big then, then sell after some multiple has been hit. Even mainstream media figures like Kim Kardashian couldn't resist the urge to P&D on their large audiences.

While some people will inevitably go to jail for this behavior, sell-side players can (and do) get away with it when they don't take it too far. The line tends to be outright fabrication: saying your company has $1 million in revenue when it has zero, claiming you own gold bars when you don't, and so on. These are claims that can be verified and used against the player, so it's a (rightfully) dangerous game to play.

Exaggeration, on the other hand, is not against the law. Black hat players like Adam Neumann, who was discussed in the Standards section, was an expert at Pumping and Dumping. With nothing but hype and delusional confidence he turned what was effectively a real estate company into a $47 billion dollar (on paper) behemoth on the brink of a giant IPO. If he'd just toned it down a bit and not screwed with the numbers, he might have even gotten away with it.

Buy-side Commanders need to be extremely careful about dealing with players who are good at Pumping and Dumping. Their entire net worth is built out of using people like you to realize unworthy gains. And sell-side players, both Commanders and Contenders, need to likewise think twice about whether the reputational cost and potential criminal liability is worth the reward.

Short & Distort

There's also a sort of flip-side Subpriming game called Short and Distort (S&D), which is when buyers deliberately lower the cost of an asset by publicly downgrading its value. This is the standard tactic of short-sellers, who take a short position on a stock they suspect is overvalued and then release a research report that kills the price.

It's not illegal for a short-seller to do this as long as the information they release isn't fabricated. If a company is a giant fraud (like the Nikola case discussed earlier), then the short-seller is within their rights to say something. The company can try to sue, but as long as it's accurate information they stand just about zero chance of winning that case (at least in the US).

Short and Distort runs on the same logic as Pump and Dump, but it benefits the buy-side and not the sell-side. A truly ruthless player could even use the two strategies in tandem, first by using S&D to buy at a steep discount, then later flipping it for a premium using P&D.

Salting & Goldbricking

Two old con tricks that make up common Subpriming games are goldbricking and salting.

Goldbricking got its name from the practice of applying a gold coating to a brick of worthless metal—while the worker may appear industrious on the surface, in reality they are less valuable. The con artist would then find a mark and sell him the brick worth nothing for the price of a brick of gold.

Salting described con games where gemstones or gold ore were planted in a mine or on the landscape, duping the mark into purchasing shares in a worthless or non-existent mining company. During gold rushes, scammers would load shotguns with gold dust and shoot into the sides of the mine to give the appearance of a rich ore, thus "salting the mine."

While these two strategies originated in much simpler times, they are both prevalent in the modern economy. In fact, complexity has made this much easier: the harder it is to assess the value of an asset, the easier it is to Subprime the other player.

The namesake of this type of Valuation Game is an excellent example, at every stage. Mortgage loan officers fabricated information about the loan applicants (goldbricking), then those people's mortgages were mixed up with a few high-quality mortgages (salting) in order to create derivatives. Those derivatives were rated AAA (goldbricking) and then integrated into other, even more convoluted financial instruments to further obfuscate this whole debacle (salting).

Frank Partnoy, a former derivatives salesman who worked on Wall Street right as the most dangerous derivatives started to make an appearance, described them like this in his book F.I.A.S.C.O.:

The cake was crap. But the icing was real chocolate. The icing persuaded the ratings agencies to call a crap cake a chocolate cake.

This is the essence of Subpriming in general, and goldbricking in particular. The modern economy is filled with assets that fit this profile, although getting to the point where you can recognize this is not easy—especially if you're a targeted buy-side player.

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