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2/28/2005
Some Variations on Big Cons, by Victor Niederhoffer

1. One of the tenets of movies about cons is that it's always the con man that gets to eat crow in the end. One sees many variants of this in markets but the losses that the con man faces with his own trading is often to be predicted.
2. Part of the big con, which always involves a big store with fictitious actors, is the staged exit from the store, where such things as bogus policemen are called in to arrest the actors and mark unless they run. This often has the effect of bringing the mark back for more, even after he has lost everything the first time. Again, this reminds me of so many recent events.
3. The con in con comes from confidence that the con man builds up by convincing you of his integrity and legitimacy. Convincers such as a track record making much money in the first year, when presumably the trades were hypothetical or involved peanuts is a good convincer that we always find in our field. Other convincers are the appearance at seminars with lofty professors, and books and interviews in newspapers.
4. The con is good at appearing to be wealthy, with limousines, fancy offices, and odyssian vistas standard props, operating in some cases out of a rented bank, just for the occasion. Wealth in the information age comes from high powered mathematics, rubbing shoulders with Nobelists, great erudition in seemingly academic articles, and fake humility.
5. 'You can never con a honest man' is a standard adage of all such books, the classic being The Big Con by linguistics professor David Maurer. (I find it interesting that Maurer sued the producers of "The Sting" but settled on the courthouse steps.) The larceny in the mark in the market is their desire to get rich with a simple fixed system. It can't be done, and marks become easy victims to the inside information con, or the other two big con prototypes, the wire or the payoff.
6. The big con evolved from a dollar discount store that served as a front and a lure for a three-card monte game in the store. Since no one ever won in the game, and everyone lost all their money, the store didn't have to give away too many bargains. The store evolved into the big con where fake betting parlors, stock exchanges and other elaborate scenarios were enacted. An ironic twist is that one store became so successful at selling the actual discounted dollar goods that it became the seed corn for a national chain of department stores.

Perhaps some legitimate business will some day come out of the numerous big cons that we are subjected to in the market firmament each day.

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