SoftBank leads the way in losing money on tech bets

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Shortly after the revelation of FTX’s collapse last week, the name SoftBank appeared among the first backers of the struggling cryptocurrency exchange. Inevitably, perhaps.

The Japanese tech conglomerate, its insiders say, will fully write down its FTX investment by around $100 million: Horrifying but, when placed against the more dramatic $10 billion investment loss that SoftBank has revealed during its second quarter results on Friday, of an almost comforting modesty.

In WeWork’s accident-strewn path to this latest debacle, the omni-error sentiment of the world’s most prominent (and self-proclaimed) “visionary capitalist” is now properly settling in. SoftBank can claim to be in full defensive mode and its founder less involved in investment management. But where there is an opportunity to lose money on technology these days, Masayoshi Son always seems to be one step ahead of the market for having found it a long time ago. He may also, along with visionaries such as Elon Musk and Mark Zuckerberg, be among the clearest modern redefiners of John Kenneth Galbraith’s “bezzle.”

The term was coined by the famous economist almost 70 years ago and describes the temporary gap between the perceived values ​​of assets and their longer-term real value – a gap that history shows is widening the most. during boom times and times of irrational exuberance.

Galbraith derived his concept from the idea that, in the sometimes long period between a crime committed and revealed, the embezzler and his victim can enjoy the same sense of ownership over an asset. This false dual property defines the bezzle, he suggested, and the victim is then in possession of a sometimes significant amount of “psychic wealth”.

Charlie Munger, the billionaire vice chairman of Berkshire Hathaway, refined the concept 20 years ago with the argument that the bezzle doesn’t require embezzlement, a Ponzi scheme or any kind of fraud to exist. When market valuations are decoupled from the true earning power of the asset, they also create that illusory “psychic wealth” upon which individuals, businesses, and entire economies can thrive for often surprisingly long periods of time.

Three years ago in the FT, Merryn Somerset Webb argued that a decade of accommodative monetary policy following the global financial crisis had once again updated the bezzle for modern times: whatever it takes , it’s good public relations, easy money and a passage where the markets are not disturbed. by “the impossibility of profitability”.

Others have argued that the bezzle evolved from many modern faces. Most of them are well outside the original framework of fraud and many, according to economist Michael Pettis, occur alongside cases where debt is also rising.

In addition to the bezzle formed by inflated asset bubbles, overvalued collectibles and speculative currency runs, Pettis notes, one of the greatest sources of bezzle in an economy is created when there is huge overinvestment. in infrastructure or manufacturing facilities that are never justified by the economic value created. Japan’s famous construction of “bridges to nowhere”, and more recently China’s construction boom, he says, are major bezzle generators.

Son, Musk, Zuckerberg and others, however, may now be in a class of their own. Certainly, it can be argued that they are simply part of already identified sources of bezzle creation: the valuations attached to their own companies and those in which they invest suddenly look awfully like gas giants in a universe of asset bubbles more vast.

But it could also be argued that these numbers — and others across the tech world have achieved success through the emergence of metrics that didn’t exist a few years ago — represent a bezzle of futurology.

Son and others come forward, and are willingly chosen by their fans, as visionaries. Success in one or more areas has made them feel like they know what technology, industries, economies, and societies will do and want next. In the shadow of these visionaries, others have often been given the same benefit of the doubt, especially when someone like Son endorsed a lesser visionary by pumping billions of dollars into their vision.

The tumble in tech valuations that hurt SoftBank doesn’t, even now, completely invalidate the hunches that some of these numbers were betting on. His and others may turn out to be perfectly correct in the years to come. But it seems increasingly clear that they have become fabulously wealthy in a bubble of belief in the power of vision which has, in turn, produced a new brand of bezzle, waiting to be revealed in months and years. years to come.

leo.lewis@ft.com

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