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MENTAL MODEL · M5847

Ponzi Finance

Ponzi Finance
BusinessHigh supportMacroeconomics
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Updated 2026-08-05

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INTRODUCTION

English translation pending.

CORE DEFINITION

A framework from Hyman Minsky's financial instability hypothesis, which classifies financing into hedge finance, where cash flow covers both principal and interest; speculative finance, where cash flow covers interest only and principal must be rolled over; and Ponzi finance, where cash flow covers neither and repayment depends on asset appreciation or new borrowing. The core claim is that financial structures evolve toward fragility during good times. The qualification is that the classification concerns the sustainability of a financing structure rather than the honesty of the borrower.

SCAFFOLDING EFFECT

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- Use Cash-Flow Test: Compare income against interest and principal to classify the financing structure. - Use Rollover Dependency: Check whether continuing depends on new borrowing or on rising asset prices. - Use Stage Timing: Treat entry into the Ponzi stage as the start of a countdown rather than as strength.

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Stable periods encourage borrowers and lenders to accept thinner margins, so structures migrate from hedge to speculative to Ponzi finance. In the Ponzi stage, survival requires either asset prices to keep rising or new lenders to keep arriving, and both conditions depend on confidence rather than on cash generation. Once confidence falters, refinancing stops and the structure collapses, which is why the appearance of prosperity persists until the moment it does not.

MINIMUM ACTION

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Ponzi_schemeZH · Explicit
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