Money Talks

Why a SPAC Bubble Is Actually Good for the Economy

A boom in blank-check IPOs is setting off alarms, but they solve a very real problem for some companies

James Surowiecki
Marker
Published in
7 min readNov 30, 2020

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A graph trending upwards with a giant bubble floating beneath the arrow and pushing it up
Illustration: Pablo Delcan

Money Talks is a column that explores what happens when business, the economy, and culture collide.

In 1720, the English economy was gripped by a speculative mania known as the South Sea Bubble. The hysteria began with a steep rise in the stock price of a government-connected firm called the South Sea Company, but soon investors were happily bidding up stock prices across the board. In response, a host of new companies offering a wide array of unlikely products and services quickly incorporated and sold shares to hungry investors. One company described its business as trading in hair. Another promised to transmute quicksilver into a malleable fine metal, and one said it was going to build “a wheel for perpetual motion.”

That these claims were outrageous and impossible to verify — when not self-evidently false — was, at that moment, seemingly irrelevant to investors. It was enough that their stocks were going up. So soon the most clever of all these new companies came forward, and sold shares to the public with a prospectus that said it was raising money “for carrying on an undertaking of great advantage, but nobody to know what it is.” In other words, it promised nothing more than a promise.

More than 175 SPACs have gone public already in 2020, raising $65 billion in capital… That’s more than the amount of money raised by SPACs in the last decade.

That might sound totally improbable. And yet, if you look at Wall Street today, you might wonder how much has really changed over the past 300 years. The most important investing craze of the moment is centered on Special Purpose Acquisition Companies (or SPACs). And what, at the core, is a SPAC? It’s a company that goes public and raises capital from investors in order to make an acquisition. (Typically, a SPAC doesn’t buy a whole company, but rather acquires a stake in it.) It does this without investors knowing what that acquisition will be, or how much it will cost…

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James Surowiecki
Marker
Writer for

I’m the author of The Wisdom of Crowds. I’ve been a business columnist for Slate and The New Yorker and written for a wide range of other publications.