How SPACs Made Old Things Old Again

Abstract

When the SPAC boom began in the summer of 2020, a common way to explain the phenomenon was to say that SPACs were something new. SPACs raised $83 billion in 20201—nearly double the total raised in the previous ten years—and another $97 billion in just the first three months of 2021.2 They spread so rapidly that the public had little way of making sense of them other than to think that they represented a novel innovation, a kind of contagion for which American finance had no previous immunity. The SPAC boom started at almost the exact moment the American public began locking down against COVID-19—starting a process of viral replication in the financial markets to mirror the one happening in cities.

But like COVID, SPACs were not altogether new—they evolved from creatures that came before. And like a real virus, SPACs are now living through a cycle of spread, response, and equilibrium that has also played out for its evolutionary ancestors. The essays in this online symposium take stock of some aspects of this cycle and offer suggestions for how to deal with it. As the legal scholar and former SEC official Henry Hu has argued, the cycles of novelty and innovation in finance are actually quite old.3 What pass as “innovations” are often just modifications that merely liberate existing practices from regulation by pulling them out of their regulatory categories. These innovations grow in popularity and then eventually produce the same problems the old regulations were designed to address, until the new innovations invite new regulations and new skepticism. By repeating many of the failures and successes of other innovations that came before, SPACs are taking this old cycle and making it old again.