The events of the past few weeks have told us two things about public markets and finance. One, that group behaviour can propel stocks to new highs with no apparent “rational” reason. Two, that big finance can make the rules of the game they play.
It was thought that, after the scandals of the 1980s and 2000s, regulation had clamped down on the most unethical fringes of corporate behaviour. Penny stock trading, famously featured in The Wolf of Wall Street, the year of accounting scandals kicked off by Enron in 2001, or the Keynsian “animal sentiments” that caused financial meltdown in 2008 have all had their impact on the public conscience. We now live in a time of incomprehensible buoyancy in the markets: a movement to stocks away from bonds, which now offer very low yields due to the economic contraction, have led to unprecedented valuation growth for listed firms both large and small. This is only exacerbated by coronavirus stimulus provided in the markets by deep-pocketed governments.
But here is the crucial question: in this sphere of profound irrationality, where nuclear-backed governments sign promise notes for money that dictate whether a private person from Nicaragua is going to have a nothing-paying job or not next year, why do we assume that there is divine order to the realm of trade? Why is it that hundreds of thousands, if not millions, of Redditors mounted an attack on a powerful multibillion dollar firm, strategically placed in the very industry they were weaponizing against ill-gotten gains, and expected to succeed?
To understand, I talked to a man involved in r/WallStreetBets and an active investor in Reddit’s hedge fund-crushing strategy. Lukshan Sharvaswaran is a gifted computer scientist who is currently studying under the wing of a top institution.
Why do we assume that there is divine order to the realm of trade?
Divulging readily the intricacies of the Gamestop situation, he demonstrated the surprisingly technical knowledge that has been built up in the subreddit on the workings of the trading system. Reddit is like a beehive, with a flat hierarchy and an oddly efficacious spin on meritocracy afforded by the voting system channelling quality of information above all to its target audience. Contentions may arise over the mildly conspiratorial groupthink that it tends to propagate, but by and large the online discussion platform does a good job of serving its technically minded, internet-oriented average consumer. The second benefit of this organisational structure is that not only are misinformation and unsubstantiated conjecture systematically removed from the salient debate, but the average participant can be and often is as well informed as an expert might be in a hierarchical system.
Gatekept disciplines, such as the murky and shockingly insular world of hedge funds, institutional finance, and investment banking, place barriers to entry between themselves and the plebeian other. They do this through what Foucault might call the examination technique. and others might call a carefully crafted test of ideological alignment and desire to fit a certain mould. One of the many virtues of Reddit, like many other semi-egalitarian online spaces, is that information flows like milk and honey to the biblical Israel. The phrase ‘knowledge is power’ is often abused, but truthfully what we are seeing here is an erasure of arbitrary cultural barriers (between the subcultures of individual disciplines), where intersections of interests become the opportunities for communication, leading to a somewhat decentralised anarchic structure. Rather than the cultural trope of “wearing expensive suits” or carrying a specific briefcase being a mode of perceiving similarity and sameness in the other, the forthright nature of online communication can help to dissolve arbitrary social hierarchies. The sum of all of this is that Sharvaswaran, a young though bright student with limited financial assets and thus small fiscal incentive to participate in knowledge accruement and extraction, is as well poised to answer questions about ladder attacks, vertically integrated monopolies, and market making as your average junior broker.
Whilst the Financial Times and FinTech media are, according to him, making claims that the Gamestop phenomenon is a frenzy-fuelled instance of market manipulation, Lukshan, like much of the rest of Reddit, has crafted a very different narrative. “Ladder attacks are highly illegal,” he says, “but the fines for doing it are miniscule in comparison to the payoffs.” Here we have the basics of economic theory and self-interested homo economicus creeping into the modelling. Ladder attacks are a method of rapidly trading assets back and forth between big institutional or professional investors, so as to change their price for the whole market. Given the enormous gains to be made from this technique – or in the Gamestop case, dissolution of potential losses – they regularly feature in the crisis-management toolbox of hedge funds. There is a joyful, almost willfully anti-pragmatic aspect to the good-versus-evil narrative being developed on Reddit, at odds with the Machiavellianism they see in their enemies. “We’re not doing it for the profit, at least, not as our first reason. I’m holding because why not.”
“We’re not doing it for the profit, at least, not as our first reason. I’m holding because why not.”
He speaks the familiar chant of a generation of florescent Gen Zers and millennials who have lived their entire lives amidst financial crises, widening inequality, and a pent-up rage about Wall Street that never seems to have its revolutionary release. The bitter cries of “we are the 99%” and widespread scorn of the financial sector which came to a head after 2008 in places like Greece has still not found a popular outlet. In some cases, the consequences have been very much downstream, with the rising tide of deindustrialisation and radical cultural shifts over the past twenty years, as secondary manufacturing industries move eastwards to lower income countries, joining with anti-elitist sentiments to give rise to head-scratching phenomena like Trump and Brexit. In other cases, the consequences of financial mismanagement have had such a direct impact on people’s lives, whether it be limits on ATM withdrawals in Mediterranean countries that prevent locals from paying bills, or mass youth unemployment arising out of a contagion of default, that the attacks have been directly at “the establishment”, wherever it may be.
But the simple fact of the matter is that the interpenetration of political and economic elites is not a lucid, succinctly interpretable picture, with clear bad actors being able to justly host the blame. As Derrida’s theory of sign and structure asserts, the centre of complex arrangements is always drawing away, eluding the specificity of a set of individuals defined by neo-Marxian characterisations of institutional corruption. There is no one political or fiscal establishment we can do away with and fix the problem, and if we were to remedy the power vacuum their removal would necessarily create, they would likely come to embody the self-same qualities we sought to remove from the capitalist endeavour. What we need to recognise is that the attributes which deep-pocketed bankers and conniving hedge fund managers have acquired over the past forty years since deregulation are not the attributes of people or of a clearly defined class: they are the attributes of an inhuman, anonymous superstructure that generates inequality and unhappiness through their cultural and fiscal hegemony.
There is no one political or fiscal establishment we can do away with and fix the problem.
We cannot blame capitalism for all our ills and pin capitalists as the culprits; and it is hypocritical to do so when the methods of waging war on them involve an active participation in the surplus-generating systems they have set up. This neglects the role that the state plays in unknowingly facilitating these dynamics, using its power, always backed up by violence, to set standards and then legitimate them. It is not the hedge funds that we should turn our scorn on, but the legally and politically informed web of access and opportunity. The state affords pecuniary accumulation for those integrated best into that web, and in turn, becomes everything that the self-identified common man rallies against.