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dada » Tue Feb 02, 2021 9:43 pm wrote:What I was saying is that contentment for me isn't a matter of economic circumstances or space.
The Trouble With GameStop Is That the House Still Wins
We can’t beat Wall Street at its own zero-sum game. But we can change the rules.
By Alexis Goldstein
Ms. Goldstein is a former Wall Street professional who works at an organization that advocates financial reform.
Feb. 1, 2021
https://www.nytimes.com/2021/02/01/opin ... eddit.html
Last week, an alluring narrative coalesced around a band of Davids taking on the Goliaths of finance. Thousands of so-called retail traders who came together on Reddit have been using apps like Robinhood to buy stock and options of GameStop, the beleaguered video game retailer, jacking up its value some 1,700 percent last month. In the process, they’ve blown up a few hedge funds that had bet on GameStop’s failure.
The appeal of such a narrative is obvious. Wall Street profits have blasted off during the pandemic, while Main Street endures intense and prolonged suffering, a phenomenon that economists call a “K-shaped” recovery. Americans have waited 10 months and counting for consistent relief from the government. So the idea of “get rich quick” schemes, especially ones animated by a zeal for revenge against the billionaire class, are more compelling than ever. But the unfortunate irony is that this desire to stick it to the fat cats of high finance is likely only to spur higher profits for big banks and hedge funds.
The real solution to breaking the power of finance is to rebalance the recession-wracked economy. Rather than gambling on the dubious promise of more Americans gaining access to the casino, it’s time to rewrite the rules to ensure that the house doesn’t always win.
Wall Street’s edge over retail traders remains, as always, structural: superior data; sophisticated, high-frequency trading software. More important, its traders have access to “dark pools,” private exchanges where they send large orders quietly to avoid moving the market against the trade, and “over the counter” markets, where they trade with one another rather than on public exchanges. They pour money into research and rumor chasing, all in an attempt to determine the positions of their competitors.
Armed with its high-frequency trading algorithms and privileged market data, Wall Street will always win out over the thousands of people posting their positions and their plans on public message boards. These retail traders betting on GameStop’s rise may have blown up hedge funds like Melvin Capital, which lost 53 percent of its value in January after betting that GameStop’s stock would fall. But other hedge funds are likely to profit off its troubles in the long run by scooping up a stake in Melvin Capital’s future revenues in exchange for an emergency cash infusion.
One such hedge fund, Citadel LLC, further benefits from the actions of the Robinhood traders. Citadel’s market-making arm and other Wall Street institutions offer Robinhood money to execute its clients’ orders, an arrangement called “Payment for Order Flow.” (The idea was originated by Bernie Madoff in the 1980s. In 2016, the Securities and Exchange Commission questioned whether it should be banned.) Citadel then profits by trading ahead of Robinhood users. It’s possible that banks like Morgan Stanley and Goldman Sachs are also riding high on the GameStop surge, just as they did in the second quarter of the pandemic, when JPMorgan Chase saw record trading revenue because of its ability to profit from market swings.
In this way, the largest Wall Street firms run “flow trading” desks that act as middlemen. They act as both a buyer and a seller of stocks, options and other financial products, while offsetting their own risks through “hedges.” When I worked at Merrill Lynch from 2007 to 2009, the equity derivatives trading desks took in the biggest profits on the most volatile days. That’s because they are mostly agnostic to price movements, essentially making money on volume and market churn.
What this means is that trying to beat Wall Street at its own zero-sum game — one where any gain is offset by an equal-size loss — is a hopeless proposition. Instead, the solution is to fight austerity to save people from the lure of a speculative frenzy.
In a sense, the United States has seen all this before. Clinton-era welfare “reform,” along with his lowering of capital gains taxes and deregulation of the financial services industry, doubled the number of people living in extreme poverty. In the meantime, the rich pulled further ahead and helped inflate the dot-com bubble. Ahead of the 2008 crash, Wall Street banks sold borrowers “cash-out refinance” home loans, with predatory credit filling the gap left by stagnant wages. The crash decimated Black and Latino wealth, which dropped by more than half. In the wake of the 2008 crisis, research showed that gambling in the lotteries increased among those who continued to struggle financially through the recession.
Reddit and Robinhood are driving a new kind of financial lottery: trading cheap options that require giant price moves to become profitable. As further economic support remains in limbo largely because of Republican intransigence, the GameStop narrative may entice many to try their hand at the financial markets. Victor Yakovenko, a physicist at the University of Maryland, found a correlation between speculative bubbles and periods of greatest inequality. But those who tend to make the most during these bubbles are the already wealthy.
Democratizing the economy, then, involves curbing speculation and pouring national resources into lifting up Americans and rebuilding public institutions. Canceling federal student debt, which President Biden can do without Congress, would grow the economy, relieve the disproportionate debt burdens carried by Black and brown borrowers, and incentivize science and engineering graduates to consider careers benefiting the public good. A modest wealth tax could be redirected to priorities like universal child care. Lawmakers should ensure hedge funds aren’t taking advantage of regulatory blind spots to make themselves too big to fail. A very small financial transaction tax could fund investments in reducing the racial wealth gap through programs like baby bonds.
The country needs transformational policies that tackle our dire economic state. Instead, President Biden is entertaining what are most likely insufficient Republican counteroffers to his relief package, as the speculation frenzy moves on to silver.
If there’s one thing I learned on Wall Street, it’s that traders are, at their core, both self-interested and singularly devoted to the zero-sum game. Trying to mimic this with zero-sum policies that seek to supposedly “democratize” access to financial markets and “disrupt” old ways of thinking helped get us into this mess.
But bold investments in public institutions can get us out.
Alexis Goldstein (@alexisgoldstein) is a former Wall Street professional who now works at Americans for Financial Reform. She is the author of the newsletter “Markets Weekly.”
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A 25-Year-Old Bet Comes Due: Has Tech Destroyed Society?
In 1995, a WIRED cofounder challenged a Luddite-loving doomsayer to a prescient wager on tech and civilization’s fate. Now their judge weighs in.
On March 6, 1995, WIRED’s executive editor and resident techno-optimist Kevin Kelly went to the Greenwich Village apartment of the author Kirkpatrick Sale. Kelly had asked Sale for an interview. But he planned an ambush.
Kelly had just read an early copy of Sale’s upcoming book, called Rebels Against the Future. It told the story of the 19th-century Luddites, a movement of workers opposed to the machinery of the Industrial Revolution. Before their rebellion was squashed and their leaders hanged, they literally destroyed some of the mechanized looms that they believed reduced them to cogs in a dehumanizing engine of mass production.
Sale adored the Luddites. In early 1995, Amazon was less than a year old, Apple was in the doldrums, Microsoft had yet to launch Windows 95, and almost no one had a mobile phone. But Sale, who for years had been churning out books complaining about modernity and urging a return to a subsistence economy, felt that computer technology would make life worse for humans. ...
Kelly hated Sale’s book. His reaction went beyond mere disagreement; Sale’s thesis insulted his sense of the world. So he showed up at Sale’s door not just in search of a verbal brawl but with a plan to expose what he saw as the wrongheadedness of Sale’s ideas. Kelly set up his tape recorder on a table while Sale sat behind his desk.
The visit was all business, Sale recalls. “No eats, no coffee, no particular camaraderie,” he says. Sale had prepped for the interview by reading a few issues of WIRED—he’d never heard of it before Kelly contacted him—and he expected a tough interview. He later described it as downright “hostile, no pretense of objective journalism.” (Kelly later called it adversarial, “because he was an adversary, and he probably viewed me the same way.”) They argued about the Amish, whether printing presses denuded forests, and the impact of technology on work. Sale believed it stole decent labor from people. Kelly replied that technology helped us make new things we couldn’t make any other way. “I regard that as trivial,” Sale said.
Sale believed society was on the verge of collapse. That wasn’t entirely bad, he argued. He hoped the few surviving humans would band together in small, tribal-style clusters. They wouldn’t be just off the grid. There would be no grid. Which was dandy, as far as Sale was concerned.
“History is full of civilizations that have collapsed, followed by people who have had other ways of living,” Sale said. “My optimism is based on the certainty that civilization will collapse.”
That was the opening Kelly had been waiting for. In the final pages of his Luddite book, Sale had predicted society would collapse “within not more than a few decades.” Kelly, who saw technology as an enriching force, believed the opposite—that society would flourish. Baiting his trap, Kelly asked just when Sale thought this might happen.
Sale was a bit taken aback—he’d never put a date on it. Finally, he blurted out 2020. It seemed like a good round number.
Kelly then asked how, in a quarter century, one might determine whether Sale was right.
Sale extemporaneously cited three factors: an economic disaster that would render the dollar worthless, causing a depression worse than the one in 1930; a rebellion of the poor against the monied; and a significant number of environmental catastrophes.
“Would you be willing to bet on your view?” Kelly asked.
“Sure,” Sale said.
Then Kelly sprung his trap. He had come to Sale’s apartment with a $1,000 check drawn on his joint account with his wife. Now he handed it to his startled interview subject. “I bet you $1,000 that in the year 2020, we’re not even close to the kind of disaster you describe,” he said.
Sale barely had $1,000 in his bank account. But he figured that if he lost, a thousand bucks would be worth much less in 2020 anyway. He agreed. Kelly suggested they both send their checks for safekeeping to William Patrick, the editor who had handled both Sale’s Luddite book and Kelly’s recent tome on robots and artificial life; Sale agreed.
“Oh, boy,” Kelly said after Sale wrote out the check. “This is easy money.”
Twenty-five years later, the once distant deadline is here. We are locked down. Income equality hasn’t been this bad since just before the Great Depression. California and Australia were on fire this year. We’re about to find out how easy that money is. As the time to settle approached, both men agreed that Patrick, the holder of the checks, should determine the winner on December 31. Much more than a thousand bucks was at stake: The bet was a showdown between two fiercely opposed views on the nature of progress. In a time of climate crisis, a pandemic, and predatory capitalism, is optimism about humanity’s future still justified? Kelly and Sale each represent an extreme side of the divide. For the men involved, the bet’s outcome would be a personal validation—or repudiation—of their lifelong quests.
Unfortunately Sale had his own weak spot, and Kelly targeted it with a cold ruthlessness that might have been admirable in a better cause. Like many other critics of progress then and now, Sale was convinced that industrial society could not keep pursuing endless material expansion indefinitely. A strong case can be made that he was right, but he took the further, fatal step of convincing himself that this meant industrial society would crash to ruin sometime soon. That was the weakness Kelly targeted. With the tape recorder running, he whipped out a check for $1000 and insisted that Sale place a bet on when this collapse would happen. Sale fell for the trap and made the bet. The date he chose was 2020, and of course he lost.
One point worth noting here is that Sale didn’t lose by that much. He specified three markers of collapse: an implosion in the dollar, leading to a depression worse than the 1930s; a revolt of the poor against the rich; and an unprecedented number of environmental catastrophes. He got one and a half of those, but the bet specified all three, so he lost.
This kind of bet was a standard gimmick for a while among cheerleaders of infinite progress, serving much the same role in their rhetoric that the stunts of James “The Amazing” Randi played in the debating arsenal of rationalist pseudoskeptics during the same period. The thing that fascinates me most about the gimmick is that in every case I’ve ever heard of, such bets only went one way.
Imagine, by way of a counterexample, that Sale had turned the tables. “No,” he might have said, “let’s make a different bet. You tell me when you think we’re going to get the future your magazine babbles about—fusion power, space colonies, and the rest of it. You put a date on it, and then we’ll bet a thousand dollars each and see who’s right.” If Kelly had plumped for 2020, even if he’d specified some exceedingly modest version of that future—say, at least one commercial fusion power plant putting electricity into the grid, and at least 500 human beings living full time off the Earth’s surface—Sale would be a thousand bucks richer right now.
What puts teeth into this counterexample is that in 1995, if you tried to tell the readers of Wired that a quarter century in the future, fusion power would still be an unsolved problem, manned space travel would still be limited to old-fashioned capsules atop rockets going to low Earth orbit, and so on, you’d have been jeered off the letters page. The conventional wisdom in those days insisted that by 2020 we’d surely have gotten past those baby steps toward the stars. Had Sale demanded the bet I’ve suggested, Kelly would have landed in the same awkward position that, in our timeline, he inflicted on Sale. If he refused to bet, how could he keep on insisting in public that of course all these wonderful things would happen sometime soon?
Behind this awkwardness is the most unmentionable fact of our time, the failure of progress to live up to its promises. It’s worth going back a few decades to consult the solemn predictions of qualified experts and the mass media, and compare where we were supposed to be by 2021 with where we actually are. The differences are stunning. It’s not merely that we don’t have fusion power, space colonies, or a hundred other gizmocentric fantasies that were supposed to be sure things, right on down to the hoverboards in the imaginary 2014 of Back To The Future. It’s also worth noting that here in the United States we have rates of infant mortality comparable to those in Indonesia, a level of infrastructure decay reminiscent of the last years of the Soviet Union, and a political system in the kind of advanced rigor mortis that usually precedes cataclysmic change.
dada » Thu Feb 04, 2021 9:58 am wrote:Don't people who share the ideology that reduces everything to the economic, support this system, though?
Are all the poor people with their heads up their asses all innocent victims?
Does the system force them to stick their heads up their own asses?
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