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Dat Capital and the Wolf of Lulz Street
We have known since 1929 that “finance” is a fancy word for gambling. The stock market, Wall Street, the masters of the universe, the titans who run everything, are gamblers. Investing in the capital markets isn’t science. Jim Cramer isn’t some sort of genius, and neither are most of those who play the markets. It’s a game, it’s risk, and guts, and lots of money (other people’s money, mostly) and more risk, and hunches, and throwing of dice. The mechanisms that drive human valuing are inscrutable, mostly, and so predicting which businesses will thrive and which will not is just gambling, for the most part. The quantitative analysis, the due diligence, the examining of “fundamentals” is full of hocus pocus. More often than not, you get lucky or you don’t. Besides, modern “finance” isn’t about investing in blue chips and taking dividends from GM or GE over the course of a 50 year investment. That Bugs Bunny cartoon about how your investment in a stock benefits everyone in your neighborhood by financing growth, etc., that’s a nice story but largely outdated.
That’s because Wall Street is still about trading stocks, not holding them. It was the case in 1929, and it’s even more the case now. The casino makes money through the churn, and gamblers try to ride the waves of luck, blowing on their dice, hoping the next roll makes them rich. They don’t give a damn about fundamentals, and if they can try to move the markets themselves, then all the better. A smart gambler always ensures they get an edge.
Of course, the house sets the rules. No one is entitled to gamble, the right has to be created by the state you live in, and ultimately by the casino itself. They can always kick you out and ban you, it’s private property. Gambling isn’t a right, it’s a privilege. The same is true for Wall Street. Only high rollers are invited. Not because only they know how to play, but because they want to keep out the riff raff. Capital isn’t for just anyone. It’s for the rich. Very little of the wealth generated by the capital markets now (and perhaps, forever) is made through innovation fueled by capital. Its derivatives, and credit default swaps, and collateralized debt options, and leveraged this and that, and other clever financial devices that have very little to do with that Bugs Bunny view of capital and how it works for us all. It’s not stocks anymore. It’s “Stonks.”
In 2009, the anonymous hero Satoshi Nakamoto released the first Bitcoin core software based upon his 2008 paper extolling the potential to create a truly decentralized currency without banks. The Bitcoin now in circulation is now worth about 650 billion USD, all without a central bank, all without a state. While states have tried regulating it, it was built to be resistant to regulation and to function regardless as a means of exchanging value person-to-person, peer-to-peer. The future of money is “crypto” while old money sits (or flows in largely extractive trading), stupidly and boringly in “stonks.”
Bitcoin is a truly revolutionary tool, and the cryptocurrency platform Ethereum, which has enabled building business processes such as contracts into a decentralized network on top of a decentralized currency, can alter economics and wealth-generation as we know it. The most promising possibilities now include “DeFi” applications, meant to promote financial tools that operate apart from the captains of industry and masters of the universe: instead they work person-to-person, like micro-lending, capital investment and distribution, etc., all without the state or Wall Street deciding whether you get to play craps at their table. But what really moved the cryptocurrency markets yesterday was the Dogecoin. A meme coin of no particular use or value. It’s because markets remain inscrutable.
The “Gamestonk” ratfuck perpetuated through the /WallStreetBets community has revealed capitalism to be a joke, basically. I won’t get into the technicalities of what happened, there are plenty of places to bone up on the specifics from people smarter than I am.
Put simply: GameStop is a company that has been in trouble for some time, as any brick and mortar company selling largely outdated products that can be delivered in more efficient ways should be. As a result, some (formerly) powerful “hedge funds” had placed bets that it would fail, that its stock would begin to go down, huge bets that it would basically go out of business. Those should be safe bets in this case, and hedge funds are designed to make (mostly rich) people’s retirement money safe. Having gotten wind of this, and with new tools that make investing more accessible to more people, a community of online investors decided to sink those hedge funds and put them out of business instead.
True, some who rode the wave of irrational investment that drove the Gamestop share price through the roof got out in time to make a very healthy profit. But most others are bound to lose their shirts as the price is inevitably going to plummet again, and they bought high. Some leading the charge in the Reddit group /Wallstreetbets, which ran this attack on the hedge funds, may have been playing a typical Ponzi scheme, taking profits from suckers who “FOMO”ed too hard. Others may not care how much they lose as long as they are stickin’ it to the man.
Those investors gaming GME stock regardless of their losses are cut from the same cloth as those who mock Wall Street with the “Stonk” meme. They are fine with taking losses to show the game is rigged, to rig the game itself, or even to blow up the casino. Why shouldn’t they? Wall Street has blown us all up numerous times. The Great Crash, The Savings and Loan debacle, the 2008 Financial Crisis. Overall, the high rolling gamblers with front seat, VIP admission to Wall Street have burned trillions of our dollars betting badly and in bad faith. In each case, while some faced some punishment, most got off not only scot-free, but with a reward: bailouts. Bailouts from the federal government, meant to “save the system” (not to un-rig it) are a staple now of financial failure. It’s like the casino offering you the general manager position once you blew your bankroll multiple times into repeated bankruptcies. So why shouldn’t a bunch of day-traders blow it all up to prove a point?
Well Robinhood day-traders aren’t going to get a bailout, for one. They may get lucky enough to get another Covid stimulus payment, but if they lose a lot of money on “Gamestonk” they lost that money for good. But that’s OK with many of them. They did it for the lulz. Win some, lose some. It’s a casino, remember? No one is entitled to win. Except that the entitled among us have been. Those old-school Wall Street “Stonk” guys have been winning even by losing, while we, all the rest of us, can’t win for losing. Can’t win in a rigged system. It is consciously rigged against us.
So we make our own system. Regulators will use this as an excuse to keep small investors out of the casino “for our own good” but they don’t get why we want in. It’s because we want to gamble too. We don’t want someone telling us we can’t. We want to pick winners and losers, make our hunches, bet on a horse or two, buy a crypto-kitty just because. So Uniswap, the Ethereum based DeFi application of the moment, is soaring. Not on Wall Street, but peer-to-peer. And why shouldn’t it? Why should Dogecoin?
Instead of rebuilding the casino, let’s put a casino in everyone’s hands. Let’s just admit its a totally rigged and irrational system. Capital shouldn’t be in the hands of a few doling it out without transparency, without reason, without building anything but mostly extracting wealth from those at the bottom. It should be everywhere. It should be accessible and flow freely. Wealth should be able to be generated peer-to-peer, and benefiting even the poorest instead of only the richest.
By liberating all capital, and distributing the means of production (and sometimes destruction) into as many hands as possible, we can try to wrest control of our fates unto ourselves, and away from the alleged masters of the universe. They haven’t done such a great job with it anyway. Finally, we can create our own systems to bail each other out, peer-to-peer, finance our own startups, create new means of wealth generation that aren’t purely extractive, but rather that are productive and constructive. If the lesson you get from Gamestonk is that we need to regulate and centralize capital more, then you honestly missed the point. Go back to playing Cyberpunk 2077.