Upsetting the Apple Cart

 So I guess this GameStop market frenzy is the latest way in which quasi-libertarian online subcultures are invoking their ostensible right to unrestricted personal action to ultimately compromise the freedom and wellbeing of all the rest of us. Reading about the online Reddit and Discord chat rooms that have launched this faceless and uncoordinated effort to drive up the stock price of otherwise failing companies—in order to reap enormous pay-outs on the part of those who are able to unload their shares and/or options before the house of cards collapses—one gets a distinctly Parler-ian, 4chan-ish vibe. In other words, we have a group of atomized young-ish men reveling in the anonymity and near-total exemption from social and legal constraints that the internet affords, no matter how destructive their actions may be to the rest of society. 

And, as with so much on the internet, it is also a space where extremes meet. Just as this postmodern, decentralized pump-and-dump scheme for the digital age has emulated the far fringe of the anti-governmental right; so too it has drawn the favorable attention of segments of the Left, who delight in its insurgent mentality—not to mention the schadenfreude of watching established investment firms and rich hedge fund managers suffer billion-dollar losses for having shorted the same stock prices that are now being artificially jacked up. At least one Wall Street Journal article covering the phenomenon cites—rather pointedly—a former Bernie Sanders campaign staffer who has sunk his own cash into this GameStop venture, arguing as he did so that the scheme is a chance to turn the tables on the supposed experts of the financial industry, scoring big for the outsiders and the newcomers. 

If insurgency this is, however, it is of a kind deeply familiar from the annals of capitalism. Unregulated financial speculation has always made some new fortunes and destroyed some established ones. William Gaddis' ultimate business neophyte 11-year-old protagonist J.R. Van Sant, who buys up failing New England mills (using debts collateralized by other debts in pyramid-fashion) in order to sack the staff, lease out the property for other purposes, and make a fortune through tax write-offs, has his real-world analogues. (His scheme reads now as equal parts Warren Buffett and present-day private equity firm. More to the point here, it is all-too reminiscent of the GameStop phenomenon, in its sudden unwholesome and rather vulture-like interest in the carrion of moribund companies.)

If one is a revolutionary or an insurgent solely in the sense D.H. Lawrence once described—that is, of wishing to upset the apple-cart/ and see which way the apples would go a-rolling—then totally unregulated capitalism might well be the system for you. I don't think this is what Senator Sanders has in mind when he talks about his revolution or about democratic socialism, but no matter—if one merely wishes to see a few established hedge funds fall on their faces, this is one way to get there. And if one's own goal is to get rich in the process, this too is a means to accomplish it: so long as one manages to pull up stakes at the right moment and leave other suckers holding the bag. The problem is just that if you have something approximating a social conscience, you will be concerned about the effect this game has on people who never thought their lives had anything to do with the financial sector. 

As we learned (if we didn't know it before) from the 2008 financial crisis, when huge firms have tied up their assets in inherently risky bubbles, the consequences extend far beyond the investors who made these questionable decisions in the first place. Indeed, the investment firms faced few if any of the consequences themselves for putting their money in subprime mortgages. The people who suffered were ordinary first-time homebuyers who had sunk a lot of equity into these properties, only to have the market collapse and to ultimately be unable to refinance their ballooning mortgage at a more affordable level. 

So it is with all bubbles—the consequences of the bursting trickle down. Better to say, they rain down hard. Right now, the Reddit day traders are having fun putting the squeeze on the "shorts"—in effect forcing the big hedge funds to buy more of the same over-inflated stocks (GameStop, e.g.) in order to cover their losses from shorting them... but what happens when the bubble inevitably pops and the price collapses? What will the downstream consequences be for the whole financial sector, now that some of the giants are in effect being pressured to buy overvalued stocks, tying up their assets in a bubble much as they did in the run-up to the 2008 crisis? And if some of those firms go under, what will be the effect on everyone else—another recession? In the midst of a global pandemic that has already caused record levels of unemployment and rising hunger and poverty?

What we have here is plainly a threat to the public—a bubble engineered through something like market manipulation. I don't know enough about the regulations and the law involved to be more specific, but the lay person watching all of this unfold has the strong impression that this has to be against the rules; it must constitute the sort of tampering with the market that securities law protects against—or that it ought to. There is a group of people conspiring together to artificially inflate an asset value, so they can turn it into cash before others catch on. A classic pump-and-dump scheme. The internet may make this fraudulent conspiracy rather more diffuse and hard to regulate or prevent; but if so, this doesn't make it any more morally or legally defensible—it is just one more way in which people are able to escape the consequences of their actions by hiding behind the anonymity of an online avatar. 

It is, in brief, unfettered capitalist speculation on a Gilded Age model—with all that entails. As Theodore Dreiser writes in summing up the career of his quintessential "Financier," Frank Cowperwood (a fictional character but with many real-world parallels in Dreiser's day): "Manipulative tricks have always been worked in connection with stocks of which one man or one set of men has had complete control. It was no different from what subsequently was done with Erie, Standard Oil, Copper, Sugar, Wheat, and what not. Cowperwood was one of the first and one of the youngest to see how it could be done." Cowperwood was the Discord day trader and Robin Hood financial insurgent of his own day. Dreiser portrays him as an outsider who had to break his way into the ranks of the financial elite, through devious tactics of selectively inflating and devaluing stocks in order to outfox the other investors. He and his ilk did get rich in the process. But at what cost to the rest of society? 

Engaging in this behavior is not some Sanders-esque left-wing challenge to capitalism—it is the essence of capitalism—capitalism as it operated, that is to say, before the humanizing restraints of modern regulations, consumer protections, anti-trust investigations, etc. were put in place. The libertarian mentality of today's online day trading communities—and the impossibility of meaningfully enforcing rules against market manipulation when those in collusion are operating in such an anonymous and decentralized fashion—are taking us back to the pre-New Deal world, before any of the lessons had been learned about how to mitigate and manage the effects of financial panics; how to guard against bubbles caused by pump-and-dump schemes; how to protect consumers from fraudulent financial products; and so on. We should pause to remember how well that previous world worked out for folks, in the end. And ask ourselves if the schadenfreude is worth the price of admission.