So let me get this straight: We have a financial system of investments that "worked", by which I mean for the sake of this simplification that it produced decent return on investment with relatively little investment risk. Over time, it has stopped working because the foundation has slowly eroded underneath it: the returns on things that are relatively low-risk are lower than ever, hardly beating inflation. This has pushed people controlling large sacks of money into more and more risky, more predatory investments just to keep the returns on their investments good enough, attempting to secure future wealth. The financial Overton window has shifted dramatically towards risk, the solid foundation of alpha gains falling out. We have a financial system that used to be limited by the speed of a broker's mind. That used to be limited by the ingenuity of an Ivy League econ major to come up with new risks to create out of thin air on top of existing market and goods movements. Over time, the yelling at phones in a big room in NYC was replaced by computers, the creation of financial markets by computers, they're all interconnected in strange ways. The dark side of the pools are now squarely out of view of anyone with regulatory power, the frequency of high-frequency trading bots from companies gobbling up CalTech and MIT grads so high it's measured in nanoseconds. We have a financial sector that got not much more than a mild burn from the Financial Crisis. No real strucutral repercussions, of course. With the bailouts left and right, and the money printer going brrr evermore, we have a financial sector that is not restricted but spurred on into madness, totally fine with taking obscene risks because their Clubhouse buddies are doing it too and you gotta keep up with the Jonases over at Goldman, right? So they short what they want. Who cares about a bit of leverage here and there if you're right. We have a generation (or two) of the 99% who had the 'boomer dream of college-jobbyjob-house-pension shattered in front of our eyes in 2008, who are no stranger to nihilism in their 9-years-out-of-college 180sqft bedroom their degree got them. A generation who have not forgotten the tents of Occupy that did not colonize an inch of the bank accounts of Big Money. Enabled by the slot machine of Robinhood, unhindered by any lack of expertise, some gather on Reddit and speculate on the straight white bro horoscope that is the NYSE. They move a market here and there, but only if they align their lulz with their cash for a bit. They tell themselves this is how they reclaim their grip on the(ir) future, but deep down they know it's mostly a game of which they're a bunch of duck-sized horses fighting against an army of horse-sized ducks. UNTIL someone came up with a plan that is equal parts nihilism, meme, and a call-out of the madness of the market. A plan that squarely points the middle finger at the amorphous class of the Rich who destroyed their future, by destroying their future with their own hubris. A plan that's easy enough to communicate in one of the few thousand Twitter threads that popped up as soon as $GME started getting traction. Easy enough to follow through on, throw a bunch of cash that wasn't growing anyway into it just to believe in the long arm of justice. Throw in some Musk and crying billionares to keep the train steamin'. Cue billionaires crying because the wrong people are getting rich. A friend of a friend is actually hit badly by this! Can you imagine them picking something in my portfolio? Let's gear up the scare tactics and make Very Important Calls with Very Important People to put an end to these plebs. Let me call up that guy we lost to those Robinhood losers. He can buy us some time, for sure. We have a stock market that has still ignored the largest health crisis since WW2. We have economists screaming recession for the last eighteen months. We have a market that has done nothing but radicalize, on the flimsiest of economic foundation, for the past decades. We have books left and right telling us how close we got to a meltdown a decade ago. And now have Bed, Bath & Beyond going places. I'm not saying generations to come will learn Gamestop and Lehman in the same breath? But it's not unlikely.
Here's another couple blind men, maybe we'll describe an elephant: Markets do not exist if they don't make people money in the long run. "I will gladly pay you Tuesday for a hamburger today" works so long as Popeye gets more money Tuesday than he pays out today. Economically, Wimpy only buys the burger if having it today is more valuable than having it Tuesday. Beta gains: Popeye has money, he lends Wimpy money, Popeye and Wimpy come out ahead. "Stonks" are just pieces of ownership of a company, to be bought and sold. If that company exists to make money, you will get more money tomorrow for your money today. Capitalism 101. On the other hand, if lending today for a Tuesday burger makes Popeye fuckall, he don't lend money. Or, if it makes fuckall plus $0.00001, he needs to finance a lot of Tuesday burgers if he's in the money-lending business. If Wimpy can get a Tuesday burger for fuckall plus $0.00001, Wimpy is incentivized to buy burgers on credit, might as well buy three or four. Popeye can make fuckall plus $0.000001 on Wimpy's tuesday burgers but if he pimps out Olive Oyl to Bluto, he can beat that return. Olive Oyl loses, Popeye wins. Popeye makes alpha gains. Frankly, if he were making his nut on tuesday burgers he would but tough times with interest rates demonstrating that zero was never actually a bound. Beta gains are positive sum. Everybody wins. Alpha gains are zero-sum. There are winners and losers. And if you can't make beta gains, you must make alpha gains. And someone will lose. And as everyone gets cleverer, the game gets fancier. I only know American banking history but it's kinda funny - crashes and recessions used to be about investments not panning out. Speculation on Florida real estate. Bad foreign loans. World wars. Fast forward to 1987 and it's pretty much Promethean computer models and the idiots who don't know what to do with them. 2000? Dumb VC-funded internet companies that can't make money. 2007? Third- and fourth-order speculation overweighing the underpinning assets. Cue the pandemic and we've got guys who can't get on Draft Kings living Big Short and Wolf of Wall Street the way '80s wannabes lived Scarface. Look at this shit. LOOK AT IT. They idolize a MFer who goes by "Tyler Durden" FFS. Every bit of culture they've ever been exposed to idolizes the little guy cleverly overthrowing the big guy. And with the flick of a switch, They're told nah That is the Kill Bill origin story. It is Polti 3. Vengeance is a big part of the fucking Epic of Gilgamesh. Presume rational behavior and a normal distribution. If you know nothing, you will be right half the time, wrong half the time. If beta gains suffice, simply buying into the market and waiting will make you money. The middle of the bell is a great place to be. Presume normal behavior and a normal distribution: Kahneman and Tversky established that losses are six times as emotionally impactful as gains. In order to be willing to risk a dollar, human risk tolerance clusters around a comfortable loss of seventeen cents. The result is they cluster off the peak of the normal distribution - they're six times as likely to puke their position as they are to hodl. This works to the advantage of large funds because they're managed by people who can regard them abstractly. If your job entails making and losing millions of dollars a day, a gain is a loss reversed. If you're playing with your retirement it's not so abstract. This is one of many advantages the big guys have over the little guys. But we've just moved a generation from Polti 9 - "I want to make money"- to Polti 3: "I am a mutherfucking suicide bomber." I anticipate knock-on effects.
The cynic and pessimist in me worries that I'm of a generation that, whether they admit it or not, has given up on believing in changing the structures of power for the better. Whenever the topic of pensions happens comes up amongst my peers, the most common reaction is to simply not believe we'll ever get to see it happen. Pensions! What a concept. Climate change, social progress, saving democracy; we have a percentage of the population willing to stand for a better future and peacefully protest, but I worry the majority has given up on changing the fundamentals of power. Instead, we burst out and take down instances of a problem. We take down a handful of hedge funds, but can't fathom saving the middle class. We have Gamergate and #metoo, but can't seem to implement even the simplest quotas and still have to teach college (!) aged dudebros the simplest definition of consent. It's not like there aren't solutions that work - I for one would welcome a rebirth of social-democratic politics - but I'm worried my generation isn't going to (be able to) put the work behind it to reverse the course, to tackle the root of the issues instead of chopping yet another imperfect branch.But we've just moved a generation from Polti 9 - "I want to make money"- to Polti 3: "I am a mutherfucking suicide bomber."