The French Revolution of Finance?

Originally published on Wonk Bridge

The idea of borrowing stock from one company with the express intention of trying to make the value of said stock crash may seem absurd and self-defeating in the extreme. That such an idea forms a cornerstone of contemporary financial practice is valuable, if disconcerting, shorthand for a period in our society where the more willful an attempt to increase the volatility of a subject and cloud notions of that subject’s intrinsic value, the higher is the ostensible pay out from such distortion.

And yet, as the short sellers implicated in the recent GameStop short squeeze episode are finding out, such heady, fantastical situations can have an upside — an upside with no limit.

The great GameStop episode, the Shorting of the Shorters, began with short sellers doing what they do ‘best’. The practice of short selling involves an investor borrowing shares before immediately then selling them. Their plan is to buy the shares back later when they are at a lower price, returning them to their original owners with interest and profiting off the difference. Successful short sellers must have advanced investment sensibilities, as well as deep liquidity — if the share direction reverses and begins to track upwards, the potential for suffering loss in short selling is unlimited.

To successfully ‘short’ on something, then, first requires an entity whose share price is on a steady trend downwards — the short seller’s intention, in effect, is to keep that downward trend going. The lower those shares go, the more the short seller stands to make. GameStop, a brick-and-mortar gaming outlet with a share price that has been in easy decline since its last peak near $50 per share in August 2015, was a perfect target. The collective hunger of the financial class has run high this winter, too — interest rates are low, and with consumer spending similarly low, investors have few other places to spend their money.

GameStop would be shorted, as aggressively as possible. In fact, even this is an understatement — what Melvin capital and other hedge funds did was, in fact, to short GameStop stock 140%. As this metric would suggest, they were seeking to short stocks that didn’t even exist, an illegal practice known as naked shorting.

GameStop would thus fold, would yield.

Image from “The Big Short”

But for an incidental coalition of Redditors on r/wallstreetbets, its leadership taken up without foreknowledge by marketing professional Keith Gill (a.k.a. u/DeepFuckingValue), that is precisely what would have happened.

Reddit and a Financial Counterculture

What the Shorting of the Shorters is not is a pitched battle between Meme Culture and the financial class. That would be rather too good to be true. Nor is it a sentimental crusade on behalf of GameStop by gamers (many gamers rather dislike it). It is rather the story of a whim. r/wallstreetbets, the school of the tale’s Jacobins (or Redditobins), is a page primarily dealing in high-risk stock transactions and aggressive trading strategies between amateur traders. So profane and practice-averse are the Redditobins that their subreddit has the feel of a gambling den. Its resident self-described “degenerates” trade principally in the effort of buffing up their respective day-job wages, often using borrowed capital like student loans. The house of the noble alternative, it is not. Its main relation to “meme” culture is in the way in which much of its action is based around particular ‘meme’ stocks that become a focus of the community’s attention, of which GameStop is now the most famous, thanks to the Shorting.

There may well have been a negative component to the operation — a desire to stick one, good-and-proper, in the craw of global financial interests — but the most notable aspect of the Shorting is that it has unfolded according to an imperative that would appear moral perhaps even to those who are most likely to lose out from it. When stocks are shorted to this degree, people are likely to lose their jobs — in fact, the more quickly and more comprehensively this happens (in the form of share prices dropping to levels that are unsupportable for the company in question), the more and quicker the short seller stands to gain. This is why short selling has come to function as an easy symbol for the predatory means by which the more unscrupulous among the financial class subsidise themselves through the misery (and further immiseration) of the poor, and the poor-made-poorer.

If Gamestop had been successfully shorted on as so many other businesses have been in years gone by, they’d have been run into the ground, resulting in job losses of some 14,000 full-time employees and as many as 44,000 additional employees worldwide. Instead, thanks to the savvy of the Redditobins, those jobs have been saved.

The Redditobins saved them the moment they intuited that the hedge funds doing the short-selling were overexposed, and were thus open to exploitation. In fact, short sellers had made the deeply questionable decision to short GameStop’s stock so aggressively that enormous future demand would be all but guaranteed, and at any price, were anyone to have noted their over-extension of the short. Thus, in seeking to productively bankrupt GameStop, those short sellers involved risked guaranteeing their own bankruptcy, were a short squeeze to occur.

Few institutional actors would have been willing to to try and drive GameStop’s value back up to create the short squeeze — any member of the financial class doing so would be jeopardising the security of their own industry by creating such chaos. Amateur traders are not sworn to this unspoken financial oath-of-self-interest, of course; and it was amateur traders that took the initative, amateur traders who have put a kaiju of a cat among the pigeons and perhaps changed the face of global finance forever.

The French Revolution of Finance?

Despite invocations of the mob by the likes of Albert Edwards of Societe Generale, calling the Gamestop episode “the French Revolution of Finance” is an overstatement, and a poetic one. The French Revolution saw decisive, strategised action executed by the French bourgeois, who had realised they held all their society’s bargaining power relative to production, to forcefully redistribute franchise and assets from the aristocrats, whom had none [1].

The Shorting is nothing so deliberate, but it is the culmination of a very long thirteen years of frustration with the decadence of the financial class, whereby one of the most mobile and resourceful of online communities, assembled under the totem of one of its most mercurial and ends-oriented social media, realised that, every other form of intransigent resistance having failed, there was one means remaining to defeat that rampant financial class — in the market.

It is a stroke of collective genius that, had it been struck sooner at taken up at considerably greater scale, might have reshaped a decade during which the wiles of amoral, highly organised populist interests were fought in every area aside from the one in which they were weakest — in the market. It is also a stroke of collective genius that it isn’t apparent has occurred even to its hosts, though it has to many of the spectators who can be seen on various subreddits.

There is a tacit futility to the efforts of these Redditobins, something inherently temporary about their ostensible efforts to thwart the attempts to of large institutional actors to short a much smaller and more helpless one, via this ingeniously contrived pseudo-Tulip mania. Such futility is what gives their actions the semblance of a rare heroism, a weight of moral authority that astonishes those who credit it because the great many are now either too comfortable (or else too craven) to do the work of acquiring it. It is the heroism of their actions which has made the tale itself so appealing to a disinterested readership.

But there’s more to the story than narrative clout or misplaced impressions of the nobility of r/wallstreetbets’ motley coterie of, I quote, “diamond hands”, “paper hands” and “gay bears”. The key to that ‘more’ is to be found in one word late of the paragraph before last — “organised”.

The internet is a decentralised space constructed according to the principles of constellational hierarchy — an organisational principle which forbids, though not explicitly, the emergence of pivotal singular nodes. It makes the singular organisation of movements around a clear and universally understood code of practice and putative outcome less likely, though not impossible. You may see it, for instance, a collective movement like Black Lives Matter. It is, in its every essence, an online polity made real — more numerous and geographically widespread than any other movement of its kind has ever been, but lacking the nucleus of a single figure or group of them who manage its governing doctrine. As a result of this diffuse structure, it, like many movements of its kind, has a limited charter and few specific policy goals relative to its basic direction.

This makes true organised opposition to entrenched interests — like global finance, which, while diffuse and deregulated itself, remains oriented around practices and commonly recognised lynchpin institutions that transcend specifics — harder to manifest beyond a sportive, emotional degree online. Opposition of this or any other entity need not be large; it need only be organised and competent. Occasionally, as in the French Revolution, popular support will fall in behind the efforts of this organised core and carry a paradigm shift to its completion, and perhaps then to corruption. Perhaps we will see part or all of the same occur in the aftermath of the Shorting, particularly were it to emerge that funds used for shorting have been appropriated from, for example, pension funds.

Such a thing is hardly unheard of, after all.

GameStopped

Precisely what the Shorting will lead to is hard to predict at this moment. We are likely entering a decade of unprecedented regulation — of the restricting of how large corporations, particularly those of a technological nature, go about their practice, and how large they are permitted to grow by that practice; the customary restriction of unethical purchasing habits according to consumer awareness of their effects, and perhaps too of consumer luxuries like regular long-haul air travel according to climate imperatives. These movements have been in some form of offing for a decade or more, and the pattern of global regulations enforced by COVID, combined with ever-increasing awareness of those climate imperatives, are likely to catalyse a more rapid development in the wider sport of regulating actions which are demonstrably bad for our planet and those who live on it.

It’s not inconceivable, then, that the Shorting will lead to some regulation on the practice of short selling. It is a fundamental part of the 1% mythos, the advanced brokerage tactic that the public are most aware of (whether or not their awareness comes with understanding). It’s a spiky, casino-esque practice that sums up most of what is considered malevolent about the contemporary creed of financial speculation. Given the very real possibility that hedge funds will have to sell their ‘longs’ to cover losses from their infinitely extensible shorts, triggering a knock-on effect that will impact retirement funds and other investment products, collective hostility to the practice of short selling (both within the financial class and beyond it) could grow to a fever pitch.

It might, of course, go another, altogether more cynical way. Given the surge of recrimination that has been purposed in the media against the Redditobins and their short squeezing, and an increased demand for investor censorship, the limiting of franchise among “ordinary citizen” investors, it is far from out of the question that the financial class may attempt to spoil the argument as a means to protect their interests along these lines. The much-maligned suspension of investment in GameStop through the trading platform Robinhood is but a single suggestive example that this might occur.

1-star reviews of trading platform Robinhood following their suspension of the trade of GameStop stocks. 100,000 of them were removed by Google

The wider, less tangible, and perhaps more interesting knock-on effect of the GameStop episode is what it means for internet pollity. Up until this point, internet pollity has been a functional oxymoron — collective action is almost universally on behalf of a given group’s special interest, with moral imperatives that make most sense, or make sense at all, only to participants and beneficiaries. Often both the job of balancing the books, and even devising a policy manifestation for that group’s desires, is beyond that group’s interests.

But the Shorting, and the deeds of the Redditobins, exemplify quick, decisive action, according to sophisticated organisation among the principals, for a generally appreciable moral end. It is, to say the least, unlikely that this charge for technoethicism (with ‘techno’ understood both in the sense of relying on technological instruments, and being facilitated by high degrees of technical competency) will come from r/wallstreetbets, however long the bubble that has ensued in the wake of the Shorting lasts. It is quite possible that other actors, more deliberate of agenda, may understand the work of incidental genius within the GameStop episode, and seek to replicate those methods on other stages.

[1] This parallel is invoked only owing to the similarity of certain social dynamics at play in the Shorting to those visible in the initial stages of the French Revolution. Perhaps needless to say, Wonk Bridge holds neither romantic nor pragmatic attachment to, or approval of, the form the French Revolution ultimately took, offering the blood of the untried to a Moloch contrived of reason.

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Technologist, writer, contrapuntalist, lion tamer and piano tuner

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Maxi Gorynski

Maxi Gorynski

Technologist, writer, contrapuntalist, lion tamer and piano tuner