How Do You Spell “Pitchfork”?

The Germans have a word for it: zeitgeist, literally “time spirit”, the spirit of the times. The GameStop speculation saga really captures today’s zeitgeist in many ways and Matt Taibbi has a good handle on it:

In the fall of 2008, America’s wealthiest companies were in a pickle. Short-selling hedge funds, smelling blood as the global economy cratered, loaded up with bets against finance stocks, pouring downward pressure on teetering, hyper-leveraged firms like Morgan Stanley and Citigroup. The free-market purists at the banks begged the government to stop the music, and when the S.E.C. complied with a ban on financial short sales, conventional wisdom let out a cheer.

“This will absolutely make a difference,” economist Peter Cardillo told CNN. “Now, if there is any good news, shorts will have to cover.”

At the time, poor beleaguered banks were victims, while hedge funds betting them down as the economy circled the drain were seen as antisocial monsters. “They are like looters after a hurricane,” seethed Andrew Cuomo, then-Attorney General of New York State, who “promised to intensify investigations into short selling abuses.” Senator John McCain, in the home stretch of his eventual landslide loss to Barack Obama, added that S.E.C. chairman Christopher Cox had “betrayed the public’s trust” by allowing “speculators and hedge funds” to “turn our markets into a casino.”

Fast forward thirteen years. The day-trading followers of a two-million-subscriber Reddit forum called “wallstreetbets” somewhat randomly decide to keep short-sellers from laying waste to a brick-and-mortar retail video game company called GameStop, betting it up in defiance of the Street. Worth just $6 four months ago, the stock went from $18.36 on the afternoon of the Capitol riot, to $43.03 on the 21st two weeks later, to $147.98 this past Tuesday the 26th, to an incredible $347.51 at the close of the next day, January 27th.

The rally sent crushing losses at short-selling hedge funds like Melvin Capital, which was forced to close out its position at a cost of nearly $3 billion. Just like 2008, down-bettors got smashed, only this time, there were no quotes from economists celebrating the “good news” that shorts had to cover. Instead, polite society was united in its horror at the spectacle of amateur gamblers doing to hotshot finance professionals what those market pros routinely do to everyone else. If you’ve ever seen Animal House, you understand the sentiment…

He adds several bons mots:

Meaning: just like 2008, trading was shut down to save the hides of erstwhile high priests of “creative destruction.” Also just like 2008, there are calls for the government to investigate the people deemed responsible for unapproved market losses.

and

The only thing “dangerous” about a gang of Reddit investors blowing up hedge funds is that some of us reading about it might die of laughter. That bit about investigating this as a “pump and dump scheme” to push prices away from their “fundamental value” is particularly hilarious. What does the Washington Post think the entire stock market is, in the bailout age?

America’s banks just had maybe their best year ever, raking in $125 billion in underwriting fees at a time when the rest of the country is dealing with record unemployment, thanks entirely to massive Federal Reserve intervention that turned a crash into a boom. Who thinks the “fundamental value” of most stocks would be this high, absent the Fed’s Atlas-like support in the last year?

and

In other words, it was all well and good for investment banks and executives of phoney-baloney companies to gorge themselves on funhouse profits on a funhouse economy, but when amateurs decided to funnel just a bit of this clown show into their own pockets, finance pros wailed like the grave of Adam Smith had been danced upon.

He concludes:

They’ve seen first that our markets are basically fake, set up to artificially accelerate the wealth divide, and not in their favor. Secondly they see that the stock market, like the ballot box, remains one of the only places where sheer numbers still matter more than capital or connections. And they’re piling on, and it’s delicious, not so much because they’re right, but because the people running for cover are so wrong, and still can’t admit it.

Buy the ticket, take the ride, nitwits. If you earned anything, it’s this.

I don’t see how you can coherently defend markets and call out for intervention into the markets on behalf of the wealthiest people in our society unless what you’re really defending is not markets but the continued rule of the established oligarchy. At best it’s cognitive dissonance. At worst it’s simply lying to the rubes to maintain your hold on wealth and power at the expense of everybody else.

What we’re seeing in this incident, in the breaching of the Capitol, and in the mass demonstrations over the summer is enormous dissatisfaction but it’s not just dissatisfaction. What we’re seeing, too, is the challenge that the Internet, broadly, and social media in particular pose to power structures throughout our entire society. Not just government but journalism, media, financial, and banking. In due course it will invade every area.

How we respond to this challenge will set the course of events for the foreseeable future.

Update

The editors of the Wall Street Journal summarize the matter succinctly:

This may be a new example of the power of social media, but it isn’t a crisis of capitalism or the stock market.

which you may notice echoes what I observed above. But they then go off the rails in their conclusion:

How about reminding people that investments carry risk, that stocks fall and rise, and that the GameStop losers won’t be bailed out?

The hedge funds have already been bailed out—by bigger “investors” and, ultimately, they’re being backstopped by the biggest “investor” of them all, the Federal Reserve. What recourse do we have to stop this picking of winners and losers?