While I agree with Ryan Cooper’s analysis at The Week of the GameStop mania and have sympathy with his argument that it highlights the need for serious financial reform, I have grave reservations about the sort of reform he advocates:
If we strictly regulated Wall Street with large capital requirements, a financial transactions tax, simply banning most of the complicated derivatives and options used today, and so on — aimed not at the retail investor but mainly at the big financial firms — the American economy would be a lot healthier. If we scooped most stocks into a social wealth fund owned equally by every American, normal people could benefit from the market without having to take crazy risks. There are better ways to beat the rich than pump-and-dump schemes.
Perhaps my objectives are quite different from his or my expectations of people’s behavior and perhaps what I would like to achieve is just impossible. I think that the reform that we need would stop empowering the powerful and start empowering ordinary people. I don’t have opposition to financial transactions taxes but the rest of his proposals strike me as doing the exact opposite.
And above all I think that the only way for the federal government to bail out any private company is by nationalizing it. That would apply to banks, other financial institutions, manufacturing companies—the lot.
From the well documented evils of the Virginia Company to Amazon today, Jeff Bezos is not the problem, corporatism is.
It doesn’t matter who sits on the board, it doesn’t matter what they care about. Doesn’t even matter how long they live.
Those who sit are beholden to the bottom line. In this they are powerless.
(No Matter their social score)
Henry Ford raised wages to increase sales, maybe Musk could do the same, but not his board.
Sorta off topic but kinda related:
https://www.rand.org/pubs/working_papers/WRA516-1.html
Between 1975 and 2018, the bottom 90% of the taxable income group lost $47 trillion in income. That is the difference between per caput GDP growth and annual income. The speculators, i. e., the hedgefunds and Romney-esque predators captured the difference via financial manipulation.
People wonder why there hasn’t been a revolt by the masses. Maybe the Gamestop incident is a harbinger or trigger.
But the main takeaway from Peter Turchin’s socio-demographic-economic model of revolution is that civil wars are wars between factions of the Ruling Class. Various factions might enlist or exploit some of the masses BLM/Antifa?), but revolution is always a war among the Ruling Class itself. So far the American Ruling Class factions are too united against the masses to fight among themselves. Trump might have triggered a faction war, but he didn’t.
Regulation through a tax, which could be gamed, would not be effective as speculation to other asset types like real estate, commodities, or digital currencies since the underlying incentives have not changed.
The most market neutral way to reduce speculation is to raise the cost of money, i.e. raise interest rates. Shorting, buying on margin, using options all require borrowing money. With interest rates are at 0; people will indulge in risky behavior. Change the incentive and the speculation will decrease.
The cost of money is secondary. I don’t see it as a key to futures, options or straight short selling. Those instruments and markets all were robust well before the current interest rate environment.
What seems to be missing in all this hoopla about “sticking it to the man†is how juvenile it is. Retail short sellers don’t get a bounty for each hedge fund manager they punish for shorting. They profit from going long and guessing right. But driving an assets value up on volume is a game of musical chairs. If retail speculator A goes long and wins, he/she is better off financially. But when the music stops there is a retail speculator B out there who will have bought higher than he/she sells. They may have been part of the emotional game of sticking it to the man, but what a Pyrrhic victory.
Regulating or altering the cost of money misses the point. Shorting is swimming with sharks. Squeezes, preferential settlement…..or restricted settlement…… – not the place for retail investors, this particular situation notwithstanding. Money and emotion are getting the better of people. If you were a total novice, and a damned fool, and went parasailing over Carmel Bay, or rock climbing in New Mexico, or flooring a Shelby on a winding road on the side of a Hawaiian cliff we wouldn’t be looking to regulation.
@Drew
Since your heart is filled with concern for the little people, I am truly touched, but I am confused. In 2005, these were the same scumbags that were tricking the mortgage bankers into lending them money, and today, these scumbags are tricking the investment bankers into lending them money.
I know it is hard for somebody with as much compassion as you, but I implore you to ‘harden your heart’ against these scumbags.
Oh, the humanity.
I am not inclined to feel sorry for either group here. What I cant figure out is why the professionals decided to floor their Shelby on the winning road on the side of a Hawaiian cliff. Hard to forget that 140% number, and these are incredibly highly paid professionals. The ones who claim they are worth every penny and we cant live without them.
Steve
@steve
When the investment banks were screwing mortgage holders, the bankers were evil, but now that they are screwing the retail investors, the bankers are not so bad. It is the same scam, but now the scammers are Democrat donors.
I tend to side with Lord Acton on this.
““The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.â€
Naked shorts are supposed to be illegal, but everyone acknowledges it happens a lot and it makes a lot of money for the investor class.
Steve