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Lana Swartz: I definitely do think that Wall Street is going to change as a result of this, but I don't think it's an easy populist story.
Taylor Owen: Hi. I'm Taylor Owen, and this is Big Tech.
So this week's episode was going to be about something completely different. It was going to be on religion and technology, and that conversation will come to you in the next couple of weeks. But we decided to pivot because sometime last week, this happened...
[CLIP]
David Westin: Markets have been captivated since late last week with the phenomenon that is GameStop and the battle between short sellers and a group posting on Reddit with the stock shooting up and fluctuating wildly...
SOURCE: Bloomberg Technology YouTube Channel https://youtu.be/v7ewjv62S60
“Why GameStop Stock Soared 400%”
January 27, 2021
[CLIP]
Julia Chatterley: GameStop shares have now risen some 700% year to date.
COURCE: CNN YouTube Channel https://youtu.be/6nKQ90CzxgM
“Investors on Reddit send GameStop stock soaring”
January 27, 2021
[CLIP]
Jim Cramer: We're seeing a phenomenon that I have never seen.
Andrew Ross Sorkin: There's nothing normal about what you're seeing when it comes to this stock right now.
SOURCE: CNBC Television YouTube Channel https://youtu.be/rLqH4K5u22k
“GameStop skyrockets as retail investors force short squeeze”
January 27, 2021
Taylor Owen: If your newsfeeds look anything like mine, you've probably been hearing a lot about GameStop over the past few weeks. In case you haven't, here's the gist. Essentially, there's a video game retailer called GameStop that's in almost every mall in America. But lately, business hasn't been booming, partly because you can download video games directly off the internet now. And partly, of course, because nobody really wants to go to the mall in the middle of a pandemic. So a bunch of Wall Street hedge funds tried shorting GameStop, which means they made a big bet on its stock going down. All of this is par for the course. But then it got interesting. A bunch of retail investors got together on a Reddit forum called WallStreetBets, and they decided that if enough of them bought shares in GameStop, they could drive up the price of the stock. This is called a short squeeze because you're squeezing the players who are doing the shorting. The more the stock goes up, the more money the shorters, in this case, the hedge funds lose. And somewhat remarkably, this actually seemed to work.
[CLIP]
Stephen Colbert: Chaos continues on Wall Street as hedge fund titans lose billions to Reddit traders running amok.
SOURCE: The Late Show with Stephen Colbert YouTube Channel https://youtu.be/AfK9sb9RQ3s
“How Reddit Traders Used GameStop To Totally Spank The Wall Street Big Boys”
January 28, 2021
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Leslie Picker: Melvin suffering losses, upwards of 30% in a year through last Friday, a source told me, and it's my understanding that the P and L looked very grim before Citadel and Point 72 gave Melvin a $2.75 billion cash infusion on Monday.
SOURCE: CNBC Television YouTube Channel https://youtu.be/H0GMhHIYCKU
“Retail traders take on hedge fund short sellers”
January 27, 2021
Taylor Owen: The story is a lot more complicated than that, but for now, that should give you a sense of what's going on here. Now when I was first thinking of interviewing someone for this, I thought I would talk to an economist or a financial journalist. Someone who could walk me through this story beat by beat. But over the last week, it seems like we've been inundated with these types of explainers. Given how quickly this became saturated, I decided I wanted to talk to someone with a very different perspective on all of this. I wanted to talk to Lana Swartz. Lana is the author of a book called New Money, about the ways in which digital technologies like Bitcoin are reshaping finance. Lana is a professor of media studies. So she brings a really unique perspective to all of this, because while this is undoubtedly a story about finance, it's also a story about social media, about populism and about Silicon Valley.
The dominant narrative that has emerged around this is that of the Davids of Reddit conquering the Goliaths of Wall Street. Lana doesn't really buy that, but she does think it's an important moment for a variety of other reasons. It's an opportunity to take stock of our financial system as it currently exists to think about who it's working for and against. It's a moment to look at the design of these new FinTech platforms and how they are shaping our economy. And it's a moment that has the potential to really democratize finance. But 20 years ago, we thought the internet had the potential to be a truly democratizing force as well. And that never really came to fruition. Maybe this time we can get it right. Here's Lana Swartz.
I wanted to start with your broad sense of what happened and how you understand what happened. What's your context for thinking about last week?
Lana Swartz: Yeah. So I was listening to another podcast that was trying to do an explainer and think through what has happened. And at the end they did a little take-a-thon where they just listed out all the takes. They were like, there's this take, there's that take, there's this take. And they commented on each one and the takes were pretty varied and about a lot of different things. And so as a scholar, as a socio-cultural scholar of communication technologies and particularly money technologies, I think that this is a really interesting moment to explore a lot of different issues. So I don't, I hope, I don't think that, don't hold me to account to this, but I don't think we're going to necessarily see some major financial meltdown of systemic proportions in the next month or so. And that might be cause for some people to dismiss this story and act like it went away. But I do think, even so, even after the news cycle has moved on, this has brought up a lot of really important issues that I think are worth paying attention to. It's one of those moments of infrastructural scholars like myself, like to talk about infrastructural inversion. So this idea when suddenly something stops working and you realize all the things that went into making it work in the first place. So this thing that you never noticed before and then suddenly-
Taylor Owen: Becomes visible, right?
Lana Swartz: Exactly. Exactly.
Taylor Owen: Okay. So let's talk a bit about how you got into this topic and what you've been working on really for the last decade leading up to this moment. So you're a professor of media studies, but you spent the better part of your career looking at cryptocurrencies and broad forms of financial payment and what you call new money. So how did you get into that?
Lana Swartz: So I was in grad school, really in the aftermath of the global financial crisis. So this moment when suddenly lots and lots and lots of people became popularly interested in money. So where does the money go? You have trillions of dollars of wealth wiped out overnight. You have in turn relief and stimulus plans that introduce quantitative easing that create money seemingly out of thin air. You have popular interest in machinations of the stock market. So ranging from dark pools to collateralized debt obligations, it was also the emergence of Bitcoin and other cryptocurrencies. And so I trace this moment not just to the global financial crisis, but also 2007, 2008 was almost also this moment where the iPhone first came out, followed quickly by the Android. So suddenly we were all carrying around pretty sophisticated interconnected computers in our pocket. Facebook hit the tipping point of really having enough users that it wasn't just young people. It was like, even your grandma was on Facebook. So it was this moment. And then I argue that, in order to do money, you really just need something to keep track of accounts and you need a way to transmit information and you need a way to connect with people. So to have some kind of address book. So between a cell phone or an advanced smartphone and something like Facebook, you're getting pretty close. So all the pieces were there for this moment of ripe re-imagining of what money is, what money could do. And you mention the media studies piece.
Taylor Owen: Yeah.
Lana Swartz: People often ask me, what does media studies have to do with money? And I realize that so many of the new technologies that were in platforms that were emerging around consumer financial services were very much in the mode of Silicon Valley. We're very much in the mode of social media. So I began to really see this deep entanglement between payment and Silicon Valley more broadly defined. And I determined that I would get to the bottom of it and puzzle it all out.
Taylor Owen: I imagine for much of your time working on this, whether it was cryptocurrencies or slight changes in retail investing, this was probably seen as pretty niche, particularly in media studies, right? Where people are looking at social networks and journalism and all these sorts of things. How would you express the importance of new money in these transitions? And particularly now, when we're immersed in this transition.
Lana Swartz: Right. So it seems pretty niche, except for when you realize how many times a day and how frequently we rely on monetary infrastructures of various kinds and how the invisible changes that they are going through may, in fact, impact us. So, no matter what, I always tell scholars to, and journalists to look for the payment angle, look for the payment infrastructure. There has been a number of times whether it was WikiLeaks or more recent issues with white nationalists in the US and elsewhere, where various parties have been deplatformed. But it isn't really until the money gets cut off, when the payment intermediaries begin to deplatform these groups.
Taylor Owen: And money underlies a lot of the activity of those groups too.
Lana Swartz: Absolutely.
Taylor Owen: A lot of this as just commercialization.
Lana Swartz: So it's important to ask, how does the money get to these groups? What are the actual infrastructures that that money travels through? How do those infrastructures wield infrastructural power? So I actually was most fascinated and really perked up when it was Shopify, the e-commerce system deplatforming some of these white nationalist groups, because that's actually where, take away the money and that's where some of the deplatforming really has teeth.
Taylor Owen: Yeah, yeah, absolutely. And it was hilarious, even the late night comedians were talking about that, when they would list the long deplatform, all the different companies that deplatformed in the end, and they were like, and Shopify.
Lana Swartz: Right.
Taylor Owen: What's going on there? And yet, that's probably the most powerful lever. Right?
Lana Swartz: Absolutely. Absolutely.
Taylor Owen: So there are always these moments where these kinds of infrastructure and these kinds of much bigger structural problems and dynamics, as you say, reveal themselves. And I think it's pretty clear that that is partly what happened and yet last week, we've got this moment of visibility of some of this infrastructure, which is really interesting. It seems to me there's two big technology elements to what was going on. One was clearly the innovation happening in retail investing with apps like Robinhood, which is a relatively new phenomena, I think. But the other is social media. There was literally a social media component to this. I'm not just money as media, but this was happening on platforms. So I want to start with that a little bit and get some of your thoughts on that, if that's possible. So what was the WallStreetBets' subreddit?
Lana Swartz: Yeah. So Reddit is a message board of message boards. So it's a big, it's a site filled with all of these communities called subreddits and each of those subreddits are devoted to a particular topic and WallStreetBets is a place for people to come on and, am I allowed to use profanities on this podcast?
Taylor Owen: Of course.
Lana Swartz: Okay, well, as they call it, shit post about Wall Street and WallStreetBets is interesting because it's not your average, sitting around talking about the market. Rather, it is full of really absurdist humour, full of memes, full of far more profanities and offensive language than, even if I'm allowed to I probably won't use on this. And I had been paying attention to it ambiently for a couple of years now. It's in my wheelhouse. What's funny about this is that it's a place where you go to be with other people who think that the stock market is really funny and enjoy placing stupid bets, like literally gambling. They use a lot of ablest language, but basically to say, let's get really stupid with our money and just go all in. So quite absurdist and, to me, interesting because it, in science and technology studies and in social studies and finance, we've all long argued that the market is an engine, not a camera, right? So there's this classical economic idea that the market is a truth claim on reality, and that the economy goes up and a company does good and its stock goes up and it's all very rational and it's all very reflective of something real that's out there. But those of us in my academic world, the market itself is actually an engine, right? It's not a camera taking a picture of something out in the world. Rather it is its own performativity. It's its own machine that may or may not have anything to do with what you or I, who are just shopping and working at our jobs and living our lives, think of and experience of as the economy. And I think WallStreetBets actually, behind all of the offensive absurdism, they really get that. And they're offering a critique of the stock market as itself fairly absurd.
Taylor Owen: And performative.
Lana Swartz: And performative. Indeed. Yeah. At the same time though, there's this rapid oscillation, they like to almost jokingly talk about the fundamentals and say, actually they, as they put it, I like the stock. They actually sometimes are willing to make bets based on their analysis of what's going to happen in the world. But I do think understanding this deep ambivalence and rapid oscillation between absurdism and earnestness is crucial, not just to understanding WallStreetBets, but to understanding all kinds of turns that we've seen in politics and culture more broadly.
Taylor Owen: But that, to some degree, complicates the narrative, that this is a rising populist movement overtaking the injustices of free market capitalism, right? If this is performative in for show and was a game in many respects, is that telling us something different than this narrative that's taken hold?
Lana Swartz: Well, I do think that narrative that has taken hold of the little guy versus Wall Street has a lot of problems. And first of all, there is professional money on both sides of this. There are actual hedge funds and institutional investors of all kinds who are also putting money into going long on GameStop. And we don't really know how much. We can't follow the money here exactly. But we do know that there are professional money on both sides. So the populism story, and that is to say there are definitely little guys, there are definitely people who are putting hundreds of dollars into this. But there are a lot of people who we would not recognize as a populous little guy. The populous figure here in many ways is Elon Musk who, and is famously against hedge funds because hedge funds have shorted Tesla and has been very public about his disdain for hedge funds. And so, you do absolutely see memes about Elon Musk, where they call him Daddy Elon. They talk about For King and Country in reference to Elon Musk that do look to me quite a bit like some of the memes we saw in The Donald about Donald Trump so many years ago, where they called him, allegedly jokingly, this mix of cynicism and absurdism and true belief, like God Emperor. So it's very interesting.
Taylor Owen: So what you're saying is Elon Musk is the next Donald Trump. Is that, not to put words in your mouth.
Lana Swartz: Yeah. And then it's the same question of like, do they really mean it? Are they really joking? How do the vectors of cynicism and true belief and absurdism shake out here? The other hitch to the populist story is that everyone on WallStreetBets is saying, as they call it, diamond hands, which means hold the stock, do not sell, hold it so hard until your fists turn into diamonds. The other side of that is what they call Poop Hands, which is where you can't hold. You get scared. You think the price is dipping. So you sell it. And then you don't really have the moxie or cojones or whatever you'd want to call it, to ride the roller coaster and hold on tight. So while the main discourse on the subreddit right now is diamond hands, don't sell your GameStop. Keep it going. Hold it, hold it, hold it, hold it. Many of the people who are savvy retail investors, who've been around this for a long time who have put quite a bit of money into GameStop are not actually willing to lose hundreds of thousands or millions of dollars for the sake of diamond hands, for the sake of proving that they have the cojones to play this game of chicken against hedge funds. And many of them have, in fact, sold out, sold their stock. They're probably not making memes about it. In fact, I haven't seen many memes about it. But they have turned the GameStop stock worth, quote unquote, X amount of money into actual money. Whereas others, who I think maybe sit on the side of true belief, maybe are less savvy. Maybe just don't, are so absurdist and cynical that they don't care if they lose money, are still holding on. And eventually I can't see an end strategy where many of those users who continue to hold and hold and hold, don't wind up losing their investment.
Taylor Owen: So they're the people that are going to get hurt in this?
Lana Swartz: Yes. Yes. So there are absolutely going to be people who bought at the top of the market for GameStop, who believe the hype of hold, hold, hold, hold, hold, and who are only going to be able to sell after their position has totally collapsed. And when the stock is worth almost nothing again. I come to this, in part, through my research in the Bitcoin community and crypto community more broadly. And in Bitcoin, we have a similar dynamic where we talk, the Bitcoiners talk about hodling. It's a misspelling of the word hold. So you're meant to hodl, hodl, hodl, hodl, and hodl your Bitcoin. Don't sell, don't sell, don't sell. And some people who are preaching hodling are absolutely selling. Many people. Because they are trying to get out at the top of the market.
Taylor Owen: Right. If they weren't, then it wouldn't be fluctuating the way it does as radically.
Lana Swartz: Exactly. Right. So yes, they are able to screw some hedge funds, so to speak, but I don't see any way for there not to be some ordinary Joes who wind up getting hurt by this. I haven't seen a clearly articulated exit strategy.
Taylor Owen: So this connection to cryptocurrencies and Bitcoin brings up the potential democratizing elements of this or empowering of this. Five or so years ago, I wrote an article about Bitcoin and cryptocurrencies, where I made the argument that either... This could be totally wrong, but I just want to try it on you.
Lana Swartz: Yeah.
Taylor Owen: Either this technology is as fundamentally empowering as proponents are making it out to be, in which case it undermines the very thing that makes nation states the strongest, which is their control over currency. And states are pretty powerful. So they are probably going to push back very aggressively against this technology. Or it's actually not as powerful as the people promoting it are. It's what you call, generally, just a pump and dump scheme to game the market and investment. In which case, the states are just going to let it emerge and simmer, and aren't going to use their big sticks against it. Is what we're seeing now an example of the latter? This isn't overturning capitalism or the state. This is just a niche market thing that is being controlled by the same kind of interests who generally control investments.
Lana Swartz: Actually, I think it's a third thing. I don't think we're seeing the emergence of some radical democratization of finance where suddenly, it's a vast army of this distributed ad hoc hedge fund, essentially, to rival entrenched actors. Nor do I necessarily, I don't think we're going to see any major systemic market meltdowns from this anytime soon. But I think that a better comparison is actually to the internet more broadly. So in the early days, in the nineties, there was a lot of talk about how the cyberspace was going to leave behind the meet space and it's petty rules and petty governments. And we were all going to be home setting on the electronic frontier and living in this radically new imagined world that was, virtual world. And to some extent, it's true that the internet has challenged many of the laws that terrestrial governments put in place. But instead, we didn't actually get, or we haven't as yet gotten the revolution that is as dramatic as may have been promised or envisioned in the nineties. Instead, what we got was a bunch of platforms who carved up the internet and definitely made it far from this libertarian utopia that it once was, or once was envisioned to be. But our lives have radically been reshaped by the internet. Facebook is really important. It is a important intermediary that in some ways rivals state power, but it also is the place where we go to communicate with our grandma. It's a place where we go to sell things. It's the place where you go for news, for everything. So I think that democratization of finance is absolutely here to stay and that we will see finance change in the way that almost all other industries have changed as a result of the internet facilitating new actors. I don't think, again, that it's necessarily this radical populist story about the little guy. I think it's maybe a new way for MBA grads to act on the stock market. A new way for the same kinds of people who've always been players to enter into it. Maybe disrupting the hierarchies inside of Wall Street firms more than anything else.
Taylor Owen: Interesting.
Lana Swartz: So I definitely do think that Wall Street is going to change as a result of this, but I don't think it's an easy populist story.
Taylor Owen: Or even democratizing? If this is just an upend, an innovation within the financial services sector...
Lana Swartz: Right.
Taylor Owen: Then that's not really democratizing either, is it?
Lana Swartz: Yeah. I think the question there is actually a question of platforms. So this is something I think quite a bit about with payment systems but also, because I'm in media studies, we think about the governance and power of platforms constantly. So platforms fundamentally moderate, they fund what that's like definitionally, what they do. They decide how information and activity flows through them. They're far from these neutral, dumb pipes or dumb channels. And Robinhood is fundamentally a platform. There's been a lot of conspiracy theories that have emerged since they have stopped allowing certain kinds of trades on their platform in the wake of all of this. But I do think that they have been largely constrained. I do think that the main reason why they stopped allowing people to buy GameStop is because they were constrained by a variety of different market mechanisms, like their own credit, their own ability to clear the trades that were being placed. And I think what that reveals, that kind of infrastructural inversion, is that we have to simultaneously hold platforms accountable because platforms will fundamentally shape whether or not this is a democratizing moment or what the nature of that democratizing moment is. But we also have to stop, we have to stop making these sweeping generalizations about platforms as though their moderation decisions were on-off switches. But to really intensely study the underlying infrastructure that produces platform decision-making. So I think that all of the work that has been done over the last decade or so to understand platforms now has to be applied to platforms like Robinhood and to see if there is something different about money and if so, what is it? Is there more of a, do they owe us more of a fiduciary role, but how can we understand the mechanisms by which they are, in fact, constrained?
Taylor Owen: That segues perfectly, I was going to ask you about platforms. The analogy to the internet is important, I think, and you could argue that the emergence of platforms as an infrastructure and particularly as a set of incentives is part of what pushed back against the democratizing nature of our previous internet infrastructure. And so what can we learn from that? That the platformatization of the internet is what led to it being less democratic and empowering. So what can we learn from that to apply to these new set of platforms that are going to come very fast, right? Robinhood is not the last and they're going to be barreling down.
Lana Swartz: So here's the thing about Robinhood is, it is like every other platform, every other startup in the Valley. It is funded by VCs. It has an eventual data play like, Oh, it's free to use, it's free to our users because we are going to figure out how to monetize this data somehow, eventually. But I suspect that it's real exit plan was never actually to sustainably monetize that data, but instead was preparing for an eventual acquisition by a bank or the like. Yeah. Exactly. And in the tech industry, it seems like we have no real way to imagine long-term business that actually serves the consumers that is an acquisition or winner takes all in the way of Facebook, where you just become so entrenched that, even if you're not making any money, even if you're largely still operating in what's called growth mode, just trying to get to scale, get to scale, get to scale, and profits come later. And in many cases, disrupting businesses that actually do make a profit. So this doesn't actually look very much like what I was taught capitalism is. So as the tech industry becomes ever more imperial and ever more turning its project to more and more parts of life and more and more parts of the economy, how can we hold them accountable to make businesses that actually try to serve the users, not just get to scale and exit somehow? And I think that's a really big and unanswerable question, but it's the key question of the moment.
Taylor Owen: I suppose if we want to change some of those incentives, part of what we might want to do is not leave this space entirely unregulated as we did the previous platform moment. But it strikes me, one of the really hard parts of regulating this sector is going to be figuring out how to protect these retail investors and the banking infrastructure and the integrity of the financial sector while not impeding the ability of the retail investors and these new platforms to emerge. Do you think there's a set of regulatory approaches that can help ease that transition?
Lana Swartz: Yeah, I honestly can't say that I know that there are, but I think that that's a really good agenda for policy scholars to really think about, and that's definitely a conversation I would be interested in being part of. I do think that some of the messaging, the political messaging in response has been really interesting. So notably, Alexandria Ocasio-Cortez has been a supporter. She seems to get it. But when Elizabeth Warren popped up and said something like, we need to talk about regulating this space because this kind of activity, including both the way that Robinhood treated its users, but also the way that the potentially swarming behavior that these retail investors cause doesn't actually help GameStop. It doesn't make for an efficient market. That isn't really good either. It was the grown-up approach, from what I can tell.
Taylor Owen: No, it's also from her consumer protection background, right?
Lana Swartz: Absolutely.
Taylor Owen: She's like, how do we protect these people from making mistakes in a system?
Lana Swartz: Right. Right.
Taylor Owen: In somewhat paternalistic way. Whereas AOC is all about democratic empowerment, and this is... So it's interesting to watch the progressive world struggle with this stuff.
Lana Swartz: Absolutely, absolutely. And I do think, important thing that is worth teasing out here too, is the role. I almost hate myself for saying this, but the role that hedge funds actually play in an efficient market. If we're going to say that there's such a thing as a market, and we're going to allow some people to invest money and we're going to put all of our retirement funds in it, and we're going to play all these casino games. Hedge funds do play a role. They're the folks that say this stock is overvalued, right? This thing is hype. And I hope if any WallStreetBets people listen to this, they may actually get mad at me for pulling in the Elon Musk of it all again. But Tesla, if we pretend that the market is in fact kind of a camera, that's meant to take a picture of real events, Elon Musk is a very erratic personality.
Taylor Owen: And maybe you want a bit of hedging against the exuberance attached to his stock, right?
Lana Swartz: Maybe. Yes. Maybe it's okay to say that is overvalued. And that may be a check on some of the just exuberant growth, growth, growth, growth to the moon as Bitcoiners and also c people would say. Could we imagine, this is kind of ridiculous, but could we imagine some alliance between hedge funds and something like the de-growth movement, which seeks to put a check on economic growth or an ideology of economic growth for reasons of ultimately environmental, avoiding environmental catastrophe. That's-
Taylor Owen: Now that's a political alliance.
Lana Swartz: Stranger bedfellows have been made in this very controversy. So you never know. I think this is a moment where we have this miasma of strange bedfellows and all kinds of new allegiances are going to emerge. Probably not that one, but as a provocation, I think it's pretty interesting.
Taylor Owen: So do you think that's what might make this a real turning point?
Lana Swartz: Yeah. Maybe I'm just, I have a inner hedge fund in me where I'm always the one being like, is it really going to change that much? Probably not. And I think that we will, we're going to see change in this space and we're going to see, Wall Street has changes coming for it, but they probably won't be as exciting or as exciting in a good way, as some people hope. I don't know, I'm not a good prognosticator. I'm more of a historian and an analyst of what's going on.
Taylor Owen: Well, I tell you, you provided us some great perspective on what we've all been watching unfold over the past week. So thank you so much for doing that.
Lana Swartz: Thank you so much for having me. This was a lot of fun.
Taylor Owen: That was my conversation with Lana Swartz.
Big Tech is presented by the Centre for International Governance Innovation and produced by Antica Productions.
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