By now, even if you’ve never played the market, you’ve heard about the GameStop debacle. This week, my own mother called me about it. And it’s a story for our clownish times. To start, our epic tale features a rag-tag bunch of deviant daytrading kids from social media site Reddit. They like rainbow unicorns and homosexual jokes. But they also enjoy fucking with the system. Yeah, they’ve decided to band together and purposely screw over the big hedge funds by driving up lesser stock prices that the funds are shorting.
If you’re new to this world, you only need know one thing.
And that thing is how the man on the street, aka those kids at Reddit, keep buying GameStop stock, making the price go up. And go up more than anyone can imagine. Obscenely up. Yet, the hedge funds need GameStop’s price to go down big or they’ll lose billions of dollars, wiping them out completely. That’s the core of our circus adventure this week.
Then we also have one Elon Musk: space adventurer, playboy billionaire, meme-maker extraordinaire. The hedge funds put him through the ringer for years as they bet against Tesla. But now, he’s back to pour salt in their wounds, as he uses his fame to encourage the general public to join in with the Reddit kids and also buy GameStop. The result? The financial managerial class is having a bad day, a very, very fucking bad day.
That is, they were until they likely picked up the phone. Who did they call? Their buddies in the federal government is one possibility. And if so, they asked the government to not let regular traders keep buying this stock. “SHUT DOWN IT!” they would scream. And the government and their crony companies appear to have complied, illegally shutting out regular people from continuing to buy the GameStop stock.
And all because of some Average Joes in their PJs daytrading against the elite.
Why does all this matter? Because this is what financial warfare looks like in a collapsing empire. Yet, in all the excitement and insanity, you may have overlooked a small, but significant exchange regarding it. And that’s how, in a press conference this week, White House Press Secretary Jen Psaki was asked if there was a conflict of interest. A conflict for who? Janet Yellen, former head of the private banking system known as the Federal Reserve but now Treasury Secretary for the government. You see, she has accepted hundreds of thousands for behind-the-scenes talks at Citadel, one of the largest hedge funds in question. Now their ilk is possibly going to ask her to bail them out. Or at least change the rules for them. Can you believe it?
How did Psaki’s respond to the question? Of course she said there was no conflict of interest! Yellen, she told us, is an astute, highly informed person on the subject! That’s all! Psaki was able to express all this with a straight face. But make no mistake: Yellen’s former role at the Fed is conflict of interest enough, the millions in speaking fees are just icing on the cake. But it gets even better. Can you guess? You’d be forgiven for not knowing this but Psaki’s brother? Yeah, it’s rumored that he also works for Citadel.
Update: given that “Psaki” isn’t a very common name, the two both grew up in Connecticut, and the individual in question appears to have just deleted his LinkedIn, there’s a good chance this story has legs. Unfortunately, I have little interest in digging into it but 4chan seems to be somewhat on the case.
Still, you can’t even make up this level of incestuousness. And the elite think no one notices.
But at least some everyday people probably do.
Now, can you imagine what happens next, given these relationships and the obvious exploitation of regular everyday people who are daytrading, if the feds bail out the hedge funds for their mistake on GameStop? Or if they go after Reddit kids for (laughably) “stock manipulation?” It’s hard to imagine that anyone is going to buy any excuses about why there are now clearly two sets of rules to the game: the ones for those in power and the ones for you and me. And there is unlikely to be much enthusiasm for bailing out hedge funds while the common man waits for his own next round of bailouts in the form of stimulus payments.
So, where does this put you and me? Three observations.
Take note of how the elite respond to this debacle
Briefly shutting down trading platforms or subreddits is one thing. If the elite choose to bail out these hedge funds for what was clearly fair and legal trading, you should consider what that means for your 401k, at the very least. It will mean that the system is completely fake from top to bottom. Worse, if they go after and persecute any of the regular daytraders for “hacking,” you’ll know that financial warfare is escalating quickly.
Understand that this clownish game can go on for a long time until it stops suddenly and sometimes painfully
Amateur traders often underestimate how long the government can suspend the rules of the game. But you only need look at the current moratorium on rent and mortgage to see that they’ll go to great lengths to make it look like we’re not in economic collapse. But equally, the elite have probably underestimated what happens when the common man comes together… and how long the madness of crowds can last. And this crowd looks like its getting madder and madder. Still, watch out if you’re holding these stocks, because when the music stops, it can stop just as fast.
Learn from how moral hazard is starting to have history defining consequences
After the first financial crisis, academics talked about “moral hazard.” In a nutshell, it’s what happens when a person or organization increases their risk if they aren’t held accountable for their actions. And how people still accountable for their actions react in response. You get a class that can do whatever they want and another class that foots the bill. And that changes the game. At the time, in 2008, this was a quaint, hypothetical possibility. Now, it’s a vicious reality where the common man reminds the cronies in charge that they still have some skin in the game but skin of the most fundamental type… their reliance on the system to continue working at all. And the common man seems far more skilled at and willing to say “fuck all” for the lolz when they have little left to lose.
Still, if you were trading GameStop through this fun, hats off to you. You’re making history. Either way, personally, when I go to the roulette table, I like to have a drink with me. And something tells me now might be a good time to have one before the next round of clown world begins.