How Lulz Took Down Wall Street
r/WallStreetBets delivered cybernetic karma to those who deserve it
As the hedge fund billionaires suffering catastrophic losses in the r/WallStreetBets activist campaign now realize, we reap what we sow. Even more so in a digital age.
Norbert Wiener tried to warn us way back in the 1950s that digital technologies would be cybernetic in nature. They do not function in the straight linear fashion of the Industrial Age with its assembly lines, unidirectional drive toward progress, and growth-based capitalism. No, the world of cybernetics is a world of feedback loops — like the cycles of a computer. Call and response. Everything comes back, like karma. And though for a while it looked like digital technology was just going to accelerate that relentless drive toward infinite wealth for the few, feedback has finally kicked in, and the digital revolution so many of us have been waiting for may, at last, be here.
First off, we have to remember that migrating the markets to the internet was a bad idea in the first place. Media environments tend to determine a whole lot more about the way things function inside them than we like to believe. Initially, the tools help us do the things we want to do more efficiently. But then, we start to change our behavior to meet the needs of the tools. And eventually, the tools take over, making our decisions for us. It’s one big system, where people may as well be bots. Most hedge fund billionaires I’ve met really don’t make decisions anymore, beyond whom to hire to write their algorithms. The only ones who maintain any autonomy at all in these systems are the hackers and gamers — like the ones currently invading the marketplace to save the memetically appropriate company GameStop.
Indeed, the elite put business, politics, and eventually finance inside a video game. Now, we’re playing it. I wrote my dissertation about this 10 years ago when it still looked like digital trading platforms would remain one step ahead of human players. The discount brokers built online platforms that simulated the screens of professional brokers, encouraging retail users to day trade and play with options. As studies showed, the more frequently retail traders transacted, the more money they lost — and the more fees the platforms collected.
The elite put business, politics, and eventually finance inside a video game. Now, we’re playing it.
For a while, it seemed that the traditional players would maintain their stranglehold over the economy, crushing businesses at will, with no regard for employees, small investors, or the rest of the on the ground economy. The bailout of the most nefarious actors in the manufactured 2008 recession seemed to confirm our helplessness — our supposed digital empowerment notwithstanding.
But all this sharing of technology and information with ground-level consumers eventually came back to haunt the big firms feeding off our human ignorance and the latency of our inferior internet connections. The gamers analyzed the whole situation from their own perspective, and found a way to play.
Their definition of winning is very different. They’re not looking at how to become millionaires. They’re not in this for the money, but for the lulz. This is not about making a profit so much as taking down the hedge fund billionaires who are ruthlessly leveraging against real-world businesses struggling to survive during a pandemic. Market experts are voicing their concern that the r/WallStreetBets kids are going to “lose their shirts” at the end of this pump-and-dump scheme, but they’re missing the point.
Most of the traders are not trying to get rich off this game, but simply to make the billionaires pay. They noticed that short interest in some of these stocks exceeded the number of shares in existence. Eventually, those shorts will need to find shares to cover their bets. All the Reddit kids have to do is purchase enough shares and then hold them so that the billionaires can’t cover their bets. The losses will be incredible. And to these activists, this alone is well worth the cost of admission. Yes, it may cost hundreds of millions of dollars, but this burden will be distributed amongst a collective. Solidarity confers power.
The Privileged Have Entered Their Escape Pods
Technology gave us the dream of a cocooned future. Now we’re living it.
But even when it comes time to unwind their positions, the activists could theoretically still profit off this scheme if they continue to act in a coordinated fashion. All they have to do is sell their stock slowly, agreeing initially to sell off no more than their original investments. This way, they are all made “whole” while the price of the stock is still quite high. Then, they continue to hold the bulk of shares as more shorts are squeezed, or sell in a slow, organized manner that lets everyone who played profit proportionally. No small feat, but neither was bringing Melvin Capital and other hedge funds to their knees. As for the mutual and pension funds that have invested with the likes of Melvin and may be hurt by all this? Well, maybe they should reconsider whether they want to grow their wealth by betting against the working economy. Karma is real.
And yes, the big boys are fighting back — but it’s not as simple as it appears. Yesterday, Robinhood and other discount trading platforms blocked additional purchase orders on Gamestop, AMC, and the other companies that Reddit activists were attempting to hoard. Everyone cried foul, gaining the support of politicians as disparate as AOC and Ted Cruz. It seems as though Robinhood was taking orders from their own biggest investors — the same hedge funds and investors who were getting squeezed!
The system is awful and stacked against us.
But like QAnon’s supporters, they’re mistaking a systemic issue for a conspiracy. No, no human beings orchestrated the restrictions on these trading platforms — but it’s actually worse than that. The way that retail investors are permitted to trade through these platforms at all is based on something of a hack. We don’t buy our shares directly; they are staked by clearinghouses, who then require trading platforms to hold a certain amount of capital in reserve. This allows the clearinghouses to effectively let multiple traders “own” the same shares at the same time.
What’s not fair, however, is that large institutional investors and hedge funds — some of whom have their very own trading desks — aren’t subject to the same conditions. They were allowed to keep trading, taking countermeasures while the Reddit traders were frozen out. This doesn’t mean Robinhood isn’t in cahoots with its Citadel Securities and the other “market makers” busy bailing out the hedge funds. The reality is worse.
Citadel is Robinhood’s real customer, not those who are trading on the platform for free. Like the users of Facebook, Robinhood’s users are paying with their data. Robinhood sells data in real time to Citadel, who can use it to “order trades” — a fancy term for using algorithms to get the best trading prices for its institutional customers, again at the expense of the little guys.
The system is awful and stacked against us. Moreover, it makes as much or more money off the failure of businesses as it does off their successes. Market makers like Citadel, as well as the hedge funds they serve, used digital technology to speed up the exchanges in order to amplify their own advantages. Now that the Reddit kids have developed a strategy for fighting back, the market makers are trying to slow the whole thing down again, as if for our own good. But the people supposedly in charge of the system — the billionaires benefiting from this algorithmic, ultra-fast trading schema — are really just riding the wave. They’re running on automatic.
And this is what has rendered them so vulnerable to the functional biases of their own technologies. The human Reddit users found what hackers would call an “exploit” in the system, and have leveraged it against those who are depending on the derivative operating system they have rigged for their own benefit.
The billionaires are the system itself. They cannot act with autonomy; they can only do whatever it is they think will make them money. The introduction of lulz into their world means that there are now conscious, autonomously acting humans. Our moves make no sense to the algorithms or the market makers because they are not motivated by the rational, short-term self-interest of individual market players.
No, it only makes sense in terms of a human collective, looking to overturn a financial system that has been devised to extract the value from our world, and deliver it to an increasingly small group of billionaires at the expense of our livelihoods, our futures, and our climate.