1 00:00:15,396 --> 00:00:23,676 Speaker 1: Pushkin from Pushkin Industries. This is Deep Background, the show 2 00:00:23,716 --> 00:00:27,156 Speaker 1: where we explore the stories behind the stories in the news. 3 00:00:27,716 --> 00:00:31,756 Speaker 1: I'm Noah Feldman. This is still the beginning of our 4 00:00:31,796 --> 00:00:34,956 Speaker 1: new season here on Deep Background, and we've been talking 5 00:00:34,996 --> 00:00:39,356 Speaker 1: about the Trump transition, the impeachment trial, and of course 6 00:00:39,596 --> 00:00:45,076 Speaker 1: the ongoing pandemic. This week, though, another story emerged from 7 00:00:45,116 --> 00:00:49,596 Speaker 1: out of the blue, a story sufficiently interesting and unexpected 8 00:00:49,676 --> 00:00:53,596 Speaker 1: that we decided we shouldn't ignore it, in particular because 9 00:00:53,716 --> 00:00:58,116 Speaker 1: this year we're focused on the theme of power. By now, 10 00:00:58,356 --> 00:01:01,676 Speaker 1: pretty much all of you must have heard about last 11 00:01:01,716 --> 00:01:06,476 Speaker 1: week's run on game Stop stock, a short squeeze that 12 00:01:06,596 --> 00:01:11,756 Speaker 1: began around a Reddit group called Wall Street Bets. Within 13 00:01:11,836 --> 00:01:14,956 Speaker 1: ten days, the game Stop stock gained more than ten 14 00:01:14,996 --> 00:01:18,796 Speaker 1: times its value, causing billions and losses to hedge funds 15 00:01:18,836 --> 00:01:21,476 Speaker 1: who had short at the stock, raising the stock to 16 00:01:21,516 --> 00:01:24,396 Speaker 1: a point where almost inevitably it will have to come 17 00:01:24,436 --> 00:01:29,156 Speaker 1: down very substantial because the markets teetered for a moment. 18 00:01:29,236 --> 00:01:32,756 Speaker 1: This became a lead story around the world, and it's 19 00:01:32,796 --> 00:01:37,116 Speaker 1: a strange story. The odd issue on which it appears. 20 00:01:37,116 --> 00:01:41,036 Speaker 1: Both Alexandrio Casio Cortez and Donald Trump Junior seemed to 21 00:01:41,036 --> 00:01:43,796 Speaker 1: be on the same side. Here to speak to us 22 00:01:43,796 --> 00:01:47,396 Speaker 1: today and make sense of this complex and fascinating topic 23 00:01:47,796 --> 00:01:50,956 Speaker 1: is Alexis Goldstein, a former Wall Street pro who now 24 00:01:50,956 --> 00:01:54,956 Speaker 1: works as a senior policy analyst at Americans for Financial Reform. 25 00:01:55,116 --> 00:01:58,916 Speaker 1: She writes the popular newsletter Markets Weekly. I asked her 26 00:01:58,956 --> 00:02:01,676 Speaker 1: to begin by giving us a little summary of the 27 00:02:01,716 --> 00:02:04,796 Speaker 1: game Stop craziness before turning to the question of what 28 00:02:04,876 --> 00:02:08,596 Speaker 1: it means for the allocation of power in markets in 29 00:02:08,676 --> 00:02:14,716 Speaker 1: Polity and beyond. Alexis, thank you so much for joining me. 30 00:02:15,036 --> 00:02:17,196 Speaker 1: Maybe we could start by my just asking you, for 31 00:02:17,316 --> 00:02:23,756 Speaker 1: purposes of the general listener, what happened specifically with respect 32 00:02:24,156 --> 00:02:28,636 Speaker 1: to the Game Stop stock last week. So there has 33 00:02:28,716 --> 00:02:32,276 Speaker 1: been a real increase in what we call retail trading 34 00:02:32,556 --> 00:02:36,156 Speaker 1: since the pandemic. So retail trading just refers to non 35 00:02:36,236 --> 00:02:39,156 Speaker 1: Wall Street people. Maybe it's you, maybe it's me, Maybe 36 00:02:39,156 --> 00:02:42,836 Speaker 1: it's our friends using some kind of online brokerage like 37 00:02:42,996 --> 00:02:46,516 Speaker 1: e Trade, like Fidelity, like Interactive Brokers, and more recently 38 00:02:46,596 --> 00:02:49,556 Speaker 1: like robin Hood just to trade, you know, as a 39 00:02:49,636 --> 00:02:52,716 Speaker 1: non professional. So there has been this really big surge 40 00:02:52,796 --> 00:02:55,796 Speaker 1: in retail trading since the pandemic. Maybe you know, part 41 00:02:55,796 --> 00:02:58,396 Speaker 1: of that is because people are at home. And there's 42 00:02:58,396 --> 00:03:00,796 Speaker 1: also been this growth in the popularity of a particular 43 00:03:00,876 --> 00:03:04,156 Speaker 1: selb breddit called Wall Street Bets that is focused on 44 00:03:04,516 --> 00:03:08,116 Speaker 1: basically gambling in my opinion on the stock market and picking, 45 00:03:08,196 --> 00:03:11,276 Speaker 1: you know, hot stocks to bet four or against. And 46 00:03:11,356 --> 00:03:15,396 Speaker 1: there was one particular person on that subreddit who really 47 00:03:15,396 --> 00:03:17,476 Speaker 1: thought that game Stop was a goodbye and have been 48 00:03:17,516 --> 00:03:19,036 Speaker 1: talking about it for a while. And I guess the 49 00:03:19,036 --> 00:03:22,356 Speaker 1: popularity of that as a position grew and grew, and 50 00:03:22,396 --> 00:03:24,716 Speaker 1: then it was sort of compounded by the fact that 51 00:03:24,916 --> 00:03:28,756 Speaker 1: this reddit forum was looking at the list of stocks 52 00:03:28,836 --> 00:03:32,916 Speaker 1: that are most frequently shorted. So a short is when 53 00:03:32,996 --> 00:03:36,356 Speaker 1: you are betting that the stock price will fall, and 54 00:03:36,396 --> 00:03:39,476 Speaker 1: the way that that is operationalized is you borrow the 55 00:03:39,516 --> 00:03:42,996 Speaker 1: stock from somebody who owns it. They lend it to you, 56 00:03:42,996 --> 00:03:46,156 Speaker 1: You immediately sell it, and then you sit tight and 57 00:03:46,236 --> 00:03:48,916 Speaker 1: hopefully you don't worry too much and wait for the 58 00:03:48,916 --> 00:03:51,876 Speaker 1: stock to drop, and if it drops, you can buy 59 00:03:51,876 --> 00:03:53,996 Speaker 1: it back at a cheaper price, return it to the 60 00:03:54,036 --> 00:03:56,396 Speaker 1: person who loaned it to You give a little bit 61 00:03:56,396 --> 00:03:58,796 Speaker 1: of interest on the loan of the stock, and you 62 00:03:58,836 --> 00:04:01,316 Speaker 1: make a nice profit. That's how it's supposed to work. 63 00:04:02,716 --> 00:04:04,596 Speaker 1: So they were looking at this list of all of 64 00:04:04,636 --> 00:04:08,116 Speaker 1: these stocks that were very frequently shorted, and GameStop was 65 00:04:08,156 --> 00:04:11,236 Speaker 1: one of them, and they decided to manufacture what is 66 00:04:11,276 --> 00:04:14,636 Speaker 1: called a short squeeze. And a short squeeze is essentially, 67 00:04:14,836 --> 00:04:18,276 Speaker 1: if I'm short a stock and I don't want to 68 00:04:18,316 --> 00:04:21,076 Speaker 1: give it up yet, and it starts to move against me, 69 00:04:21,436 --> 00:04:24,796 Speaker 1: and it starts to rise above where I sold at, 70 00:04:25,076 --> 00:04:28,156 Speaker 1: and it rises and rise and rises. The person that 71 00:04:28,236 --> 00:04:29,956 Speaker 1: lends me the stock isn't just going to be like 72 00:04:30,076 --> 00:04:33,236 Speaker 1: chill and normal and wait for me to turn a 73 00:04:33,276 --> 00:04:36,716 Speaker 1: profit again. They're gonna demand some cash because they're worried 74 00:04:36,716 --> 00:04:38,516 Speaker 1: I'm going to blow up and I won't be able 75 00:04:38,516 --> 00:04:40,676 Speaker 1: to perhaps return the stocks to them because I won't 76 00:04:40,676 --> 00:04:43,556 Speaker 1: have any money left. And that's what's called a margin call. 77 00:04:44,316 --> 00:04:46,156 Speaker 1: And so a short squeeze is kind of like when 78 00:04:46,196 --> 00:04:49,876 Speaker 1: collectively all of these shorts start to have their positions 79 00:04:49,956 --> 00:04:52,836 Speaker 1: move against them, the lenders of the stock to them 80 00:04:53,236 --> 00:04:56,076 Speaker 1: demand some money, right, they make a margin call on 81 00:04:56,116 --> 00:04:57,876 Speaker 1: all of them, and then they have a choice. They 82 00:04:57,916 --> 00:05:00,236 Speaker 1: either have to close out the position at a huge loss, 83 00:05:00,916 --> 00:05:02,676 Speaker 1: or they have to sell a bunch of other stuff 84 00:05:02,716 --> 00:05:04,676 Speaker 1: in order to put up some money so that they 85 00:05:04,676 --> 00:05:08,356 Speaker 1: can keep going in hope maybe this position will move 86 00:05:08,436 --> 00:05:12,236 Speaker 1: against them. So these folks on Reddit basically decided collectively, 87 00:05:12,796 --> 00:05:15,636 Speaker 1: all together they were going to try and manufacture a 88 00:05:15,716 --> 00:05:19,196 Speaker 1: short squeeze on game Stop by a bunch of retail 89 00:05:19,236 --> 00:05:22,156 Speaker 1: traders all buying games Stopped together at the same time, 90 00:05:23,956 --> 00:05:27,636 Speaker 1: and they did so. That was a great setup. And 91 00:05:27,916 --> 00:05:31,356 Speaker 1: collective is actually a fascinating word here, because although all 92 00:05:31,396 --> 00:05:34,836 Speaker 1: the people on Reddit in some sense acted collectively to 93 00:05:35,116 --> 00:05:37,476 Speaker 1: do this together, none of them was looking over the 94 00:05:37,556 --> 00:05:39,756 Speaker 1: other's shoulder in such a way that they could actually 95 00:05:39,796 --> 00:05:42,356 Speaker 1: judge whether they were really doing it. But as it happens, 96 00:05:42,516 --> 00:05:45,276 Speaker 1: they really did do it. And once they started doing that, 97 00:05:45,516 --> 00:05:50,236 Speaker 1: the price of game Stop stock started going up, which 98 00:05:50,236 --> 00:05:51,476 Speaker 1: it would have gone up in any case if a 99 00:05:51,516 --> 00:05:53,316 Speaker 1: lot of people were trying to buy it, and then 100 00:05:53,356 --> 00:05:57,636 Speaker 1: that in turn led the short sellers to have to 101 00:05:57,636 --> 00:05:59,716 Speaker 1: buy more of the stock, which also drove the price up, 102 00:05:59,956 --> 00:06:01,916 Speaker 1: and by the end of the process the stock was 103 00:06:01,956 --> 00:06:06,116 Speaker 1: at a remarkably huge multiple of its prior value, right right. 104 00:06:06,116 --> 00:06:08,156 Speaker 1: And it's sort of compounded by the fact that a 105 00:06:08,156 --> 00:06:10,956 Speaker 1: lot of the folks using robin Hood and all Reddit 106 00:06:12,516 --> 00:06:15,876 Speaker 1: are also buying options. So an option gives you the right, 107 00:06:15,956 --> 00:06:19,236 Speaker 1: but not the obligation, to purchase or sell a hundred 108 00:06:19,276 --> 00:06:21,716 Speaker 1: shares of a stock at some point in the future 109 00:06:21,916 --> 00:06:25,276 Speaker 1: for a set price. But the person that you typically 110 00:06:25,316 --> 00:06:29,436 Speaker 1: buy an option from is a market maker who does 111 00:06:29,476 --> 00:06:34,076 Speaker 1: what's called hedges their position by buying the stock. Right, 112 00:06:34,396 --> 00:06:38,356 Speaker 1: if I'm selling you, Noah, an option that lets you 113 00:06:38,476 --> 00:06:40,556 Speaker 1: buy something from me in the future, I need to 114 00:06:40,596 --> 00:06:42,636 Speaker 1: have that hundred shares of stocks to give to you, 115 00:06:42,996 --> 00:06:44,996 Speaker 1: and so typically, if I don't already have it, I'm 116 00:06:45,036 --> 00:06:46,396 Speaker 1: going to go out in the market and buy it. 117 00:06:46,476 --> 00:06:48,916 Speaker 1: So it was even further compounded by the fact that 118 00:06:48,916 --> 00:06:51,636 Speaker 1: there was all of this options activity, which the people 119 00:06:51,636 --> 00:06:54,276 Speaker 1: who sell the options have to hedge by again buying 120 00:06:54,316 --> 00:06:56,236 Speaker 1: the stock. So it was just sort of this confluence 121 00:06:56,276 --> 00:06:58,956 Speaker 1: of things. And then the only other wrinkle that I 122 00:06:58,996 --> 00:07:01,476 Speaker 1: will add to it. And this is just my suspicion, right, 123 00:07:01,516 --> 00:07:04,116 Speaker 1: I don't think we know for sure, but I don't 124 00:07:04,116 --> 00:07:06,036 Speaker 1: think this was just right. I don't think this was 125 00:07:06,076 --> 00:07:08,996 Speaker 1: just retail traders. They were very public about their plans, 126 00:07:09,396 --> 00:07:12,036 Speaker 1: and I suspect that you had a lot of institutional players, 127 00:07:12,036 --> 00:07:15,116 Speaker 1: maybe hedge funds that were also pushing the stock up 128 00:07:15,116 --> 00:07:17,516 Speaker 1: and making their own purchases. We don't know for sure, right, 129 00:07:17,516 --> 00:07:20,196 Speaker 1: but that's my suspicion, And just to clarify less, your 130 00:07:20,236 --> 00:07:22,956 Speaker 1: theory would be that those people were basically or those actors, 131 00:07:22,996 --> 00:07:25,596 Speaker 1: institutional actors were just piggybacking, right. They saw it happening, 132 00:07:25,596 --> 00:07:27,356 Speaker 1: they thought there was some probability that it would work, 133 00:07:27,516 --> 00:07:29,036 Speaker 1: and they said, oh, well, the stock's gonna go up. 134 00:07:29,076 --> 00:07:31,196 Speaker 1: Let's also buy some of the stock earlier on. That 135 00:07:31,236 --> 00:07:32,836 Speaker 1: would have driven the price to stock up as well. 136 00:07:32,836 --> 00:07:35,276 Speaker 1: It's not that those institutional actors would have thought that 137 00:07:35,276 --> 00:07:38,036 Speaker 1: there was quote unquote real value at the higher price point. 138 00:07:38,316 --> 00:07:40,676 Speaker 1: It's just that they saw the squeeze happening and they 139 00:07:40,676 --> 00:07:43,036 Speaker 1: thought they'd want to get in on the fun. Right. 140 00:07:43,116 --> 00:07:45,796 Speaker 1: That's my speculation, right, don't I don't think we know. 141 00:07:45,876 --> 00:07:47,756 Speaker 1: And the other sort of added wrinkle to that is 142 00:07:47,756 --> 00:07:50,116 Speaker 1: there are plenty of players who don't really wait around 143 00:07:50,116 --> 00:07:52,516 Speaker 1: for that, who trade in and out of things very quickly, 144 00:07:52,516 --> 00:07:55,276 Speaker 1: over and over again, over fast time periods that may 145 00:07:55,356 --> 00:07:57,316 Speaker 1: also have been trying to profit off of it as 146 00:07:57,316 --> 00:07:59,516 Speaker 1: it went up because there's some volatility, right, It didn't 147 00:07:59,556 --> 00:08:01,516 Speaker 1: just shoot straight up like sometimes it goes up, it 148 00:08:01,556 --> 00:08:04,156 Speaker 1: goes down at Gozepico scone. So I think it was 149 00:08:04,196 --> 00:08:06,436 Speaker 1: a combination of things. But the short version is I 150 00:08:06,636 --> 00:08:09,236 Speaker 1: suspect while Street had some hand in this as well, 151 00:08:08,956 --> 00:08:11,876 Speaker 1: it wasn't just retail. Yeah, and if it were institutional investors, 152 00:08:11,916 --> 00:08:14,116 Speaker 1: that doesn't just mean human beings of training desks. It 153 00:08:14,156 --> 00:08:17,236 Speaker 1: also means algorithmic training programs that don't care what the 154 00:08:17,276 --> 00:08:19,276 Speaker 1: thing is, but if they see a pattern of rise, 155 00:08:19,756 --> 00:08:21,916 Speaker 1: they might make the prediction and to buy, So that 156 00:08:21,956 --> 00:08:25,156 Speaker 1: could have contributed to it potentially as well. That leaves 157 00:08:25,196 --> 00:08:27,676 Speaker 1: just one last piece of the setup before we start 158 00:08:27,756 --> 00:08:29,676 Speaker 1: turning to the implications. And I just want to hit 159 00:08:29,676 --> 00:08:32,196 Speaker 1: on that because everything you've said so far just sounds 160 00:08:32,236 --> 00:08:35,876 Speaker 1: like it's a potentially happy story. Right, somebody is short 161 00:08:35,876 --> 00:08:38,196 Speaker 1: the stock, the prices go up. Not good for the 162 00:08:38,196 --> 00:08:40,156 Speaker 1: prisoner shorts to stock, but good for everybody else. The 163 00:08:40,156 --> 00:08:42,996 Speaker 1: stock goes up and up and up. But there's a downside, 164 00:08:43,036 --> 00:08:45,476 Speaker 1: which is that what goes up in this context almost 165 00:08:45,516 --> 00:08:49,236 Speaker 1: certainly must come down. So explain why the stock has 166 00:08:49,276 --> 00:08:52,436 Speaker 1: come down somewhat since then, and what ultimately, at least 167 00:08:52,436 --> 00:08:55,996 Speaker 1: in the view of most financial professionals, yourself included gives 168 00:08:56,076 --> 00:08:58,356 Speaker 1: us reason to believe the stock will end up way, way, 169 00:08:58,436 --> 00:09:00,556 Speaker 1: way lower than it was at its peak, and in fact, 170 00:09:00,916 --> 00:09:02,756 Speaker 1: maybe not so far from where it was when this 171 00:09:02,796 --> 00:09:07,796 Speaker 1: all started. So my concern, and I think other people's 172 00:09:07,836 --> 00:09:12,036 Speaker 1: concerns here, is that this looks like a bubble, and traditionally, 173 00:09:12,276 --> 00:09:15,716 Speaker 1: when you're in a bubble, the bubble bursts, and one 174 00:09:15,756 --> 00:09:18,836 Speaker 1: of the sort of traditional signs that you are in 175 00:09:18,916 --> 00:09:21,436 Speaker 1: a bubble. I don't know if it's scientific, but like 176 00:09:21,476 --> 00:09:23,636 Speaker 1: at least in the dot com bubble and the pre 177 00:09:23,716 --> 00:09:26,316 Speaker 1: two thousand and eight bubble, when you start to hear 178 00:09:26,396 --> 00:09:29,276 Speaker 1: from people who aren't typically paying attention to the markets 179 00:09:29,316 --> 00:09:31,116 Speaker 1: asking you if they should buy into the markets all 180 00:09:31,116 --> 00:09:33,196 Speaker 1: of a sudden, that's usually the sign that the bubbles 181 00:09:33,236 --> 00:09:35,476 Speaker 1: about to burst. And I don't know about you Know it, 182 00:09:35,556 --> 00:09:37,636 Speaker 1: but I've had a lot of people asking me should 183 00:09:37,676 --> 00:09:40,836 Speaker 1: I buy you know, Nokia or BlackBerry? Right now? Should 184 00:09:40,836 --> 00:09:43,636 Speaker 1: I buy dog coin? There's a lot of interest from 185 00:09:43,636 --> 00:09:45,996 Speaker 1: my friends who are typically not people paying attention to 186 00:09:46,036 --> 00:09:47,956 Speaker 1: the financial markets, which says to me that we may 187 00:09:47,956 --> 00:09:50,876 Speaker 1: be approaching what's called the top right and when the 188 00:09:50,916 --> 00:09:54,236 Speaker 1: bubble burst, the bottom falls out. The prices collapse. And 189 00:09:54,356 --> 00:09:56,436 Speaker 1: the other reason that they that very well might happen 190 00:09:56,476 --> 00:09:59,676 Speaker 1: is GameStop isn't really I don't think that it's underlying 191 00:09:59,796 --> 00:10:03,756 Speaker 1: value justifies its current prices. It's certainly been widely reported 192 00:10:03,756 --> 00:10:06,996 Speaker 1: that there is skepticism about the current valuation of GameStop 193 00:10:07,036 --> 00:10:09,716 Speaker 1: and some of these other names like AMC, right, which 194 00:10:09,796 --> 00:10:12,356 Speaker 1: let's think about what that is. It's movie theaters. We're 195 00:10:12,396 --> 00:10:14,836 Speaker 1: still here in a pandemic. People aren't really going to 196 00:10:14,916 --> 00:10:17,196 Speaker 1: movie theaters that much. Does it really make sense for 197 00:10:17,196 --> 00:10:19,676 Speaker 1: the price of AMC to be surging, And so I 198 00:10:19,716 --> 00:10:22,716 Speaker 1: think that there's a concern that with the media attention, 199 00:10:23,276 --> 00:10:25,756 Speaker 1: it's going to draw in even more people to buy 200 00:10:25,796 --> 00:10:28,676 Speaker 1: these stocks, and some of those people are unfortunately probably 201 00:10:28,716 --> 00:10:31,036 Speaker 1: going to buy at the top and then it will collapse. 202 00:10:31,356 --> 00:10:34,836 Speaker 1: But you know what, like it's hard to predict when 203 00:10:34,876 --> 00:10:37,396 Speaker 1: that will happen, and I don't really have a prediction, 204 00:10:37,556 --> 00:10:39,196 Speaker 1: and I don't I think anyone who tells you when 205 00:10:39,196 --> 00:10:41,796 Speaker 1: it will happen doesn't really know for sure. The high 206 00:10:41,876 --> 00:10:45,876 Speaker 1: public interest is always reminiscent of the probably apocryphal story 207 00:10:45,916 --> 00:10:50,276 Speaker 1: about JP Morgan, whose shoeshine boy supposedly asked him a 208 00:10:50,276 --> 00:10:52,556 Speaker 1: few days before the big stock market crash in October 209 00:10:52,596 --> 00:10:55,396 Speaker 1: of nineteen twenty nine, could he the shoeshine Boy and 210 00:10:55,436 --> 00:10:57,836 Speaker 1: some of his friends buy forty dollars of stock through 211 00:10:57,916 --> 00:11:00,756 Speaker 1: JP Morgan's brokerage firm, And according to the story, JP 212 00:11:00,876 --> 00:11:04,316 Speaker 1: Morgan went back to his office and told everybody, we're 213 00:11:04,316 --> 00:11:07,396 Speaker 1: getting out of our positions. We're going into cash because 214 00:11:07,476 --> 00:11:10,236 Speaker 1: this is not a good situation. And then Morgan looked 215 00:11:10,236 --> 00:11:12,156 Speaker 1: like a genius. Now again, there's there's a good amount 216 00:11:12,156 --> 00:11:14,036 Speaker 1: of apocryphy of that story, but I agree with you 217 00:11:14,076 --> 00:11:16,116 Speaker 1: as a kind of it's a good indicator. And in 218 00:11:16,156 --> 00:11:19,036 Speaker 1: my household, the indicator is my fifteen year old son, 219 00:11:19,356 --> 00:11:22,156 Speaker 1: whose interest both in crypto and in the stock market 220 00:11:22,276 --> 00:11:26,276 Speaker 1: was actively piqued by the recent rise in crypto prices, 221 00:11:26,276 --> 00:11:29,756 Speaker 1: by the game stop short squeeze, and I think by 222 00:11:29,796 --> 00:11:34,396 Speaker 1: the attention among people in his online worlds to these issues. 223 00:11:34,436 --> 00:11:37,676 Speaker 1: So that's a nice proxy as well for when everybody's 224 00:11:37,716 --> 00:11:41,916 Speaker 1: excited and involved, even the teenagers, there's reason in historical terms, 225 00:11:41,916 --> 00:11:43,516 Speaker 1: you think that maybe you're in some kind of a bubble. 226 00:11:43,916 --> 00:11:45,996 Speaker 1: I should add, by the way, that when I pointed 227 00:11:46,036 --> 00:11:48,276 Speaker 1: this out to my son, he made the sophisticated point 228 00:11:48,756 --> 00:11:51,756 Speaker 1: that you were ascribing to the institutional investors, which is, 229 00:11:52,036 --> 00:11:53,756 Speaker 1: of course that's true. But if you know how to 230 00:11:53,756 --> 00:11:55,076 Speaker 1: get in on it on the way up and don't 231 00:11:55,116 --> 00:11:57,236 Speaker 1: stay in it for too long, there's still profits to 232 00:11:57,276 --> 00:11:59,356 Speaker 1: be made. And you know, unfortunately for me, he is 233 00:11:59,436 --> 00:12:02,996 Speaker 1: analytically speaking correct about that problem. The problem is how 234 00:12:03,036 --> 00:12:06,436 Speaker 1: do you know when to get out? So yeah, exactly, exactly. Okay, 235 00:12:06,476 --> 00:12:08,876 Speaker 1: Now let's turn to analysis. And there's been a huge 236 00:12:08,876 --> 00:12:10,996 Speaker 1: amount of analysis just in a few days that this 237 00:12:11,036 --> 00:12:14,036 Speaker 1: has been going on about what is the deeper meaning 238 00:12:14,556 --> 00:12:16,276 Speaker 1: of these events? And I want to talk about a 239 00:12:16,276 --> 00:12:18,076 Speaker 1: bunch of different angles, but let's start with your take, 240 00:12:18,116 --> 00:12:22,116 Speaker 1: which I found particularly valuable, and that was to sum 241 00:12:22,156 --> 00:12:25,196 Speaker 1: it up, I'm using the quote from your piece the 242 00:12:25,276 --> 00:12:29,756 Speaker 1: GameStop madness. Isn't David against Goliath, namely the little guys 243 00:12:29,796 --> 00:12:33,356 Speaker 1: on the subreddit against the hedge funds. It's Goliath against 244 00:12:33,436 --> 00:12:36,676 Speaker 1: goliath with David as a fig leaf. So explain what 245 00:12:36,716 --> 00:12:41,036 Speaker 1: you mean, please, Alexis. So there's a narrative that's taken 246 00:12:41,076 --> 00:12:44,116 Speaker 1: hold that this is a triumph and a disruption of 247 00:12:44,116 --> 00:12:47,636 Speaker 1: our financial system, and that the folks on reddit are 248 00:12:48,076 --> 00:12:50,276 Speaker 1: you know, figuring out how to play Wall Streets game 249 00:12:50,396 --> 00:12:52,996 Speaker 1: and then play it against them and winning. And while 250 00:12:53,036 --> 00:12:56,316 Speaker 1: I don't dispute that they are absolutely using techniques that 251 00:12:56,476 --> 00:12:59,356 Speaker 1: Wall Street firms use, right like the short squeeze is 252 00:12:59,396 --> 00:13:02,236 Speaker 1: not an invention of Reddit. It is something that I 253 00:13:02,276 --> 00:13:04,516 Speaker 1: think hedge funds try to do to other hedge funds 254 00:13:04,596 --> 00:13:07,796 Speaker 1: all the time. I don't think that this is going 255 00:13:07,876 --> 00:13:11,756 Speaker 1: to topple the financial system, and in fact, I believe 256 00:13:12,156 --> 00:13:14,076 Speaker 1: and I don't have a crystal ball, but I would 257 00:13:14,076 --> 00:13:16,956 Speaker 1: predict that when we see the first quarter earnings of 258 00:13:16,996 --> 00:13:20,356 Speaker 1: the major Wall Street banks that are typically the best 259 00:13:20,396 --> 00:13:22,756 Speaker 1: in terms of trading operations, that they're going to have 260 00:13:22,836 --> 00:13:26,956 Speaker 1: extremely profitable first quarters. And the reason that I'm guessing 261 00:13:26,996 --> 00:13:29,716 Speaker 1: that is because I used to work on the technology 262 00:13:29,756 --> 00:13:34,236 Speaker 1: team with the equity derivatives trading desks at Mary Lynch 263 00:13:34,316 --> 00:13:37,756 Speaker 1: and then later at Deutsche Bank, and their most profitable 264 00:13:37,876 --> 00:13:40,116 Speaker 1: days by far, like the day that they made the 265 00:13:40,236 --> 00:13:42,996 Speaker 1: most money of the whole year, was the days when 266 00:13:43,036 --> 00:13:45,796 Speaker 1: prices were going crazy and there was tons of what's 267 00:13:45,796 --> 00:13:48,116 Speaker 1: called volatility, which is just kind of like you know, 268 00:13:48,236 --> 00:13:51,596 Speaker 1: price moving going up and down, and unpredictable action in 269 00:13:51,636 --> 00:13:54,476 Speaker 1: the markets. That was their favorite kind of day, right, 270 00:13:54,516 --> 00:13:57,836 Speaker 1: And I don't think that Goldman Sachs and Morgan Stanley's 271 00:13:58,036 --> 00:14:00,836 Speaker 1: they're called flow trading desks, but they basically sort of 272 00:14:00,836 --> 00:14:04,396 Speaker 1: sit there as intermediaries between buyers and sellers. It's maybe 273 00:14:04,476 --> 00:14:06,836 Speaker 1: hedge funds, it could be insurance companies. It's all these 274 00:14:06,836 --> 00:14:10,156 Speaker 1: big institutional players that want to trade. Sometimes they don't 275 00:14:10,156 --> 00:14:12,196 Speaker 1: even want to trade on in an exchange. They want 276 00:14:12,196 --> 00:14:14,796 Speaker 1: to trade what's called over the counter, which is this 277 00:14:14,836 --> 00:14:19,316 Speaker 1: sort of market that is between Wall Street itself, totally 278 00:14:19,396 --> 00:14:22,876 Speaker 1: unavailable to retail traders, totally unavailable to these people on 279 00:14:22,916 --> 00:14:25,356 Speaker 1: writing you cannot trade over the counter through robin Hood. 280 00:14:25,756 --> 00:14:29,476 Speaker 1: You know, they have sophisticated risk management tools. They have 281 00:14:29,556 --> 00:14:33,516 Speaker 1: sophisticated trading software. They manage their risk. I worked with 282 00:14:33,556 --> 00:14:36,396 Speaker 1: the options trading desk, and so they had they had 283 00:14:36,436 --> 00:14:39,036 Speaker 1: a lot of really fancy risk management software, and they 284 00:14:39,076 --> 00:14:41,876 Speaker 1: knew how to hedge their orders and so they didn't 285 00:14:41,876 --> 00:14:43,676 Speaker 1: really care if the price went up or down because 286 00:14:43,716 --> 00:14:46,116 Speaker 1: they were hedged. And hedge just means like you have 287 00:14:46,196 --> 00:14:48,676 Speaker 1: some sort of risk management strategy in place so that 288 00:14:48,716 --> 00:14:51,116 Speaker 1: whatever the price does, you're not going to lose too 289 00:14:51,196 --> 00:14:53,356 Speaker 1: much money. You also won't make too much money, but 290 00:14:53,396 --> 00:14:55,796 Speaker 1: you're going to be okay, and they make money on volume. 291 00:14:56,036 --> 00:14:59,156 Speaker 1: So I suspect that the big titans on Wall Street 292 00:14:59,196 --> 00:15:02,276 Speaker 1: are doing quite fine, and if anything, this whole mania 293 00:15:02,436 --> 00:15:05,316 Speaker 1: is probably making them a ton of money. That's sort 294 00:15:05,356 --> 00:15:09,356 Speaker 1: of my one piece. The second piece is, so let's 295 00:15:09,676 --> 00:15:11,796 Speaker 1: move off the more traditional Wall Street and look at 296 00:15:11,836 --> 00:15:15,916 Speaker 1: hedge funds. So Wall Street that's the the subreddit that 297 00:15:16,036 --> 00:15:18,516 Speaker 1: has been in the news a lot cheered the collapse 298 00:15:18,556 --> 00:15:21,116 Speaker 1: of Melvin Capital, which was a hedge fund that was 299 00:15:21,156 --> 00:15:24,316 Speaker 1: betting against Game Stop and fell victim to the short squeeze. 300 00:15:24,836 --> 00:15:27,316 Speaker 1: They were rescued by two hedge funds. One of them 301 00:15:27,356 --> 00:15:30,716 Speaker 1: is Citadel LLC, which is run by a billionaire named 302 00:15:30,756 --> 00:15:33,916 Speaker 1: Ken Griffin out of Chicago, and the other is Point 303 00:15:33,996 --> 00:15:37,236 Speaker 1: seventy two, which is the new fund of Steve Cohen, 304 00:15:37,756 --> 00:15:40,316 Speaker 1: who he's also the New York Mets owner, so people 305 00:15:40,356 --> 00:15:43,396 Speaker 1: may know him from that. But his old fund sac 306 00:15:44,116 --> 00:15:46,796 Speaker 1: plaged guilty in twenty thirteen to insider trading and had 307 00:15:46,836 --> 00:15:49,116 Speaker 1: to shut down. So why am I bringing this up. 308 00:15:49,156 --> 00:15:51,796 Speaker 1: I'm bringing this up because one hedge fund blows up, 309 00:15:52,236 --> 00:15:54,996 Speaker 1: other hedge funds rescue it. Now they get to have 310 00:15:55,076 --> 00:15:58,076 Speaker 1: a revenue sharing agreement with Melvin Capital in the future 311 00:15:58,196 --> 00:16:00,756 Speaker 1: that's probably going to be profitable for them, right. So 312 00:16:00,836 --> 00:16:04,076 Speaker 1: I just don't really think that the Goliaths are suffering. 313 00:16:04,796 --> 00:16:07,076 Speaker 1: And I do think that some of the David's are 314 00:16:07,076 --> 00:16:09,316 Speaker 1: going to get rich and have gotten rich, but I 315 00:16:09,316 --> 00:16:10,796 Speaker 1: just don't think that that means that we're going to 316 00:16:10,876 --> 00:16:13,756 Speaker 1: have a fundamental shift in the way that the system works. 317 00:16:13,796 --> 00:16:15,796 Speaker 1: If anything, I think it might make a lot of 318 00:16:15,796 --> 00:16:18,796 Speaker 1: the goliath a lot more rich. Let me press on 319 00:16:19,196 --> 00:16:21,436 Speaker 1: your critique of the narrative, and let me be clear, 320 00:16:21,516 --> 00:16:24,876 Speaker 1: I couldn't agree with you more that the big institutional 321 00:16:24,876 --> 00:16:27,916 Speaker 1: players will be fine, and that the hedge fund industry 322 00:16:28,116 --> 00:16:30,716 Speaker 1: will be fine. And what's more, even that you know 323 00:16:30,836 --> 00:16:34,756 Speaker 1: Melvin Capital and Gabriel Plotkin, who is the extremely well 324 00:16:34,796 --> 00:16:37,516 Speaker 1: thought of person who runs the fun will be he 325 00:16:37,556 --> 00:16:39,676 Speaker 1: will be just fine. He probably is just fine. But 326 00:16:39,716 --> 00:16:42,756 Speaker 1: I want to ask about what's really going on behind 327 00:16:42,876 --> 00:16:46,116 Speaker 1: the David versus Goliath narrative. I mean, just focusing on 328 00:16:46,156 --> 00:16:50,316 Speaker 1: this one episode in which a small number of people 329 00:16:50,396 --> 00:16:53,436 Speaker 1: who were not for the most part, it seems professional 330 00:16:53,436 --> 00:16:58,516 Speaker 1: investors were able to achieve something on their own as 331 00:16:58,556 --> 00:17:00,116 Speaker 1: it were, and that seemed to me to have a 332 00:17:00,196 --> 00:17:03,556 Speaker 1: kind of symbolic effect, you know, the perception that Wall 333 00:17:03,556 --> 00:17:06,876 Speaker 1: Street wealth is something that's only available to the very 334 00:17:06,916 --> 00:17:11,436 Speaker 1: well healed seemed to east in a moment be broken 335 00:17:11,516 --> 00:17:12,956 Speaker 1: and there in that sense, it seemed to be a 336 00:17:12,996 --> 00:17:17,916 Speaker 1: kind of populism associated with the moment, not unlike the 337 00:17:17,996 --> 00:17:22,196 Speaker 1: populism of the Donald Trump movement. And that narrative seems 338 00:17:22,236 --> 00:17:24,396 Speaker 1: to have some legs to it. Even if everything you 339 00:17:24,516 --> 00:17:27,436 Speaker 1: say is true, as I believe that it is, let 340 00:17:27,476 --> 00:17:29,276 Speaker 1: me ask you about the kind of populous side of 341 00:17:29,276 --> 00:17:33,956 Speaker 1: the narrative. I mean, look, yes, is this a triumph 342 00:17:33,996 --> 00:17:38,836 Speaker 1: of financial literacy and education and people learning perhaps more 343 00:17:38,876 --> 00:17:43,836 Speaker 1: about options than they may have previously planned. Yes? And 344 00:17:44,036 --> 00:17:47,356 Speaker 1: is this an interesting way to try and move markets 345 00:17:47,396 --> 00:17:48,916 Speaker 1: and is it going to be a way that other 346 00:17:48,916 --> 00:17:50,916 Speaker 1: people will try to move markets in the future. Yes? 347 00:17:51,196 --> 00:17:53,956 Speaker 1: And are there people that are making astonishing amounts of 348 00:17:53,996 --> 00:17:56,596 Speaker 1: money right now? Yes? Yes, all of that is yes. 349 00:17:56,956 --> 00:17:58,996 Speaker 1: But look, let's think about the moment that we're in. 350 00:17:59,036 --> 00:18:01,916 Speaker 1: We're in a moment of extreme inequality that's getting worse. 351 00:18:02,436 --> 00:18:06,556 Speaker 1: We have millions of people unemployed, We have over four 352 00:18:06,636 --> 00:18:11,236 Speaker 1: hundred thousand dead from the coronavirus. And I think speculation 353 00:18:11,436 --> 00:18:15,316 Speaker 1: is an incredibly alluring thing right now in the absence 354 00:18:15,356 --> 00:18:18,196 Speaker 1: of larger government support for our people, which I would 355 00:18:18,236 --> 00:18:21,196 Speaker 1: point out is perhaps an aberration here in the United 356 00:18:21,196 --> 00:18:22,876 Speaker 1: States when you compare us to some of the other 357 00:18:23,156 --> 00:18:26,716 Speaker 1: countries in the world. And so, yes, it perhaps is 358 00:18:26,716 --> 00:18:28,156 Speaker 1: a feel good story, and it's going to be a 359 00:18:28,196 --> 00:18:31,316 Speaker 1: really great tangible material benefit to the people that happen 360 00:18:31,356 --> 00:18:33,796 Speaker 1: to get into game stop in time. But I am 361 00:18:33,796 --> 00:18:37,036 Speaker 1: more concerned with, you know, what do we actually do 362 00:18:37,116 --> 00:18:39,436 Speaker 1: to make sure that everybody is okay? And I don't 363 00:18:39,516 --> 00:18:42,676 Speaker 1: think that using Wall Street's own tools against Wall Street 364 00:18:43,036 --> 00:18:45,756 Speaker 1: is the right way to lift all boats here, because 365 00:18:45,756 --> 00:18:47,876 Speaker 1: Wall Street is, let's remember, at the end of the day, 366 00:18:47,916 --> 00:18:50,516 Speaker 1: a zero sum game, and so when you have winners, 367 00:18:50,556 --> 00:18:52,196 Speaker 1: you are also going to have losers. And who are 368 00:18:52,196 --> 00:18:55,356 Speaker 1: those losers? And what happened when there was the short squeeze? 369 00:18:55,396 --> 00:18:57,556 Speaker 1: Right when there was the short squeeze, the hedge ones 370 00:18:57,596 --> 00:18:59,956 Speaker 1: had to sell some of their assets in order to 371 00:18:59,996 --> 00:19:02,436 Speaker 1: pay the margin call or to close out their position, 372 00:19:03,036 --> 00:19:06,156 Speaker 1: and the rest of the stock market went down. And 373 00:19:06,196 --> 00:19:08,396 Speaker 1: there are people who have pensions, and there are people 374 00:19:08,396 --> 00:19:11,436 Speaker 1: who have for k is. And look, let's I always 375 00:19:11,436 --> 00:19:13,956 Speaker 1: like to remind people plenty of people have absolutely no 376 00:19:14,036 --> 00:19:16,996 Speaker 1: exposure to the stock market whatsoever. Forty seven percent of 377 00:19:17,116 --> 00:19:21,996 Speaker 1: America has absolutely no dog in the Wall Street, you know, 378 00:19:22,076 --> 00:19:23,716 Speaker 1: in the stock market. They don't have a pension fund, 379 00:19:23,716 --> 00:19:25,116 Speaker 1: they don't have a four O one K, they don't 380 00:19:25,116 --> 00:19:28,996 Speaker 1: have an IRA, they don't have stocks, they have nothing. Right, So, yes, 381 00:19:29,196 --> 00:19:33,236 Speaker 1: this is a really interesting collective moment, but it's not 382 00:19:33,316 --> 00:19:36,676 Speaker 1: helping people across the board. And That's what I'm interested in. 383 00:19:36,956 --> 00:19:39,716 Speaker 1: And I think that's what I am concerned about, is 384 00:19:39,756 --> 00:19:43,036 Speaker 1: people claiming victory that is bigger than perhaps the victory 385 00:19:43,076 --> 00:19:45,556 Speaker 1: actually is. And I would also point out that when 386 00:19:45,596 --> 00:19:48,676 Speaker 1: Wall Street itself talks about what is the solution to poverty, 387 00:19:48,956 --> 00:19:51,996 Speaker 1: sometimes they say it's financial literacy. We just need to 388 00:19:52,116 --> 00:19:55,996 Speaker 1: educate people about how they can invest in Wall Street? Right, 389 00:19:56,156 --> 00:19:59,036 Speaker 1: how can you open an IRA? How can you be 390 00:19:59,116 --> 00:20:01,316 Speaker 1: a smart investor? And I don't think that that is 391 00:20:01,316 --> 00:20:03,356 Speaker 1: the right way to make sure that everybody has enough, 392 00:20:03,756 --> 00:20:05,796 Speaker 1: you know, at the end of their lifetime or in 393 00:20:05,876 --> 00:20:09,116 Speaker 1: order to retire, right, I think the answer is public polity, 394 00:20:09,156 --> 00:20:11,596 Speaker 1: see like Social Security and other programs like that. So 395 00:20:11,876 --> 00:20:16,196 Speaker 1: I'm just a little concerned that the triumph here mirrors 396 00:20:16,196 --> 00:20:18,716 Speaker 1: a little too closely what Wall Street itself holds out 397 00:20:18,756 --> 00:20:23,076 Speaker 1: as the solution for things like poverty. We'll be right back. 398 00:20:32,636 --> 00:20:35,316 Speaker 1: I entirely agree with you that mere education isn't enough. 399 00:20:35,756 --> 00:20:37,956 Speaker 1: I mean the fact that the people you're describing who 400 00:20:37,956 --> 00:20:40,556 Speaker 1: have nothing in the stock market the most fundamental level, 401 00:20:40,596 --> 00:20:44,356 Speaker 1: they are not able to participate in the processes of capitalism, 402 00:20:44,356 --> 00:20:47,196 Speaker 1: and any wealth creation that happens in the markets leaves 403 00:20:47,196 --> 00:20:49,996 Speaker 1: them frankly out, and education is not enough. But surely 404 00:20:50,116 --> 00:20:53,716 Speaker 1: education plus a steak would actually be a help. Well, 405 00:20:53,716 --> 00:20:55,516 Speaker 1: I would agree with that, but only if we give 406 00:20:55,556 --> 00:20:57,676 Speaker 1: them a stake, and right now we don't. Right, So, 407 00:20:57,716 --> 00:21:00,636 Speaker 1: if we're combining this idea that let's educate everyone about 408 00:21:00,636 --> 00:21:04,036 Speaker 1: how stocks work, with baby bonds or some program that's 409 00:21:04,076 --> 00:21:07,556 Speaker 1: actually giving people an investment, some capital that they can 410 00:21:07,596 --> 00:21:09,796 Speaker 1: actually invest, then I would agree. But that's not what 411 00:21:09,876 --> 00:21:12,396 Speaker 1: we have, right we have if you just pull yourself 412 00:21:12,436 --> 00:21:14,916 Speaker 1: up by your bootstraps, somehow managed to save money when 413 00:21:15,036 --> 00:21:16,916 Speaker 1: most people don't have, you know, whatever, it is two 414 00:21:16,956 --> 00:21:20,076 Speaker 1: hundred dollars to cover an emergency expense, and maybe you 415 00:21:20,116 --> 00:21:22,356 Speaker 1: put two hundred bucks on game stock and you get 416 00:21:22,356 --> 00:21:24,236 Speaker 1: really lucky. Like, that's just not a solution in my 417 00:21:24,276 --> 00:21:26,796 Speaker 1: mind to the like structural inequalities of society. Oh, I 418 00:21:27,076 --> 00:21:29,196 Speaker 1: totally agree that it's not a solution. I'm wondering, though, 419 00:21:29,236 --> 00:21:31,516 Speaker 1: if you think that events like this that draw public 420 00:21:31,556 --> 00:21:35,476 Speaker 1: attention to the markets in a way that potentially draws 421 00:21:35,516 --> 00:21:38,556 Speaker 1: people in might actually play some role in the long 422 00:21:38,636 --> 00:21:42,476 Speaker 1: run in shifting policymakers in the direction of baby bonds 423 00:21:42,556 --> 00:21:47,076 Speaker 1: or other mechanisms to attempt to broaden the capacities of 424 00:21:47,156 --> 00:21:50,516 Speaker 1: ordinary people to participate in the rise of capital. Yes, 425 00:21:50,596 --> 00:21:53,356 Speaker 1: And I would even sort of add to that pitch 426 00:21:53,476 --> 00:21:56,636 Speaker 1: of yours to say, you know, some people like this volatility, 427 00:21:56,676 --> 00:21:59,436 Speaker 1: some people don't. But if you don't like this volatility 428 00:21:59,476 --> 00:22:01,716 Speaker 1: and you don't like rank speculation, like a good way 429 00:22:01,716 --> 00:22:03,836 Speaker 1: to do that is just to make sure everybody isn't 430 00:22:03,956 --> 00:22:07,116 Speaker 1: so desperate for ways to pay their rent or choosing 431 00:22:07,156 --> 00:22:09,876 Speaker 1: between food and medicine. Which to say that I think 432 00:22:09,916 --> 00:22:12,156 Speaker 1: that people who are are trading on robin hood, I 433 00:22:12,196 --> 00:22:13,796 Speaker 1: don't think that they are, but I think some people 434 00:22:13,796 --> 00:22:16,796 Speaker 1: who are will right because they just it looks like 435 00:22:16,796 --> 00:22:18,836 Speaker 1: a way to get rich quick and That's what I 436 00:22:18,836 --> 00:22:21,116 Speaker 1: worry about, is people investing money that they can't afford 437 00:22:21,156 --> 00:22:24,436 Speaker 1: to lose losing it. I think the problem here is 438 00:22:24,516 --> 00:22:29,436 Speaker 1: we have, you know, decades of systemic racism and discrimination 439 00:22:29,516 --> 00:22:33,116 Speaker 1: that have led to unequal outcomes of wealth in this country. 440 00:22:33,156 --> 00:22:36,196 Speaker 1: And the way to fix that is not to democratize 441 00:22:36,236 --> 00:22:38,876 Speaker 1: the casino. The way to fix that is to make 442 00:22:38,916 --> 00:22:43,076 Speaker 1: it so that the house doesn't always win. And unfortunately, historically, 443 00:22:43,356 --> 00:22:46,076 Speaker 1: right like Wall Street is a driver of speculation. In 444 00:22:46,116 --> 00:22:48,596 Speaker 1: two thousand and eight, many of the banks went into 445 00:22:48,996 --> 00:22:51,796 Speaker 1: black and brown neighborhoods and tried to convince you know, 446 00:22:51,836 --> 00:22:54,756 Speaker 1: black homeowners who own their homes out right to take 447 00:22:54,796 --> 00:22:57,876 Speaker 1: out you know, cash out refinances, you know, And they 448 00:22:57,916 --> 00:22:59,916 Speaker 1: exploited the fact that wages have been stagnant for a 449 00:22:59,916 --> 00:23:02,436 Speaker 1: really long time and people needed money. Right The Department 450 00:23:02,436 --> 00:23:05,556 Speaker 1: of Justice found that Wells Fargo, you know, you know, 451 00:23:05,676 --> 00:23:08,156 Speaker 1: gave black borrowers with the same credit scores and the 452 00:23:08,196 --> 00:23:11,556 Speaker 1: same incomes prime loans when they gave white borrowers with 453 00:23:11,596 --> 00:23:14,676 Speaker 1: the same credit and income scores better loans and better terms. 454 00:23:14,716 --> 00:23:16,956 Speaker 1: I think we need to be thinking about, like who 455 00:23:17,036 --> 00:23:19,756 Speaker 1: has power here and how are they wielding that power, 456 00:23:20,036 --> 00:23:24,156 Speaker 1: and historically financial forces have been trying as best they can, 457 00:23:24,356 --> 00:23:27,876 Speaker 1: basically to rent seek and to get as much money 458 00:23:27,876 --> 00:23:30,436 Speaker 1: as they can, especially out of people who can least 459 00:23:30,436 --> 00:23:32,756 Speaker 1: afford to get rid of it. I'm highly sympathetic to 460 00:23:33,116 --> 00:23:36,196 Speaker 1: the answer you give at the broadest level, and in fact, 461 00:23:36,316 --> 00:23:39,076 Speaker 1: this year one of the themes of our podcast is 462 00:23:39,476 --> 00:23:42,036 Speaker 1: to think seriously about power and how it's allocated and 463 00:23:42,076 --> 00:23:45,516 Speaker 1: where it lives. And for sure, economic power does not 464 00:23:45,676 --> 00:23:48,356 Speaker 1: live in the poorest people or the dispossessed people, and 465 00:23:48,396 --> 00:23:52,676 Speaker 1: in the United States, those people are disproportionately black and Latino, 466 00:23:52,796 --> 00:23:55,956 Speaker 1: and so totally in agreement with you, I do think 467 00:23:55,996 --> 00:23:59,636 Speaker 1: that when we're talking about something like the symbolic meaning 468 00:23:59,636 --> 00:24:02,796 Speaker 1: of what's just been happening, though, it's hard to avoid 469 00:24:02,836 --> 00:24:05,276 Speaker 1: the realization that the reason that a lot of these 470 00:24:05,276 --> 00:24:09,036 Speaker 1: investors online think that the hedge funds are the bad 471 00:24:09,196 --> 00:24:11,476 Speaker 1: guys is that they are not investors in hedge funds, 472 00:24:11,516 --> 00:24:13,516 Speaker 1: and it cannot be investors in hedge funds. That's part 473 00:24:13,556 --> 00:24:16,276 Speaker 1: of this David and Goliath narrative. And it might be 474 00:24:16,356 --> 00:24:21,676 Speaker 1: that some degree of regulatory shift would have the effect 475 00:24:22,356 --> 00:24:25,596 Speaker 1: of changing that aspect of the narrative. I agree though 476 00:24:25,636 --> 00:24:27,836 Speaker 1: with you that in some sense that's a side show 477 00:24:27,836 --> 00:24:29,916 Speaker 1: when you compare it to the more underlying questions of 478 00:24:30,516 --> 00:24:33,836 Speaker 1: economic or inequality in the United States. Let me turn 479 00:24:33,876 --> 00:24:37,836 Speaker 1: to a second question, which is about consequences for the 480 00:24:37,876 --> 00:24:40,396 Speaker 1: market as a whole. So one of the reactions that 481 00:24:40,916 --> 00:24:43,236 Speaker 1: some commentators have made just in the few days that 482 00:24:43,236 --> 00:24:45,836 Speaker 1: this has been going on is to raise the question 483 00:24:45,956 --> 00:24:52,196 Speaker 1: of whether the markets generally might be made vulnerable by 484 00:24:52,276 --> 00:24:55,756 Speaker 1: the volatility introduced by things like the game stop or 485 00:24:55,796 --> 00:24:58,636 Speaker 1: the AMC short squeezes. I've heard other people who are 486 00:24:58,636 --> 00:25:01,356 Speaker 1: sophisticating the markets say, look, there's nothing to worry about here, 487 00:25:01,756 --> 00:25:05,556 Speaker 1: It's a small blip. It will all be fine. Where 488 00:25:05,556 --> 00:25:08,516 Speaker 1: do you come down on that question? Because with respect 489 00:25:08,516 --> 00:25:11,156 Speaker 1: to the people who our ordinary investors, who are not 490 00:25:11,236 --> 00:25:14,476 Speaker 1: trying to do stock picking and whose modest life savings 491 00:25:14,516 --> 00:25:16,876 Speaker 1: are in the market, we do have an interest in 492 00:25:16,996 --> 00:25:21,036 Speaker 1: managing the volatility and especially in managing long term decline. 493 00:25:22,116 --> 00:25:25,036 Speaker 1: So I am concerned about future of volatility in the market, 494 00:25:25,036 --> 00:25:26,916 Speaker 1: but I am not concerned about it because of this 495 00:25:27,036 --> 00:25:29,956 Speaker 1: game stop situation. I think game stop is a symptom, 496 00:25:30,076 --> 00:25:33,036 Speaker 1: not a cause. And if you were to ask me 497 00:25:33,116 --> 00:25:36,396 Speaker 1: for a cause. I would point you back to last spring, 498 00:25:37,716 --> 00:25:40,276 Speaker 1: when you know, in the midst of the pandemic, the 499 00:25:40,716 --> 00:25:45,436 Speaker 1: bond market started to seize up and credit spreads started 500 00:25:45,476 --> 00:25:49,076 Speaker 1: to rise because people were very concerned about corporate defaults, 501 00:25:49,156 --> 00:25:51,396 Speaker 1: and the you know, the Federal Reserve, which is the 502 00:25:51,476 --> 00:25:54,476 Speaker 1: largest central bank in the world, did something it never 503 00:25:54,556 --> 00:25:56,476 Speaker 1: did before, which is it said that it was now 504 00:25:56,516 --> 00:26:00,356 Speaker 1: going to buy the debt, the corporate debt of companies, 505 00:26:00,436 --> 00:26:04,396 Speaker 1: including what are called fallen angels, which are companies that 506 00:26:04,436 --> 00:26:08,396 Speaker 1: were previously rated as investment grade, which are seen as safe, 507 00:26:08,876 --> 00:26:11,836 Speaker 1: but had fallen into junk grade. And so if they 508 00:26:11,836 --> 00:26:14,836 Speaker 1: had fallen to junk grade after a certain period in March, 509 00:26:15,196 --> 00:26:18,116 Speaker 1: the FED was still able to purchase their debt and 510 00:26:18,316 --> 00:26:20,716 Speaker 1: Wall Street I think the reaction was the FED will 511 00:26:20,756 --> 00:26:23,116 Speaker 1: just backstop us, and if they need to, they will 512 00:26:23,276 --> 00:26:25,996 Speaker 1: not only buy corporate debt and junk bonds, they will 513 00:26:26,036 --> 00:26:29,236 Speaker 1: buy equities. And so I think that, combined with the 514 00:26:29,276 --> 00:26:31,836 Speaker 1: fact that investing in the fixed income markets and buy 515 00:26:31,876 --> 00:26:35,196 Speaker 1: fixed income I mean things like bonds was no longer 516 00:26:35,236 --> 00:26:37,836 Speaker 1: as profitable as it used to be, it drove a 517 00:26:37,876 --> 00:26:40,916 Speaker 1: lot of large institutional players into the equities markets and 518 00:26:40,956 --> 00:26:44,036 Speaker 1: it overheated the equities markets. Now, somebody asked Chairman Powell, 519 00:26:44,836 --> 00:26:47,196 Speaker 1: Drome Powell, the Federal Reserve chair, about this last week, 520 00:26:47,236 --> 00:26:48,636 Speaker 1: and he said, no, no, no no, I don't think that 521 00:26:48,636 --> 00:26:51,316 Speaker 1: that's what's happening. I don't think that the Fed caused 522 00:26:51,316 --> 00:26:56,116 Speaker 1: any kind of overheating. I disagree, and I think that 523 00:26:56,596 --> 00:26:59,876 Speaker 1: it also exacerbated inequality because again, to go back to 524 00:26:59,916 --> 00:27:02,156 Speaker 1: this conversation about hedge funds, the people that are the 525 00:27:02,236 --> 00:27:06,716 Speaker 1: predominant investors in corporate debt, especially junk bonds, are hedge funds. 526 00:27:07,316 --> 00:27:10,036 Speaker 1: And there's an even added wrinkle. If people remember, the 527 00:27:10,076 --> 00:27:13,036 Speaker 1: price of oil went negative. The oil futures went negative 528 00:27:13,236 --> 00:27:17,876 Speaker 1: last year because there was such low demand, and oil 529 00:27:18,196 --> 00:27:21,076 Speaker 1: futures are traded with what's called physical delivery. You have 530 00:27:21,076 --> 00:27:24,996 Speaker 1: to actually physically receive barrels and barrels of oil. If 531 00:27:25,036 --> 00:27:27,396 Speaker 1: you happen to have a futures contract on oil that 532 00:27:27,476 --> 00:27:29,716 Speaker 1: expires and then you know it's profitable, you have to 533 00:27:29,716 --> 00:27:32,196 Speaker 1: receive the oil. And so there was just sort of 534 00:27:32,196 --> 00:27:34,676 Speaker 1: crunch where they had run out of space and no 535 00:27:34,716 --> 00:27:36,636 Speaker 1: one had any space to store the oil, and so 536 00:27:36,676 --> 00:27:38,596 Speaker 1: people were just so desperate to get rid of their 537 00:27:38,596 --> 00:27:40,996 Speaker 1: oil futures contracts that they gave them away. Why do 538 00:27:41,036 --> 00:27:43,636 Speaker 1: I bring that up Because the Federal Reserve bought over 539 00:27:43,716 --> 00:27:48,316 Speaker 1: a billion dollars to date in fossil fuel in fossil 540 00:27:48,356 --> 00:27:52,196 Speaker 1: fuel firms, corporate bonds, utility companies, or energy companies, and 541 00:27:52,276 --> 00:27:56,156 Speaker 1: so I think that the FENS has a role here 542 00:27:56,956 --> 00:28:00,916 Speaker 1: in making the market overheated, and I think in making 543 00:28:01,196 --> 00:28:05,116 Speaker 1: equity asset valuations go perhaps higher than they should have, again, 544 00:28:05,196 --> 00:28:07,556 Speaker 1: because you had large investors who were doing what is 545 00:28:07,556 --> 00:28:11,116 Speaker 1: called seeking alpha or yield and trying to find profits 546 00:28:11,116 --> 00:28:13,156 Speaker 1: where there were no longer profits to be had in 547 00:28:13,156 --> 00:28:16,076 Speaker 1: the fixed income markets. And I worry about a bubble, 548 00:28:16,156 --> 00:28:18,076 Speaker 1: not because of Game Stop, which I think is quite 549 00:28:18,076 --> 00:28:22,476 Speaker 1: obviously a bubble, but a larger equity bubble overall that 550 00:28:22,676 --> 00:28:26,156 Speaker 1: might have been aggravated by public policy. And that's the 551 00:28:26,276 --> 00:28:28,596 Speaker 1: kind of thing that I worry about. I should just 552 00:28:28,636 --> 00:28:31,756 Speaker 1: say for listeners who are truly faithful listeners, they may 553 00:28:31,796 --> 00:28:35,116 Speaker 1: remember that very shortly after that happened in March, the 554 00:28:36,156 --> 00:28:38,916 Speaker 1: credit market and version that you're describing, we actually had 555 00:28:38,956 --> 00:28:42,276 Speaker 1: on a very well known credit traitor, BoA's Weinstein, who 556 00:28:42,356 --> 00:28:45,636 Speaker 1: was raising alarm about that before it had become a 557 00:28:45,676 --> 00:28:49,156 Speaker 1: big national story, so the most faithful listeners will remember 558 00:28:49,196 --> 00:28:51,316 Speaker 1: our discussion of that. Let me ask you a follow 559 00:28:51,356 --> 00:28:54,956 Speaker 1: up question, though, alexis I mean you began by saying, yes, 560 00:28:55,036 --> 00:28:58,756 Speaker 1: you're worried about volatility. Then you pointed to a series 561 00:28:58,796 --> 00:29:01,316 Speaker 1: of actions taking by the FED, all of which were 562 00:29:01,516 --> 00:29:06,516 Speaker 1: designed to manage volatility. And then you said, if I 563 00:29:06,596 --> 00:29:10,716 Speaker 1: understood you correctly, that you're concerned that those actions taken 564 00:29:10,716 --> 00:29:14,596 Speaker 1: by the FED to manage volatility may be creating overheated 565 00:29:15,396 --> 00:29:17,916 Speaker 1: equities prices such that maybe the stock market itself is 566 00:29:17,916 --> 00:29:20,236 Speaker 1: a bit of a bubble. So if I understood you correctly, 567 00:29:21,316 --> 00:29:25,236 Speaker 1: you know what's the fix there. So my solution is 568 00:29:25,276 --> 00:29:27,756 Speaker 1: actually in the Cares Act, but was not used by 569 00:29:27,756 --> 00:29:32,156 Speaker 1: the FED. Congress suggested that the FED create a series 570 00:29:32,156 --> 00:29:35,556 Speaker 1: of facilities, including a mid sized lending facility that the 571 00:29:35,556 --> 00:29:38,396 Speaker 1: Fed Reserve Act has, you know this section called thirteen three. 572 00:29:38,516 --> 00:29:42,316 Speaker 1: It's their emergency lending facility. They're allowed to create broad 573 00:29:42,436 --> 00:29:46,076 Speaker 1: based support programs. So they did not happen to use 574 00:29:46,556 --> 00:29:49,276 Speaker 1: the new authority that Congress gave it. They just sort 575 00:29:49,316 --> 00:29:52,476 Speaker 1: of did something they could do without Congress. In the 576 00:29:52,596 --> 00:29:55,676 Speaker 1: Cares Act, there was a series of conditions that Congress 577 00:29:55,716 --> 00:29:58,596 Speaker 1: was suggesting that the FED take that included things like 578 00:29:58,756 --> 00:30:03,516 Speaker 1: prohibiting stock buybacks and prohibiting dividends and ensuring that workers 579 00:30:03,596 --> 00:30:06,116 Speaker 1: were not laid off or workers who were laid off 580 00:30:06,316 --> 00:30:09,396 Speaker 1: were rehired, and the FED neglected to include any of 581 00:30:09,436 --> 00:30:12,796 Speaker 1: these conditions in their corporate debt buying. And I think 582 00:30:12,836 --> 00:30:16,916 Speaker 1: you cannot just rescue the bond market without any conditions 583 00:30:16,916 --> 00:30:19,316 Speaker 1: on the companies to ensure that workers are protected and 584 00:30:19,356 --> 00:30:22,036 Speaker 1: to ensure that the companies themselves do not overheat the 585 00:30:22,076 --> 00:30:25,956 Speaker 1: equity markets. The FED did not use the authority in cares. 586 00:30:26,516 --> 00:30:29,356 Speaker 1: I think that you could have done a blended approach. 587 00:30:29,556 --> 00:30:32,436 Speaker 1: You could have rescued the bond market, but you could 588 00:30:32,436 --> 00:30:36,076 Speaker 1: have added these conditions to ensure that you aren't also 589 00:30:36,156 --> 00:30:38,836 Speaker 1: overheating the equity market. And some of those conditions would 590 00:30:38,876 --> 00:30:42,116 Speaker 1: have been, Look, don't spend your money on buying back 591 00:30:42,156 --> 00:30:44,956 Speaker 1: your stock later in the future, spend it on your workers, 592 00:30:45,036 --> 00:30:48,316 Speaker 1: rehire people, and make sure that you aren't doing the 593 00:30:48,356 --> 00:30:51,956 Speaker 1: same old, unfortunate financialization trend that we've been doing for 594 00:30:51,956 --> 00:30:54,596 Speaker 1: so very long, where you know, CEOs at the top 595 00:30:54,596 --> 00:30:57,116 Speaker 1: of companies have real incentives to drive up the price 596 00:30:57,116 --> 00:30:59,316 Speaker 1: of their own stock. Right, This is part of the narrative. 597 00:30:59,356 --> 00:31:01,876 Speaker 1: I think that's right. Right. The Reddit folks and the 598 00:31:01,916 --> 00:31:04,636 Speaker 1: robin Hood folks have discovered that while Street does try 599 00:31:04,636 --> 00:31:07,236 Speaker 1: to drive up the price of stocks, it just usually 600 00:31:07,236 --> 00:31:10,236 Speaker 1: happens at an individual company level. Right. A CEO gets 601 00:31:10,236 --> 00:31:12,916 Speaker 1: paid often based on the performance of the company and 602 00:31:12,956 --> 00:31:15,316 Speaker 1: the performance of the stock, and so they have a 603 00:31:15,356 --> 00:31:17,796 Speaker 1: real incentive to see their stock price go up. And 604 00:31:17,836 --> 00:31:19,516 Speaker 1: one way you can do that is buying back your 605 00:31:19,516 --> 00:31:22,596 Speaker 1: own stock. So I think that the answer is it 606 00:31:22,596 --> 00:31:25,076 Speaker 1: would have been to use some of those conditions that 607 00:31:25,116 --> 00:31:27,876 Speaker 1: Congress suggested that the Fed use that they didn't use 608 00:31:28,196 --> 00:31:30,276 Speaker 1: to make sure that you didn't just go from rescuing 609 00:31:30,316 --> 00:31:34,276 Speaker 1: the bond market to then juicing the equities market. Coming 610 00:31:34,276 --> 00:31:36,436 Speaker 1: back to the narrative of David and Goliath in the 611 00:31:36,516 --> 00:31:39,276 Speaker 1: question of where the power lies, it's an irony if 612 00:31:39,516 --> 00:31:42,876 Speaker 1: what you're saying is right, it's an irony that the 613 00:31:42,996 --> 00:31:45,276 Speaker 1: so called David's or the self described David's in the 614 00:31:45,276 --> 00:31:49,156 Speaker 1: GameStop situation, we're doing exactly what the CEO of game 615 00:31:49,196 --> 00:31:51,876 Speaker 1: Stop would presentally be very happy to see them doing, namely, 616 00:31:51,916 --> 00:31:54,516 Speaker 1: increasing the value of the stock right. I mean, everyone 617 00:31:54,556 --> 00:31:56,756 Speaker 1: who's in the market wants it to stay up. And 618 00:31:56,796 --> 00:32:00,276 Speaker 1: it may be that the broadening of ownership of stock 619 00:32:00,396 --> 00:32:04,356 Speaker 1: through people's retirement accounts has created a shift in the 620 00:32:04,396 --> 00:32:06,476 Speaker 1: political economy of the country. And this is just a 621 00:32:07,276 --> 00:32:10,596 Speaker 1: very general hypothesis, but a shift in the political economy 622 00:32:10,636 --> 00:32:15,596 Speaker 1: of the country where the politician's favoritism and the Fed's 623 00:32:15,636 --> 00:32:20,316 Speaker 1: favoritism to the markets isn't just driven by let's help 624 00:32:20,396 --> 00:32:23,796 Speaker 1: rich people. It's also driven by a concern or a 625 00:32:23,836 --> 00:32:26,796 Speaker 1: worry for ordinary people who own stocks. And then we 626 00:32:26,836 --> 00:32:29,876 Speaker 1: get into situation where it's where the political process is 627 00:32:29,916 --> 00:32:33,716 Speaker 1: basically captured by the interests of the markets, not necessarily 628 00:32:33,756 --> 00:32:36,236 Speaker 1: because it's captured by the very rich, but because it's 629 00:32:36,236 --> 00:32:39,076 Speaker 1: captured by the interests of everybody who holds stocks. And 630 00:32:39,156 --> 00:32:41,756 Speaker 1: that's not only the rich. And in that sense, all 631 00:32:41,796 --> 00:32:45,596 Speaker 1: of the Davids are aligned with the goliaths in wanting 632 00:32:45,716 --> 00:32:47,236 Speaker 1: not all the Davids, but many of the Davids are 633 00:32:47,236 --> 00:32:49,356 Speaker 1: aligned with the goliaths in wanting the stock market to 634 00:32:49,396 --> 00:32:53,796 Speaker 1: stay high. And then we get various governmental policies that 635 00:32:53,916 --> 00:32:57,876 Speaker 1: effectively protect the market. And if that's the case, I 636 00:32:57,876 --> 00:33:00,556 Speaker 1: guess my question for you, is is that a very 637 00:33:00,596 --> 00:33:03,796 Speaker 1: bad thing from the standpoint of the distribution of political 638 00:33:03,836 --> 00:33:07,516 Speaker 1: economic power, that is, of the relationship between the people 639 00:33:07,556 --> 00:33:10,996 Speaker 1: who own the stocks, which excludes some percentage of Americans 640 00:33:11,036 --> 00:33:15,236 Speaker 1: but includes a large percentage of others, and the other 641 00:33:15,276 --> 00:33:18,596 Speaker 1: people who are running our politics. I think yes. The 642 00:33:18,636 --> 00:33:20,516 Speaker 1: short answer is yes. And then we have to step 643 00:33:20,516 --> 00:33:23,636 Speaker 1: back and say why is that? And the answer that 644 00:33:23,636 --> 00:33:27,076 Speaker 1: that is true is because we have had financialization where 645 00:33:27,436 --> 00:33:30,076 Speaker 1: the only way that you can invest right now is 646 00:33:30,076 --> 00:33:32,796 Speaker 1: with Wall Street. You don't have a public option for 647 00:33:32,996 --> 00:33:35,556 Speaker 1: investing unless you are a very wealthy person who can 648 00:33:35,596 --> 00:33:39,396 Speaker 1: buy municipal bonds. This wasn't always the case, right, and 649 00:33:39,436 --> 00:33:41,956 Speaker 1: it doesn't have to be this way, and we don't 650 00:33:41,996 --> 00:33:45,436 Speaker 1: have to just you know, finance our own wealth through 651 00:33:46,076 --> 00:33:50,636 Speaker 1: private financial intermediaries. This was a public policy choice, right. 652 00:33:50,796 --> 00:33:54,836 Speaker 1: This was the move away from pensions towards things like 653 00:33:55,276 --> 00:33:59,236 Speaker 1: iras and private investment accounts, which again Wall Street gets 654 00:33:59,276 --> 00:34:02,036 Speaker 1: to take a little fee every time you use those. 655 00:34:02,436 --> 00:34:05,556 Speaker 1: This was a policy decision. If you go back to 656 00:34:05,596 --> 00:34:08,716 Speaker 1: the New Deal, there was an entity called the Reconstruction 657 00:34:08,796 --> 00:34:11,756 Speaker 1: Finance Corporation that was larger than all of the Wall 658 00:34:11,796 --> 00:34:14,476 Speaker 1: Street banks put together at the time, and they directed 659 00:34:14,556 --> 00:34:18,156 Speaker 1: huge amounts to public investment to projects large and small. 660 00:34:18,516 --> 00:34:20,796 Speaker 1: And there's a very interesting paper where if anybody wants 661 00:34:20,836 --> 00:34:22,836 Speaker 1: to think about, like what might be an alternative vision 662 00:34:22,876 --> 00:34:25,316 Speaker 1: for how this would work by an academic named sale 663 00:34:25,356 --> 00:34:29,436 Speaker 1: Omarova who is out of Princeton, called the National Investment Authority, 664 00:34:29,796 --> 00:34:33,556 Speaker 1: and the idea is to sort of invert the private 665 00:34:33,636 --> 00:34:37,076 Speaker 1: public partnership. So instead of public goods being sold to 666 00:34:37,156 --> 00:34:39,956 Speaker 1: private entities like happened in Chicago, right they sold off 667 00:34:39,996 --> 00:34:43,076 Speaker 1: their parking meters to private interests like happens on toll roads. 668 00:34:43,596 --> 00:34:48,676 Speaker 1: We solicit private investment into a new kind of security 669 00:34:48,956 --> 00:34:50,836 Speaker 1: that would be backed by the full faith and credit 670 00:34:50,876 --> 00:34:54,476 Speaker 1: of the government, but we direct our investments into public goods, 671 00:34:54,876 --> 00:34:58,316 Speaker 1: and then you would essentially have not only a way 672 00:34:58,316 --> 00:35:01,236 Speaker 1: to finance projects that Wall Street will never fund because 673 00:35:01,236 --> 00:35:03,636 Speaker 1: Wall Street wants things that they can profit off of 674 00:35:03,636 --> 00:35:06,676 Speaker 1: in this lifetime. Right, They're never going to finance something 675 00:35:06,836 --> 00:35:09,116 Speaker 1: that you can't profit off of in a single lifetime, 676 00:35:09,396 --> 00:35:11,716 Speaker 1: let alone, usually something you can't profit off of in 677 00:35:11,756 --> 00:35:15,076 Speaker 1: a year. We need to find ways to use the 678 00:35:15,116 --> 00:35:18,076 Speaker 1: instrument of government to fund public projects, and this could 679 00:35:18,076 --> 00:35:20,476 Speaker 1: be a financing mechanism for things like the Green New Deal. 680 00:35:20,836 --> 00:35:22,796 Speaker 1: So like, yes, do I think that you are right? 681 00:35:22,836 --> 00:35:25,236 Speaker 1: Do I think that all of the incentives are aligned 682 00:35:25,276 --> 00:35:27,636 Speaker 1: so that we all in a way if we do 683 00:35:27,716 --> 00:35:30,236 Speaker 1: participate in the stock market, which again, to repeat myself, 684 00:35:30,276 --> 00:35:35,476 Speaker 1: forty seven percent of people absolutely do not. Yes, we 685 00:35:35,556 --> 00:35:38,116 Speaker 1: all sort of have this collective interest in the stock 686 00:35:38,156 --> 00:35:39,796 Speaker 1: market staying up. But I don't think that's a good thing. 687 00:35:39,796 --> 00:35:41,356 Speaker 1: And I think we have to ask the question about 688 00:35:41,396 --> 00:35:43,836 Speaker 1: how we got there and why that is, because AA 689 00:35:43,916 --> 00:35:45,796 Speaker 1: doesn't have to be that way, and be there was 690 00:35:45,836 --> 00:35:48,476 Speaker 1: a series of policy decisions to push it such that 691 00:35:48,596 --> 00:35:50,996 Speaker 1: it was that way, so that if you wanted to 692 00:35:50,996 --> 00:35:53,156 Speaker 1: save for your future, there was no way for you 693 00:35:53,236 --> 00:35:55,756 Speaker 1: to do it without going through Wall Street again, unless 694 00:35:55,756 --> 00:35:58,916 Speaker 1: you're rich enough to pursue these kinds of municipal bonds 695 00:35:58,956 --> 00:36:00,996 Speaker 1: or other investments. And I think that that's a mistake 696 00:36:01,036 --> 00:36:03,196 Speaker 1: and that's the wrong way to structure a society, and 697 00:36:03,316 --> 00:36:05,076 Speaker 1: we don't have to do it that way, and I 698 00:36:05,076 --> 00:36:07,436 Speaker 1: think we should seriously ask ourselves, like, how do we 699 00:36:07,476 --> 00:36:10,236 Speaker 1: remake our society so we don't rely on Wall Street 700 00:36:10,276 --> 00:36:14,396 Speaker 1: just to fund our own retirement. A last question about 701 00:36:14,876 --> 00:36:18,516 Speaker 1: takeaways and popular impulse. And this is something that you 702 00:36:18,516 --> 00:36:20,316 Speaker 1: mentioned you're the top of the interview, and I'm just 703 00:36:20,356 --> 00:36:21,756 Speaker 1: going to come back to it very briefly now at 704 00:36:21,756 --> 00:36:25,316 Speaker 1: the end, and that is that a lot of creativity 705 00:36:25,396 --> 00:36:28,556 Speaker 1: seems to be going into the idea of not having 706 00:36:28,596 --> 00:36:32,236 Speaker 1: to rely entirely on Wall Street. But that creativity seems 707 00:36:32,276 --> 00:36:34,316 Speaker 1: typically not to go to the kinds of long term 708 00:36:34,316 --> 00:36:38,236 Speaker 1: public investment that you're talking about, but rather to the 709 00:36:38,276 --> 00:36:42,156 Speaker 1: world of crypto where one of the animating you will 710 00:36:42,156 --> 00:36:44,036 Speaker 1: call it an ideal if you're a crypto activist, or 711 00:36:44,076 --> 00:36:46,196 Speaker 1: you'll call it a fantasy if you're a crypto skeptic, 712 00:36:46,916 --> 00:36:52,076 Speaker 1: is to get outside of governmental structures and to offer 713 00:36:52,236 --> 00:36:57,796 Speaker 1: opportunities for investment for individuals that in the long run 714 00:36:59,756 --> 00:37:06,076 Speaker 1: can gain in value and provide assurance without falling into, 715 00:37:06,156 --> 00:37:10,236 Speaker 1: as it were, the arms of the big Wall Street investors, 716 00:37:11,356 --> 00:37:14,876 Speaker 1: especially in connection with what's sometimes called the gamification of trading. 717 00:37:14,996 --> 00:37:16,596 Speaker 1: And I think people mean two things by that. They 718 00:37:16,636 --> 00:37:21,156 Speaker 1: mean that trading is more like a video game than 719 00:37:21,196 --> 00:37:22,756 Speaker 1: it used to be on a place like robin Hood 720 00:37:22,836 --> 00:37:26,236 Speaker 1: or on coin base. They also mean that trading as 721 00:37:26,276 --> 00:37:28,196 Speaker 1: a form of gambling in the sense of gaming is 722 00:37:28,316 --> 00:37:32,836 Speaker 1: as gambling. So I think the original white paper for 723 00:37:32,956 --> 00:37:35,676 Speaker 1: bitcoin was very interesting and had a very noble goal. 724 00:37:36,076 --> 00:37:38,996 Speaker 1: I think the blockchain technology that drives a lot of 725 00:37:38,996 --> 00:37:43,196 Speaker 1: cryptocurrencies is very highly applicable for a lot of interesting solutions, 726 00:37:43,876 --> 00:37:48,076 Speaker 1: and I think the intention behind cryptocurrency was quite good, right, 727 00:37:48,116 --> 00:37:50,596 Speaker 1: and it can be used for lots of various things, 728 00:37:50,636 --> 00:37:53,236 Speaker 1: including let's say you live in a government that is 729 00:37:53,236 --> 00:37:56,516 Speaker 1: oppressive for some reason and is trying to limit your 730 00:37:56,516 --> 00:37:59,276 Speaker 1: ability to send money to your family in a different 731 00:37:59,276 --> 00:38:01,316 Speaker 1: country or something like that. Right, Like, there's a lot 732 00:38:01,356 --> 00:38:04,596 Speaker 1: of potential for public good with cryptocurrencies, but unfortunately, I 733 00:38:04,636 --> 00:38:07,316 Speaker 1: think what has happened with cryptocurrencies is what happens to 734 00:38:07,356 --> 00:38:09,996 Speaker 1: a lot of things, which is that you know, because 735 00:38:10,036 --> 00:38:13,236 Speaker 1: Wall Street has this large concentration of power and ability 736 00:38:13,236 --> 00:38:15,356 Speaker 1: to move things, and I by Wall Street. I would 737 00:38:15,396 --> 00:38:18,716 Speaker 1: even broaden it out to say fintech and venture capital firms, 738 00:38:18,796 --> 00:38:21,836 Speaker 1: you know, they've commodified it like anything else. And I 739 00:38:21,876 --> 00:38:24,316 Speaker 1: think we cannot look, you know, look think about this 740 00:38:24,356 --> 00:38:26,556 Speaker 1: and ask about this without thinking. So you mentioned coinbase. 741 00:38:26,876 --> 00:38:30,356 Speaker 1: The former a former executive of Coinbase was just the 742 00:38:30,396 --> 00:38:33,156 Speaker 1: acting director of the office, a controller of the currency 743 00:38:33,156 --> 00:38:35,476 Speaker 1: one of the most important banking regulators in the United 744 00:38:35,556 --> 00:38:39,196 Speaker 1: States under the Trump administration and proceeded to do all 745 00:38:39,236 --> 00:38:42,836 Speaker 1: of this deregulation and allow banks to participate in cryptocurrencies 746 00:38:42,836 --> 00:38:45,476 Speaker 1: in ways that they were not allowed to before. Right, 747 00:38:45,636 --> 00:38:49,596 Speaker 1: Like we it's sort of like you can't escape you here, 748 00:38:49,756 --> 00:38:53,716 Speaker 1: somebody created a thing precisely to escape the sort of 749 00:38:54,396 --> 00:38:56,876 Speaker 1: finance system, and the finance system has found a way 750 00:38:56,916 --> 00:38:58,836 Speaker 1: to profit off of it through all of these different 751 00:38:58,996 --> 00:39:01,716 Speaker 1: you know, various apps and companies, and then you had 752 00:39:01,756 --> 00:39:04,436 Speaker 1: all this deregulations under Trump, and that has sort of 753 00:39:04,476 --> 00:39:07,836 Speaker 1: like brought in cryptocurrency into the banking sector, you know. 754 00:39:07,876 --> 00:39:10,396 Speaker 1: And do I think that hedge funds are betting on crypto? Absolutely, 755 00:39:10,396 --> 00:39:12,756 Speaker 1: they're betting on crypto, right like, I'm sure they are. 756 00:39:13,116 --> 00:39:15,236 Speaker 1: They would be silly probably at this point not to 757 00:39:15,836 --> 00:39:18,116 Speaker 1: But I just think that it's one of those things 758 00:39:18,156 --> 00:39:20,796 Speaker 1: that I don't know that I'm in favor or against. 759 00:39:21,196 --> 00:39:23,076 Speaker 1: I just think we need to think closely about how 760 00:39:23,076 --> 00:39:25,196 Speaker 1: it needs to be regulated, because it is, at the 761 00:39:25,276 --> 00:39:27,236 Speaker 1: end of the day, a currency, and it is something 762 00:39:27,276 --> 00:39:30,676 Speaker 1: that we shouldn't allow to operate in regulatory blind spots. 763 00:39:30,836 --> 00:39:32,956 Speaker 1: And that's the same way that I feel about hedge funds, 764 00:39:33,156 --> 00:39:35,116 Speaker 1: and the same way I feel about a lot of things, 765 00:39:35,276 --> 00:39:38,316 Speaker 1: is like all of this takes robust oversight and regulation, 766 00:39:38,476 --> 00:39:41,276 Speaker 1: and in the wake of the Trump administration, we absolutely 767 00:39:41,316 --> 00:39:43,116 Speaker 1: do not have that. We have the opposite of that 768 00:39:43,276 --> 00:39:47,276 Speaker 1: right now. Alexis, thank you for your fascinating analysis and 769 00:39:47,316 --> 00:39:50,796 Speaker 1: for talking to me about power and how it's distributed 770 00:39:51,076 --> 00:39:53,476 Speaker 1: and the world of finance. The old line goes that 771 00:39:53,476 --> 00:39:55,476 Speaker 1: you can't beat city hall. It's a lot harder to 772 00:39:55,516 --> 00:39:57,276 Speaker 1: beat Wall Street than it is to beat city hall. 773 00:39:57,916 --> 00:40:00,676 Speaker 1: But for that we need to begin with a clearide 774 00:40:00,956 --> 00:40:04,036 Speaker 1: account of who has the power and what that power's 775 00:40:04,076 --> 00:40:07,916 Speaker 1: relationship is to politics and to finance itself. So thank 776 00:40:07,916 --> 00:40:11,036 Speaker 1: you for helping us on that path. Well, thank you 777 00:40:11,036 --> 00:40:21,116 Speaker 1: for having me. Listening to Alexis Goldstein brings home what 778 00:40:21,236 --> 00:40:24,876 Speaker 1: seemed to me some truths and some possibilities with respect 779 00:40:24,916 --> 00:40:28,116 Speaker 1: to how we think about markets and power. I am 780 00:40:28,196 --> 00:40:32,116 Speaker 1: very compelled by her observation that although this may feel 781 00:40:32,236 --> 00:40:35,076 Speaker 1: in certain respects like a David and Goliath story, in 782 00:40:35,116 --> 00:40:39,436 Speaker 1: fact the Goliaths are doing just fine. Some David's may 783 00:40:39,476 --> 00:40:42,396 Speaker 1: have made some money, a lot of other David's will 784 00:40:42,436 --> 00:40:45,396 Speaker 1: probably end up losing money. It is, after all, a 785 00:40:45,516 --> 00:40:49,156 Speaker 1: zero sum game, and the goliaths will live to fight 786 00:40:49,356 --> 00:40:53,476 Speaker 1: another day. Put another way, Goliath isn't dead, in which 787 00:40:53,476 --> 00:40:55,796 Speaker 1: case it's not that much of a David and Goliath 788 00:40:55,916 --> 00:41:00,036 Speaker 1: story after all. Yet at the same time, Alexis points 789 00:41:00,036 --> 00:41:03,156 Speaker 1: out that at a moment where a narrative of populism 790 00:41:03,196 --> 00:41:06,156 Speaker 1: is powerful in the markets, we might want to think 791 00:41:06,276 --> 00:41:11,516 Speaker 1: seriously about where power is in fact allocated. It's great 792 00:41:11,556 --> 00:41:14,276 Speaker 1: that so many Americans participate in the markets if it 793 00:41:14,356 --> 00:41:17,596 Speaker 1: makes them better off, but she points out forty seven 794 00:41:17,636 --> 00:41:20,476 Speaker 1: percent of the population has no skin in the game, 795 00:41:20,556 --> 00:41:23,716 Speaker 1: has no stake in what the markets do, and therefore 796 00:41:23,836 --> 00:41:27,196 Speaker 1: does not benefit from policies designed at the national level, 797 00:41:27,276 --> 00:41:30,876 Speaker 1: including in the Federal Reserve, to keep the markets steady. 798 00:41:31,436 --> 00:41:35,436 Speaker 1: What's more, their unintended consequences of policies designed to keep 799 00:41:35,436 --> 00:41:38,516 Speaker 1: the markets from being too volatile, including the possibility that 800 00:41:38,556 --> 00:41:44,156 Speaker 1: effectively the government using taxpayer dollars ends up ensuring big 801 00:41:44,316 --> 00:41:49,956 Speaker 1: risk taking investors against downside risk, thereby artificially inflating the 802 00:41:50,036 --> 00:41:56,716 Speaker 1: markets and potentially creating the possibility of greater losses going forward, indeed, 803 00:41:56,796 --> 00:42:02,516 Speaker 1: of facilitating bubbles at the level of power analysis. My 804 00:42:02,636 --> 00:42:06,356 Speaker 1: biggest takeaway from talking to Alexis is that this isn't 805 00:42:06,356 --> 00:42:09,716 Speaker 1: really a story about a single stock. It's really a 806 00:42:09,756 --> 00:42:13,876 Speaker 1: story about the aspirations of many ordinary Americans to feel 807 00:42:13,916 --> 00:42:16,756 Speaker 1: as though they are not shut out of the possibility 808 00:42:16,956 --> 00:42:21,236 Speaker 1: of building wealth, in this instance building wealth by speculation, 809 00:42:21,636 --> 00:42:24,556 Speaker 1: but in any case doing the building in some way 810 00:42:24,676 --> 00:42:28,636 Speaker 1: or another. On that account, it's not just greed that 811 00:42:28,836 --> 00:42:31,596 Speaker 1: drives Wall Street or greed that drives the people who 812 00:42:31,596 --> 00:42:34,196 Speaker 1: want to be like Wall Street. It's a deeper question 813 00:42:34,436 --> 00:42:38,436 Speaker 1: of where the power genuinely lies, and the rhetoric that 814 00:42:38,596 --> 00:42:42,276 Speaker 1: drives people to make investments like the investments that lead 815 00:42:42,556 --> 00:42:45,876 Speaker 1: to the game Stop Short Squeeze, may go beyond the 816 00:42:45,956 --> 00:42:49,036 Speaker 1: mere desire to make money and stand at a symbolic 817 00:42:49,156 --> 00:42:52,476 Speaker 1: level for the desire to be involved in the game 818 00:42:52,716 --> 00:42:56,756 Speaker 1: and to be in the action where money is being made. 819 00:42:58,276 --> 00:43:00,396 Speaker 1: That is a story that we will continue to watch 820 00:43:00,596 --> 00:43:03,276 Speaker 1: throughout this year as we look at the question of power, 821 00:43:03,636 --> 00:43:06,196 Speaker 1: and it's a question that will remain salient in our 822 00:43:06,196 --> 00:43:10,196 Speaker 1: minds as we discuss going forward the way Corporation's work 823 00:43:10,596 --> 00:43:14,516 Speaker 1: and the way they interact with Wall Street in our economy. 824 00:43:15,876 --> 00:43:17,756 Speaker 1: When I come back to you next week, we will 825 00:43:17,796 --> 00:43:20,316 Speaker 1: be in the heart of an impeachment trial, and I 826 00:43:20,396 --> 00:43:24,956 Speaker 1: promise to talk to you about that. Until then, be careful, 827 00:43:25,436 --> 00:43:29,836 Speaker 1: be safe, and be well. Deep Background is brought to 828 00:43:29,836 --> 00:43:33,956 Speaker 1: you by Pushkin Industries. Our producer is Mo laboord, our 829 00:43:33,996 --> 00:43:37,956 Speaker 1: engineer is Martin Gonzalez, and our shorerunner is Sophie Crane mckibbon. 830 00:43:38,396 --> 00:43:42,276 Speaker 1: Editorial support from noahm Osband. Theme music by Luis Guerra 831 00:43:42,796 --> 00:43:46,716 Speaker 1: at Pushkin. Thanks to Mia Lobell, Julia Barton, Lydia, Jean Coott, 832 00:43:46,996 --> 00:43:51,876 Speaker 1: Heather Faine, Carl Vigliori, Maggie Taylor, Eric Sander, and Jacob Weisberg. 833 00:43:52,276 --> 00:43:54,596 Speaker 1: You can find me on Twitter at Noah R. Feldman. 834 00:43:54,996 --> 00:43:57,356 Speaker 1: I also write a column for Bloomberg Opinion, which you 835 00:43:57,396 --> 00:44:01,116 Speaker 1: can find at Bloomberg dot com slash Feldman. To discover 836 00:44:01,196 --> 00:44:04,436 Speaker 1: Bloomberg's original slate of podcasts, go to Bloomberg dot com 837 00:44:04,476 --> 00:44:07,356 Speaker 1: slash Podcasts, and if you liked what you heard today, 838 00:44:07,756 --> 00:44:11,396 Speaker 1: please write a review or Ello frad. This is Deep Background.