WEBVTT - GameStop Is Just The Beginning 0:00:15.396 --> 0:00:23.676 Pushkin from Pushkin Industries. This is Deep Background, the show 0:00:23.716 --> 0:00:27.156 where we explore the stories behind the stories in the news. 0:00:27.716 --> 0:00:31.756 I'm Noah Feldman. This is still the beginning of our 0:00:31.796 --> 0:00:34.956 new season here on Deep Background, and we've been talking 0:00:34.996 --> 0:00:39.356 about the Trump transition, the impeachment trial, and of course 0:00:39.596 --> 0:00:45.076 the ongoing pandemic. This week, though, another story emerged from 0:00:45.116 --> 0:00:49.596 out of the blue, a story sufficiently interesting and unexpected 0:00:49.676 --> 0:00:53.596 that we decided we shouldn't ignore it, in particular because 0:00:53.716 --> 0:00:58.116 this year we're focused on the theme of power. By now, 0:00:58.356 --> 0:01:01.676 pretty much all of you must have heard about last 0:01:01.716 --> 0:01:06.476 week's run on game Stop stock, a short squeeze that 0:01:06.596 --> 0:01:11.756 began around a Reddit group called Wall Street Bets. Within 0:01:11.836 --> 0:01:14.956 ten days, the game Stop stock gained more than ten 0:01:14.996 --> 0:01:18.796 times its value, causing billions and losses to hedge funds 0:01:18.836 --> 0:01:21.476 who had short at the stock, raising the stock to 0:01:21.516 --> 0:01:24.396 a point where almost inevitably it will have to come 0:01:24.436 --> 0:01:29.156 down very substantial because the markets teetered for a moment. 0:01:29.236 --> 0:01:32.756 This became a lead story around the world, and it's 0:01:32.796 --> 0:01:37.116 a strange story. The odd issue on which it appears. 0:01:37.116 --> 0:01:41.036 Both Alexandrio Casio Cortez and Donald Trump Junior seemed to 0:01:41.036 --> 0:01:43.796 be on the same side. Here to speak to us 0:01:43.796 --> 0:01:47.396 today and make sense of this complex and fascinating topic 0:01:47.796 --> 0:01:50.956 is Alexis Goldstein, a former Wall Street pro who now 0:01:50.956 --> 0:01:54.956 works as a senior policy analyst at Americans for Financial Reform. 0:01:55.116 --> 0:01:58.916 She writes the popular newsletter Markets Weekly. I asked her 0:01:58.956 --> 0:02:01.676 to begin by giving us a little summary of the 0:02:01.716 --> 0:02:04.796 game Stop craziness before turning to the question of what 0:02:04.876 --> 0:02:08.596 it means for the allocation of power in markets in 0:02:08.676 --> 0:02:14.716 Polity and beyond. Alexis, thank you so much for joining me. 0:02:15.036 --> 0:02:17.196 Maybe we could start by my just asking you, for 0:02:17.316 --> 0:02:23.756 purposes of the general listener, what happened specifically with respect 0:02:24.156 --> 0:02:28.636 to the Game Stop stock last week. So there has 0:02:28.716 --> 0:02:32.276 been a real increase in what we call retail trading 0:02:32.556 --> 0:02:36.156 since the pandemic. So retail trading just refers to non 0:02:36.236 --> 0:02:39.156 Wall Street people. Maybe it's you, maybe it's me, Maybe 0:02:39.156 --> 0:02:42.836 it's our friends using some kind of online brokerage like 0:02:42.996 --> 0:02:46.516 e Trade, like Fidelity, like Interactive Brokers, and more recently 0:02:46.596 --> 0:02:49.556 like robin Hood just to trade, you know, as a 0:02:49.636 --> 0:02:52.716 non professional. So there has been this really big surge 0:02:52.796 --> 0:02:55.796 in retail trading since the pandemic. Maybe you know, part 0:02:55.796 --> 0:02:58.396 of that is because people are at home. And there's 0:02:58.396 --> 0:03:00.796 also been this growth in the popularity of a particular 0:03:00.876 --> 0:03:04.156 selb breddit called Wall Street Bets that is focused on 0:03:04.516 --> 0:03:08.116 basically gambling in my opinion on the stock market and picking, 0:03:08.196 --> 0:03:11.276 you know, hot stocks to bet four or against. And 0:03:11.356 --> 0:03:15.396 there was one particular person on that subreddit who really 0:03:15.396 --> 0:03:17.476 thought that game Stop was a goodbye and have been 0:03:17.516 --> 0:03:19.036 talking about it for a while. And I guess the 0:03:19.036 --> 0:03:22.356 popularity of that as a position grew and grew, and 0:03:22.396 --> 0:03:24.716 then it was sort of compounded by the fact that 0:03:24.916 --> 0:03:28.756 this reddit forum was looking at the list of stocks 0:03:28.836 --> 0:03:32.916 that are most frequently shorted. So a short is when 0:03:32.996 --> 0:03:36.356 you are betting that the stock price will fall, and 0:03:36.396 --> 0:03:39.476 the way that that is operationalized is you borrow the 0:03:39.516 --> 0:03:42.996 stock from somebody who owns it. They lend it to you, 0:03:42.996 --> 0:03:46.156 You immediately sell it, and then you sit tight and 0:03:46.236 --> 0:03:48.916 hopefully you don't worry too much and wait for the 0:03:48.916 --> 0:03:51.876 stock to drop, and if it drops, you can buy 0:03:51.876 --> 0:03:53.996 it back at a cheaper price, return it to the 0:03:54.036 --> 0:03:56.396 person who loaned it to You give a little bit 0:03:56.396 --> 0:03:58.796 of interest on the loan of the stock, and you 0:03:58.836 --> 0:04:01.316 make a nice profit. That's how it's supposed to work. 0:04:02.716 --> 0:04:04.596 So they were looking at this list of all of 0:04:04.636 --> 0:04:08.116 these stocks that were very frequently shorted, and GameStop was 0:04:08.156 --> 0:04:11.236 one of them, and they decided to manufacture what is 0:04:11.276 --> 0:04:14.636 called a short squeeze. And a short squeeze is essentially, 0:04:14.836 --> 0:04:18.276 if I'm short a stock and I don't want to 0:04:18.316 --> 0:04:21.076 give it up yet, and it starts to move against me, 0:04:21.436 --> 0:04:24.796 and it starts to rise above where I sold at, 0:04:25.076 --> 0:04:28.156 and it rises and rise and rises. The person that 0:04:28.236 --> 0:04:29.956 lends me the stock isn't just going to be like 0:04:30.076 --> 0:04:33.236 chill and normal and wait for me to turn a 0:04:33.276 --> 0:04:36.716 profit again. They're gonna demand some cash because they're worried 0:04:36.716 --> 0:04:38.516 I'm going to blow up and I won't be able 0:04:38.516 --> 0:04:40.676 to perhaps return the stocks to them because I won't 0:04:40.676 --> 0:04:43.556 have any money left. And that's what's called a margin call. 0:04:44.316 --> 0:04:46.156 And so a short squeeze is kind of like when 0:04:46.196 --> 0:04:49.876 collectively all of these shorts start to have their positions 0:04:49.956 --> 0:04:52.836 move against them, the lenders of the stock to them 0:04:53.236 --> 0:04:56.076 demand some money, right, they make a margin call on 0:04:56.116 --> 0:04:57.876 all of them, and then they have a choice. They 0:04:57.916 --> 0:05:00.236 either have to close out the position at a huge loss, 0:05:00.916 --> 0:05:02.676 or they have to sell a bunch of other stuff 0:05:02.716 --> 0:05:04.676 in order to put up some money so that they 0:05:04.676 --> 0:05:08.356 can keep going in hope maybe this position will move 0:05:08.436 --> 0:05:12.236 against them. So these folks on Reddit basically decided collectively, 0:05:12.796 --> 0:05:15.636 all together they were going to try and manufacture a 0:05:15.716 --> 0:05:19.196 short squeeze on game Stop by a bunch of retail 0:05:19.236 --> 0:05:22.156 traders all buying games Stopped together at the same time, 0:05:23.956 --> 0:05:27.636 and they did so. That was a great setup. And 0:05:27.916 --> 0:05:31.356 collective is actually a fascinating word here, because although all 0:05:31.396 --> 0:05:34.836 the people on Reddit in some sense acted collectively to 0:05:35.116 --> 0:05:37.476 do this together, none of them was looking over the 0:05:37.556 --> 0:05:39.756 other's shoulder in such a way that they could actually 0:05:39.796 --> 0:05:42.356 judge whether they were really doing it. But as it happens, 0:05:42.516 --> 0:05:45.276 they really did do it. And once they started doing that, 0:05:45.516 --> 0:05:50.236 the price of game Stop stock started going up, which 0:05:50.236 --> 0:05:51.476 it would have gone up in any case if a 0:05:51.516 --> 0:05:53.316 lot of people were trying to buy it, and then 0:05:53.356 --> 0:05:57.636 that in turn led the short sellers to have to 0:05:57.636 --> 0:05:59.716 buy more of the stock, which also drove the price up, 0:05:59.956 --> 0:06:01.916 and by the end of the process the stock was 0:06:01.956 --> 0:06:06.116 at a remarkably huge multiple of its prior value, right right. 0:06:06.116 --> 0:06:08.156 And it's sort of compounded by the fact that a 0:06:08.156 --> 0:06:10.956 lot of the folks using robin Hood and all Reddit 0:06:12.516 --> 0:06:15.876 are also buying options. So an option gives you the right, 0:06:15.956 --> 0:06:19.236 but not the obligation, to purchase or sell a hundred 0:06:19.276 --> 0:06:21.716 shares of a stock at some point in the future 0:06:21.916 --> 0:06:25.276 for a set price. But the person that you typically 0:06:25.316 --> 0:06:29.436 buy an option from is a market maker who does 0:06:29.476 --> 0:06:34.076 what's called hedges their position by buying the stock. Right, 0:06:34.396 --> 0:06:38.356 if I'm selling you, Noah, an option that lets you 0:06:38.476 --> 0:06:40.556 buy something from me in the future, I need to 0:06:40.596 --> 0:06:42.636 have that hundred shares of stocks to give to you, 0:06:42.996 --> 0:06:44.996 and so typically, if I don't already have it, I'm 0:06:45.036 --> 0:06:46.396 going to go out in the market and buy it. 0:06:46.476 --> 0:06:48.916 So it was even further compounded by the fact that 0:06:48.916 --> 0:06:51.636 there was all of this options activity, which the people 0:06:51.636 --> 0:06:54.276 who sell the options have to hedge by again buying 0:06:54.316 --> 0:06:56.236 the stock. So it was just sort of this confluence 0:06:56.276 --> 0:06:58.956 of things. And then the only other wrinkle that I 0:06:58.996 --> 0:07:01.476 will add to it. And this is just my suspicion, right, 0:07:01.516 --> 0:07:04.116 I don't think we know for sure, but I don't 0:07:04.116 --> 0:07:06.036 think this was just right. I don't think this was 0:07:06.076 --> 0:07:08.996 just retail traders. They were very public about their plans, 0:07:09.396 --> 0:07:12.036 and I suspect that you had a lot of institutional players, 0:07:12.036 --> 0:07:15.116 maybe hedge funds that were also pushing the stock up 0:07:15.116 --> 0:07:17.516 and making their own purchases. We don't know for sure, right, 0:07:17.516 --> 0:07:20.196 but that's my suspicion, And just to clarify less, your 0:07:20.236 --> 0:07:22.956 theory would be that those people were basically or those actors, 0:07:22.996 --> 0:07:25.596 institutional actors were just piggybacking, right. They saw it happening, 0:07:25.596 --> 0:07:27.356 they thought there was some probability that it would work, 0:07:27.516 --> 0:07:29.036 and they said, oh, well, the stock's gonna go up. 0:07:29.076 --> 0:07:31.196 Let's also buy some of the stock earlier on. That 0:07:31.236 --> 0:07:32.836 would have driven the price to stock up as well. 0:07:32.836 --> 0:07:35.276 It's not that those institutional actors would have thought that 0:07:35.276 --> 0:07:38.036 there was quote unquote real value at the higher price point. 0:07:38.316 --> 0:07:40.676 It's just that they saw the squeeze happening and they 0:07:40.676 --> 0:07:43.036 thought they'd want to get in on the fun. Right. 0:07:43.116 --> 0:07:45.796 That's my speculation, right, don't I don't think we know. 0:07:45.876 --> 0:07:47.756 And the other sort of added wrinkle to that is 0:07:47.756 --> 0:07:50.116 there are plenty of players who don't really wait around 0:07:50.116 --> 0:07:52.516 for that, who trade in and out of things very quickly, 0:07:52.516 --> 0:07:55.276 over and over again, over fast time periods that may 0:07:55.356 --> 0:07:57.316 also have been trying to profit off of it as 0:07:57.316 --> 0:07:59.516 it went up because there's some volatility, right, It didn't 0:07:59.556 --> 0:08:01.516 just shoot straight up like sometimes it goes up, it 0:08:01.556 --> 0:08:04.156 goes down at Gozepico scone. So I think it was 0:08:04.196 --> 0:08:06.436 a combination of things. But the short version is I 0:08:06.636 --> 0:08:09.236 suspect while Street had some hand in this as well, 0:08:08.956 --> 0:08:11.876 it wasn't just retail. Yeah, and if it were institutional investors, 0:08:11.916 --> 0:08:14.116 that doesn't just mean human beings of training desks. It 0:08:14.156 --> 0:08:17.236 also means algorithmic training programs that don't care what the 0:08:17.276 --> 0:08:19.276 thing is, but if they see a pattern of rise, 0:08:19.756 --> 0:08:21.916 they might make the prediction and to buy, So that 0:08:21.956 --> 0:08:25.156 could have contributed to it potentially as well. That leaves 0:08:25.196 --> 0:08:27.676 just one last piece of the setup before we start 0:08:27.756 --> 0:08:29.676 turning to the implications. And I just want to hit 0:08:29.676 --> 0:08:32.196 on that because everything you've said so far just sounds 0:08:32.236 --> 0:08:35.876 like it's a potentially happy story. Right, somebody is short 0:08:35.876 --> 0:08:38.196 the stock, the prices go up. Not good for the 0:08:38.196 --> 0:08:40.156 prisoner shorts to stock, but good for everybody else. The 0:08:40.156 --> 0:08:42.996 stock goes up and up and up. But there's a downside, 0:08:43.036 --> 0:08:45.476 which is that what goes up in this context almost 0:08:45.516 --> 0:08:49.236 certainly must come down. So explain why the stock has 0:08:49.276 --> 0:08:52.436 come down somewhat since then, and what ultimately, at least 0:08:52.436 --> 0:08:55.996 in the view of most financial professionals, yourself included gives 0:08:56.076 --> 0:08:58.356 us reason to believe the stock will end up way, way, 0:08:58.436 --> 0:09:00.556 way lower than it was at its peak, and in fact, 0:09:00.916 --> 0:09:02.756 maybe not so far from where it was when this 0:09:02.796 --> 0:09:07.796 all started. So my concern, and I think other people's 0:09:07.836 --> 0:09:12.036 concerns here, is that this looks like a bubble, and traditionally, 0:09:12.276 --> 0:09:15.716 when you're in a bubble, the bubble bursts, and one 0:09:15.756 --> 0:09:18.836 of the sort of traditional signs that you are in 0:09:18.916 --> 0:09:21.436 a bubble. I don't know if it's scientific, but like 0:09:21.476 --> 0:09:23.636 at least in the dot com bubble and the pre 0:09:23.716 --> 0:09:26.316 two thousand and eight bubble, when you start to hear 0:09:26.396 --> 0:09:29.276 from people who aren't typically paying attention to the markets 0:09:29.316 --> 0:09:31.116 asking you if they should buy into the markets all 0:09:31.116 --> 0:09:33.196 of a sudden, that's usually the sign that the bubbles 0:09:33.236 --> 0:09:35.476 about to burst. And I don't know about you Know it, 0:09:35.556 --> 0:09:37.636 but I've had a lot of people asking me should 0:09:37.676 --> 0:09:40.836 I buy you know, Nokia or BlackBerry? Right now? Should 0:09:40.836 --> 0:09:43.636 I buy dog coin? There's a lot of interest from 0:09:43.636 --> 0:09:45.996 my friends who are typically not people paying attention to 0:09:46.036 --> 0:09:47.956 the financial markets, which says to me that we may 0:09:47.956 --> 0:09:50.876 be approaching what's called the top right and when the 0:09:50.916 --> 0:09:54.236 bubble burst, the bottom falls out. The prices collapse. And 0:09:54.356 --> 0:09:56.436 the other reason that they that very well might happen 0:09:56.476 --> 0:09:59.676 is GameStop isn't really I don't think that it's underlying 0:09:59.796 --> 0:10:03.756 value justifies its current prices. It's certainly been widely reported 0:10:03.756 --> 0:10:06.996 that there is skepticism about the current valuation of GameStop 0:10:07.036 --> 0:10:09.716 and some of these other names like AMC, right, which 0:10:09.796 --> 0:10:12.356 let's think about what that is. It's movie theaters. We're 0:10:12.396 --> 0:10:14.836 still here in a pandemic. People aren't really going to 0:10:14.916 --> 0:10:17.196 movie theaters that much. Does it really make sense for 0:10:17.196 --> 0:10:19.676 the price of AMC to be surging, And so I 0:10:19.716 --> 0:10:22.716 think that there's a concern that with the media attention, 0:10:23.276 --> 0:10:25.756 it's going to draw in even more people to buy 0:10:25.796 --> 0:10:28.676 these stocks, and some of those people are unfortunately probably 0:10:28.716 --> 0:10:31.036 going to buy at the top and then it will collapse. 0:10:31.356 --> 0:10:34.836 But you know what, like it's hard to predict when 0:10:34.876 --> 0:10:37.396 that will happen, and I don't really have a prediction, 0:10:37.556 --> 0:10:39.196 and I don't I think anyone who tells you when 0:10:39.196 --> 0:10:41.796 it will happen doesn't really know for sure. The high 0:10:41.876 --> 0:10:45.876 public interest is always reminiscent of the probably apocryphal story 0:10:45.916 --> 0:10:50.276 about JP Morgan, whose shoeshine boy supposedly asked him a 0:10:50.276 --> 0:10:52.556 few days before the big stock market crash in October 0:10:52.596 --> 0:10:55.396 of nineteen twenty nine, could he the shoeshine Boy and 0:10:55.436 --> 0:10:57.836 some of his friends buy forty dollars of stock through 0:10:57.916 --> 0:11:00.756 JP Morgan's brokerage firm, And according to the story, JP 0:11:00.876 --> 0:11:04.316 Morgan went back to his office and told everybody, we're 0:11:04.316 --> 0:11:07.396 getting out of our positions. We're going into cash because 0:11:07.476 --> 0:11:10.236 this is not a good situation. And then Morgan looked 0:11:10.236 --> 0:11:12.156 like a genius. Now again, there's there's a good amount 0:11:12.156 --> 0:11:14.036 of apocryphy of that story, but I agree with you 0:11:14.076 --> 0:11:16.116 as a kind of it's a good indicator. And in 0:11:16.156 --> 0:11:19.036 my household, the indicator is my fifteen year old son, 0:11:19.356 --> 0:11:22.156 whose interest both in crypto and in the stock market 0:11:22.276 --> 0:11:26.276 was actively piqued by the recent rise in crypto prices, 0:11:26.276 --> 0:11:29.756 by the game stop short squeeze, and I think by 0:11:29.796 --> 0:11:34.396 the attention among people in his online worlds to these issues. 0:11:34.436 --> 0:11:37.676 So that's a nice proxy as well for when everybody's 0:11:37.716 --> 0:11:41.916 excited and involved, even the teenagers, there's reason in historical terms, 0:11:41.916 --> 0:11:43.516 you think that maybe you're in some kind of a bubble. 0:11:43.916 --> 0:11:45.996 I should add, by the way, that when I pointed 0:11:46.036 --> 0:11:48.276 this out to my son, he made the sophisticated point 0:11:48.756 --> 0:11:51.756 that you were ascribing to the institutional investors, which is, 0:11:52.036 --> 0:11:53.756 of course that's true. But if you know how to 0:11:53.756 --> 0:11:55.076 get in on it on the way up and don't 0:11:55.116 --> 0:11:57.236 stay in it for too long, there's still profits to 0:11:57.276 --> 0:11:59.356 be made. And you know, unfortunately for me, he is 0:11:59.436 --> 0:12:02.996 analytically speaking correct about that problem. The problem is how 0:12:03.036 --> 0:12:06.436 do you know when to get out? So yeah, exactly, exactly. Okay, 0:12:06.476 --> 0:12:08.876 Now let's turn to analysis. And there's been a huge 0:12:08.876 --> 0:12:10.996 amount of analysis just in a few days that this 0:12:11.036 --> 0:12:14.036 has been going on about what is the deeper meaning 0:12:14.556 --> 0:12:16.276 of these events? And I want to talk about a 0:12:16.276 --> 0:12:18.076 bunch of different angles, but let's start with your take, 0:12:18.116 --> 0:12:22.116 which I found particularly valuable, and that was to sum 0:12:22.156 --> 0:12:25.196 it up, I'm using the quote from your piece the 0:12:25.276 --> 0:12:29.756 GameStop madness. Isn't David against Goliath, namely the little guys 0:12:29.796 --> 0:12:33.356 on the subreddit against the hedge funds. It's Goliath against 0:12:33.436 --> 0:12:36.676 goliath with David as a fig leaf. So explain what 0:12:36.716 --> 0:12:41.036 you mean, please, Alexis. So there's a narrative that's taken 0:12:41.076 --> 0:12:44.116 hold that this is a triumph and a disruption of 0:12:44.116 --> 0:12:47.636 our financial system, and that the folks on reddit are 0:12:48.076 --> 0:12:50.276 you know, figuring out how to play Wall Streets game 0:12:50.396 --> 0:12:52.996 and then play it against them and winning. And while 0:12:53.036 --> 0:12:56.316 I don't dispute that they are absolutely using techniques that 0:12:56.476 --> 0:12:59.356 Wall Street firms use, right like the short squeeze is 0:12:59.396 --> 0:13:02.236 not an invention of Reddit. It is something that I 0:13:02.276 --> 0:13:04.516 think hedge funds try to do to other hedge funds 0:13:04.596 --> 0:13:07.796 all the time. I don't think that this is going 0:13:07.876 --> 0:13:11.756 to topple the financial system, and in fact, I believe 0:13:12.156 --> 0:13:14.076 and I don't have a crystal ball, but I would 0:13:14.076 --> 0:13:16.956 predict that when we see the first quarter earnings of 0:13:16.996 --> 0:13:20.356 the major Wall Street banks that are typically the best 0:13:20.396 --> 0:13:22.756 in terms of trading operations, that they're going to have 0:13:22.836 --> 0:13:26.956 extremely profitable first quarters. And the reason that I'm guessing 0:13:26.996 --> 0:13:29.716 that is because I used to work on the technology 0:13:29.756 --> 0:13:34.236 team with the equity derivatives trading desks at Mary Lynch 0:13:34.316 --> 0:13:37.756 and then later at Deutsche Bank, and their most profitable 0:13:37.876 --> 0:13:40.116 days by far, like the day that they made the 0:13:40.236 --> 0:13:42.996 most money of the whole year, was the days when 0:13:43.036 --> 0:13:45.796 prices were going crazy and there was tons of what's 0:13:45.796 --> 0:13:48.116 called volatility, which is just kind of like you know, 0:13:48.236 --> 0:13:51.596 price moving going up and down, and unpredictable action in 0:13:51.636 --> 0:13:54.476 the markets. That was their favorite kind of day, right, 0:13:54.516 --> 0:13:57.836 And I don't think that Goldman Sachs and Morgan Stanley's 0:13:58.036 --> 0:14:00.836 they're called flow trading desks, but they basically sort of 0:14:00.836 --> 0:14:04.396 sit there as intermediaries between buyers and sellers. It's maybe 0:14:04.476 --> 0:14:06.836 hedge funds, it could be insurance companies. It's all these 0:14:06.836 --> 0:14:10.156 big institutional players that want to trade. Sometimes they don't 0:14:10.156 --> 0:14:12.196 even want to trade on in an exchange. They want 0:14:12.196 --> 0:14:14.796 to trade what's called over the counter, which is this 0:14:14.836 --> 0:14:19.316 sort of market that is between Wall Street itself, totally 0:14:19.396 --> 0:14:22.876 unavailable to retail traders, totally unavailable to these people on 0:14:22.916 --> 0:14:25.356 writing you cannot trade over the counter through robin Hood. 0:14:25.756 --> 0:14:29.476 You know, they have sophisticated risk management tools. They have 0:14:29.556 --> 0:14:33.516 sophisticated trading software. They manage their risk. I worked with 0:14:33.556 --> 0:14:36.396 the options trading desk, and so they had they had 0:14:36.436 --> 0:14:39.036 a lot of really fancy risk management software, and they 0:14:39.076 --> 0:14:41.876 knew how to hedge their orders and so they didn't 0:14:41.876 --> 0:14:43.676 really care if the price went up or down because 0:14:43.716 --> 0:14:46.116 they were hedged. And hedge just means like you have 0:14:46.196 --> 0:14:48.676 some sort of risk management strategy in place so that 0:14:48.716 --> 0:14:51.116 whatever the price does, you're not going to lose too 0:14:51.196 --> 0:14:53.356 much money. You also won't make too much money, but 0:14:53.396 --> 0:14:55.796 you're going to be okay, and they make money on volume. 0:14:56.036 --> 0:14:59.156 So I suspect that the big titans on Wall Street 0:14:59.196 --> 0:15:02.276 are doing quite fine, and if anything, this whole mania 0:15:02.436 --> 0:15:05.316 is probably making them a ton of money. That's sort 0:15:05.356 --> 0:15:09.356 of my one piece. The second piece is, so let's 0:15:09.676 --> 0:15:11.796 move off the more traditional Wall Street and look at 0:15:11.836 --> 0:15:15.916 hedge funds. So Wall Street that's the the subreddit that 0:15:16.036 --> 0:15:18.516 has been in the news a lot cheered the collapse 0:15:18.556 --> 0:15:21.116 of Melvin Capital, which was a hedge fund that was 0:15:21.156 --> 0:15:24.316 betting against Game Stop and fell victim to the short squeeze. 0:15:24.836 --> 0:15:27.316 They were rescued by two hedge funds. One of them 0:15:27.356 --> 0:15:30.716 is Citadel LLC, which is run by a billionaire named 0:15:30.756 --> 0:15:33.916 Ken Griffin out of Chicago, and the other is Point 0:15:33.996 --> 0:15:37.236 seventy two, which is the new fund of Steve Cohen, 0:15:37.756 --> 0:15:40.316 who he's also the New York Mets owner, so people 0:15:40.356 --> 0:15:43.396 may know him from that. But his old fund sac 0:15:44.116 --> 0:15:46.796 plaged guilty in twenty thirteen to insider trading and had 0:15:46.836 --> 0:15:49.116 to shut down. So why am I bringing this up. 0:15:49.156 --> 0:15:51.796 I'm bringing this up because one hedge fund blows up, 0:15:52.236 --> 0:15:54.996 other hedge funds rescue it. Now they get to have 0:15:55.076 --> 0:15:58.076 a revenue sharing agreement with Melvin Capital in the future 0:15:58.196 --> 0:16:00.756 that's probably going to be profitable for them, right. So 0:16:00.836 --> 0:16:04.076 I just don't really think that the Goliaths are suffering. 0:16:04.796 --> 0:16:07.076 And I do think that some of the David's are 0:16:07.076 --> 0:16:09.316 going to get rich and have gotten rich, but I 0:16:09.316 --> 0:16:10.796 just don't think that that means that we're going to 0:16:10.876 --> 0:16:13.756 have a fundamental shift in the way that the system works. 0:16:13.796 --> 0:16:15.796 If anything, I think it might make a lot of 0:16:15.796 --> 0:16:18.796 the goliath a lot more rich. Let me press on 0:16:19.196 --> 0:16:21.436 your critique of the narrative, and let me be clear, 0:16:21.516 --> 0:16:24.876 I couldn't agree with you more that the big institutional 0:16:24.876 --> 0:16:27.916 players will be fine, and that the hedge fund industry 0:16:28.116 --> 0:16:30.716 will be fine. And what's more, even that you know 0:16:30.836 --> 0:16:34.756 Melvin Capital and Gabriel Plotkin, who is the extremely well 0:16:34.796 --> 0:16:37.516 thought of person who runs the fun will be he 0:16:37.556 --> 0:16:39.676 will be just fine. He probably is just fine. But 0:16:39.716 --> 0:16:42.756 I want to ask about what's really going on behind 0:16:42.876 --> 0:16:46.116 the David versus Goliath narrative. I mean, just focusing on 0:16:46.156 --> 0:16:50.316 this one episode in which a small number of people 0:16:50.396 --> 0:16:53.436 who were not for the most part, it seems professional 0:16:53.436 --> 0:16:58.516 investors were able to achieve something on their own as 0:16:58.556 --> 0:17:00.116 it were, and that seemed to me to have a 0:17:00.196 --> 0:17:03.556 kind of symbolic effect, you know, the perception that Wall 0:17:03.556 --> 0:17:06.876 Street wealth is something that's only available to the very 0:17:06.916 --> 0:17:11.436 well healed seemed to east in a moment be broken 0:17:11.516 --> 0:17:12.956 and there in that sense, it seemed to be a 0:17:12.996 --> 0:17:17.916 kind of populism associated with the moment, not unlike the 0:17:17.996 --> 0:17:22.196 populism of the Donald Trump movement. And that narrative seems 0:17:22.236 --> 0:17:24.396 to have some legs to it. Even if everything you 0:17:24.516 --> 0:17:27.436 say is true, as I believe that it is, let 0:17:27.476 --> 0:17:29.276 me ask you about the kind of populous side of 0:17:29.276 --> 0:17:33.956 the narrative. I mean, look, yes, is this a triumph 0:17:33.996 --> 0:17:38.836 of financial literacy and education and people learning perhaps more 0:17:38.876 --> 0:17:43.836 about options than they may have previously planned. Yes? And 0:17:44.036 --> 0:17:47.356 is this an interesting way to try and move markets 0:17:47.396 --> 0:17:48.916 and is it going to be a way that other 0:17:48.916 --> 0:17:50.916 people will try to move markets in the future. Yes? 0:17:51.196 --> 0:17:53.956 And are there people that are making astonishing amounts of 0:17:53.996 --> 0:17:56.596 money right now? Yes? Yes, all of that is yes. 0:17:56.956 --> 0:17:58.996 But look, let's think about the moment that we're in. 0:17:59.036 --> 0:18:01.916 We're in a moment of extreme inequality that's getting worse. 0:18:02.436 --> 0:18:06.556 We have millions of people unemployed, We have over four 0:18:06.636 --> 0:18:11.236 hundred thousand dead from the coronavirus. And I think speculation 0:18:11.436 --> 0:18:15.316 is an incredibly alluring thing right now in the absence 0:18:15.356 --> 0:18:18.196 of larger government support for our people, which I would 0:18:18.236 --> 0:18:21.196 point out is perhaps an aberration here in the United 0:18:21.196 --> 0:18:22.876 States when you compare us to some of the other 0:18:23.156 --> 0:18:26.716 countries in the world. And so, yes, it perhaps is 0:18:26.716 --> 0:18:28.156 a feel good story, and it's going to be a 0:18:28.196 --> 0:18:31.316 really great tangible material benefit to the people that happen 0:18:31.356 --> 0:18:33.796 to get into game stop in time. But I am 0:18:33.796 --> 0:18:37.036 more concerned with, you know, what do we actually do 0:18:37.116 --> 0:18:39.436 to make sure that everybody is okay? And I don't 0:18:39.516 --> 0:18:42.676 think that using Wall Street's own tools against Wall Street 0:18:43.036 --> 0:18:45.756 is the right way to lift all boats here, because 0:18:45.756 --> 0:18:47.876 Wall Street is, let's remember, at the end of the day, 0:18:47.916 --> 0:18:50.516 a zero sum game, and so when you have winners, 0:18:50.556 --> 0:18:52.196 you are also going to have losers. And who are 0:18:52.196 --> 0:18:55.356 those losers? And what happened when there was the short squeeze? 0:18:55.396 --> 0:18:57.556 Right when there was the short squeeze, the hedge ones 0:18:57.596 --> 0:18:59.956 had to sell some of their assets in order to 0:18:59.996 --> 0:19:02.436 pay the margin call or to close out their position, 0:19:03.036 --> 0:19:06.156 and the rest of the stock market went down. And 0:19:06.196 --> 0:19:08.396 there are people who have pensions, and there are people 0:19:08.396 --> 0:19:11.436 who have for k is. And look, let's I always 0:19:11.436 --> 0:19:13.956 like to remind people plenty of people have absolutely no 0:19:14.036 --> 0:19:16.996 exposure to the stock market whatsoever. Forty seven percent of 0:19:17.116 --> 0:19:21.996 America has absolutely no dog in the Wall Street, you know, 0:19:22.076 --> 0:19:23.716 in the stock market. They don't have a pension fund, 0:19:23.716 --> 0:19:25.116 they don't have a four O one K, they don't 0:19:25.116 --> 0:19:28.996 have an IRA, they don't have stocks, they have nothing. Right, So, yes, 0:19:29.196 --> 0:19:33.236 this is a really interesting collective moment, but it's not 0:19:33.316 --> 0:19:36.676 helping people across the board. And That's what I'm interested in. 0:19:36.956 --> 0:19:39.716 And I think that's what I am concerned about, is 0:19:39.756 --> 0:19:43.036 people claiming victory that is bigger than perhaps the victory 0:19:43.076 --> 0:19:45.556 actually is. And I would also point out that when 0:19:45.596 --> 0:19:48.676 Wall Street itself talks about what is the solution to poverty, 0:19:48.956 --> 0:19:51.996 sometimes they say it's financial literacy. We just need to 0:19:52.116 --> 0:19:55.996 educate people about how they can invest in Wall Street? Right, 0:19:56.156 --> 0:19:59.036 how can you open an IRA? How can you be 0:19:59.116 --> 0:20:01.316 a smart investor? And I don't think that that is 0:20:01.316 --> 0:20:03.356 the right way to make sure that everybody has enough, 0:20:03.756 --> 0:20:05.796 you know, at the end of their lifetime or in 0:20:05.876 --> 0:20:09.116 order to retire, right, I think the answer is public polity, 0:20:09.156 --> 0:20:11.596 see like Social Security and other programs like that. So 0:20:11.876 --> 0:20:16.196 I'm just a little concerned that the triumph here mirrors 0:20:16.196 --> 0:20:18.716 a little too closely what Wall Street itself holds out 0:20:18.756 --> 0:20:23.076 as the solution for things like poverty. We'll be right back. 0:20:32.636 --> 0:20:35.316 I entirely agree with you that mere education isn't enough. 0:20:35.756 --> 0:20:37.956 I mean the fact that the people you're describing who 0:20:37.956 --> 0:20:40.556 have nothing in the stock market the most fundamental level, 0:20:40.596 --> 0:20:44.356