The GameStop affair is like tulip mania on steroids

It’s eerily similar to the 17th-century Dutch bubble, but with the self-organising potential of the internet added to the mix writes Dan Davies in The Guardian

  

Towards the end of 1636, there was an outbreak of bubonic plague in the Netherlands. The concept of a lockdown was not really established at the time, but merchant trade slowed to a trickle. Idle young men in the town of Haarlem gathered in taverns, and looked for amusement in one of the few commodities still trading – contracts for the delivery of flower bulbs the following spring. What ensued is often regarded as the first financial bubble in recorded history – the “tulip mania”.

Nearly 400 years later, something similar has happened in the US stock market. This week, the share price of a company called GameStop – an unexceptional retailer that appears to have been surprised and confused by the whole episode – became the battleground between some of the biggest names in finance and a few hundred bored (mostly) bros exchanging messages on the WallStreetBets forum, part of the sprawling discussion site Reddit. 

The rubble is still bouncing in this particular episode, but the broad shape of what’s happened is not unfamiliar. Reasoning that a business model based on selling video game DVDs through shopping malls might not have very bright prospects, several of New York’s finest hedge funds bet against GameStop’s share price. The Reddit crowd appears to have decided that this was unfair and that they should fight back on behalf of gamers. They took the opposite side of the trade and pushed the price up, using derivatives and brokerage credit in surprisingly sophisticated ways to maximise their firepower.

To everyone’s surprise, the crowd won; the hedge funds’ risk management processes kicked in, and they were forced to buy back their negative positions, pushing the price even higher. But the stock exchanges have always frowned on this sort of concerted action, and on the use of leverage to manipulate the market. The sheer volume of orders had also grown well beyond the capacity of the small, fee-free brokerages favoured by the WallStreetBets crowd. Credit lines were pulled, accounts were frozen and the retail crowd were forced to sell; yesterday the price gave back a large proportion of its gains.

To people who know a lot about stock exchange regulation and securities settlement, this outcome was quite inevitable – it’s part of the reason why things like this don’t happen every day. To a lot of American Redditors, though, it was a surprising introduction to the complexity of financial markets, taking place in circumstances almost perfectly designed to convince them that the system is rigged for the benefit of big money.

Corners, bear raids and squeezes, in the industry jargon, have been around for as long as stock markets – in fact, as British hedge fund legend Paul Marshall points out in his book Ten and a Half Lessons From Experience something very similar happened last year at the start of the coronavirus lockdown, centred on a suddenly unemployed sports bookmaker called Dave Portnoy. But the GameStop affair exhibits some surprising new features.

Most importantly, it was a largely self-organising phenomenon. For most of stock market history, orchestrating a pool of people to manipulate markets has been something only the most skilful could achieve. Some of the finest buildings in New York were erected on the proceeds of this rare talent, before it was made illegal. The idea that such a pool could coalesce so quickly and without any obvious sign of a single controlling mind is brand new and ought to worry us a bit. 

And although some of the claims made by contributors to WallStreetBets that they represent the masses aren’t very convincing – although small by hedge fund standards, many of them appear to have five-figure sums to invest – it’s unfamiliar to say the least to see a pool motivated by rage or other emotions as opposed to the straightforward desire to make money. Just as air traffic regulation is based on the assumption that the planes are trying not to crash into one another, financial regulation is based on the assumption that people are trying to make money for themselves, not to destroy it for other people.

When I think about market regulation, I’m always reminded of a saying of Édouard Herriot, the former mayor of Lyon. He said that local government was like an andouillette sausage; it had to stink a little bit of shit, but not too much. Financial markets aren’t video games, they aren’t democratic and small investors aren’t the backbone of capitalism. They’re nasty places with extremely complicated rules, which only work to the extent that the people involved in them trust one another. Speculation is genuinely necessary on a stock market – without it, you could be waiting days for someone to take up your offer when you wanted to buy or sell shares. But it’s a necessary evil, and it needs to be limited. It’s a shame that the Redditors found this out the hard way.

Waking up to the realities of racism in the UK

Gary Younge in The FT 

Every now and then much of Britain discovers racism in much the same way that teenagers discover sex. The general awareness that it is out there collides with the urgent desire to find out where. People talk about it endlessly and carelessly, unsure of what to say or think or whether they are doing it right. They have lots of questions but, even if they did know whom to ask, they would be too crippled by embarrassment to reveal their ignorance. Everyone has an opinion but only a few have any experience. The interest never goes away, though its intensity wanes as they explore other things. 

The trouble is not everyone gets to move on. Black people, and other minorities, do not have the luxury of a passing interest in racism. It is their lived reality. A YouGov poll of black, Asian and minority ethnic Britons surveyed over the past two weeks reveals the extent to which prejudice and discrimination is embedded in society. 

It found that two-thirds of black Britons have had a racial slur directly used against them or had people make assumptions about their behaviour based on their race. Three-quarters have been asked where they’re “really from”. (When I once told a man I was born in Hitchin, he asked, “Well where were you from before then?”). 

More than half say their career development has been affected because of their race, or that they have had people make assumptions about their skills based on their race; 70 per cent believe the Metropolitan police is institutionally racist; and the proportion of black people who have been racially abused in the workplace (half) is almost the same proportion as those who have been abused in the street. 

Little wonder then that two-thirds of black people polled think there is still a “great deal” of racism nowadays. This is not a substantial difference from the three-quarters who say they think there was a great deal around 30 years ago.  

As the public gaze shifts from the Black Lives Matter protests, these experiences will endure. They may be tempered by greater sensitivity; but heightened consciousness alone will not fix what ails us. The roots are too deep, the institutions too inflexible, the opportunism too prevalent and the cynicism too ingrained to trust the changes we need to goodwill and greater understanding alone. 

I applaud the proliferation of reading lists around issues of race and the spike in sales for the work of black authors — people could and should be better informed. But we did not read our way into this and we won’t read our way out. The racism we are dealing with isn’t a question of a few bad apples but a contaminated barrel. It’s a systemic problem and will require a systemic solution. 

This is a crucial moment. The nature of the protests thus far has been primarily symbolic — targeting statues and embassies, taking a knee and raising a fist. That ought not to be dismissed. Symbols should not be disregarded as insubstantial. They denote social value and signify intent. But they should not be mistaken for substance either, lest this moment descend into a noxious cocktail of posturing and piety.  

Concrete demands do exist. All Black Lives UK, for example, has called for the scrapping of section 60, which gives the police the right to stop and search, and the abolition of the Met police’s gangs’ matrix, an intelligence tool that targets suspected gang members. It also wants measures to address health disparities, particularly relating to black women and mental health, and the implementation of reviews that already exist, including the Lammy Review (on racial disparities in the criminal justice system), the Timpson Review (on school exclusions), and the McGregor-Smith review (race in the workplace). 

But the only demand that has cut through has been the push for the education system to more accurately reflect our colonial past and diversity. The poll finds this has the support of 81 per cent of black people — the same percentage that approved of removing a statue of the slave trader Edward Colston in Bristol. (Far from wishing to “photo shop” our cultural landscape, as the prime minister claims, they want their kids to learn more about it. They just don’t want the villains put on a pedestal.) 

This is great, as far as it goes but, given the size of the constituency that has been galvanised in the past few weeks and the awareness that’s been raised, it doesn’t go nearly far enough.  

 The solemn declarations of intent and solidarity that flooded from corporations and governments will leave us drowned in a sea of racial-sensitivity training unless they are followed up by the kind of thoroughgoing change and investment that seeks to genuinely tackle inequalities in everything from housing and education to recruitment, retention and promotion. That costs money and takes guts; it means challenging power and redistributing resources; it requires reckoning with the past and taking on vested interests. 

“When people call for diversity and link it to justice and equality, that's fine,” the black radical Angela Davis once told me. “But there’s a model of diversity as the difference that makes no difference, the change that brings about no change.” 

The governing body of Oxford university’s Oriel College did not resolve to take down its statue of Cecil Rhodes because they suddenly realised that he was a colonial bigot. They did so because it had become more of a liability to keep it up than to take it down. Similarly, it was not new information about police killings that prompted the National Football League in America to change its position on taking a knee. They did that because the pressure was too great to resist. We have to keep that pressure up, albeit in different ways. 

 “If there is no struggle there is no progress,” argued the American abolitionist, Frederick Douglass. “Power concedes nothing without a demand. It never did and it never will.”  

They might be living in caves, but it's not the homeless who are hiding

Our urban skins get ever thicker to the soaring numbers of people living on the streets. My solution? Keep building up that sense of comfortable numbness

Grace Dent in The Independent

Homeless men and women close to Stockport, Greater Manchester have been found living in a cave system, huddled in sandstone hideyholes amongst rubbish and food scraps, close to whatever they use as a toilet. Imagine an otherwordly scene from Lord of The Rings, but instead of Hobbits and  quests to overcome the dark lord Sauron, actual human beings like you and me and the simple quest to stay alive.

Wellspring, a local homeless charity, say that compared to rough sleeping in the town, the cave-dwellers at least find their new home safe and dry. Britain’s homeless problem burgeons, becoming more complex year on year. Plain facts: the financial crisis of recent years has driven up unemployment to 7.8 per cent. Meanwhile, the cost of living has risen along with house prices, and numbers of homeless people have rocketed. In London homelessness rose by 16 per cent in 2012-13, meanwhile parts of Greater Manchester saw rises of as much as 40 per cent.

When I saw pictures of the cave people in the greater Manchester area, my immediate gut-reaction was to write about them – because no one in modern Britain should live in a cave –  but within minutes I questioned whether it was really a story at all. Deep down, who would actually care? Perhaps it’s not the ever-plummeting level of squalor in which we permit human beings in Britain to live that’s of most interest here. What’s interesting is the ever-effective numbness of “the haves” – myself included when faced with “the have-nothings”.

In truth, I often spend a few moments – for the sake of my sanity – trying not to care remotely about the homeless. That girl who sits on the pavement near my house, staring at the floor, day after day, holding a paper cup for change, she’s not homeless really is she? No, most probably she’s part of a begging gang. I can ignore her. I’m very busy. And the skeletal man on crutches who sits in the Tube doorway, sometimes weeping, well I’ve seen him get on the number 158 bus so he must be going somewhere. That’s it, not homeless. Guilt absolved. And that crowd of men and women drinking themselves to death publicly, like a ghoulish piece of performance art, erecting their cardboard bedroom in the doorway of my local library, well, what can actually be done for them? Nothing, I think. In fact part of me is irate at them for messing up the aesthetic splendour of a newly stonewashed building. And will no one think of my house price?

At one point such fetid thoughts would never have crossed my mind, but the downturn has been long, the homeless keep multiplying, and our urban skins become ever thicker. So like most bleeding-heart liberals I am pained by the cave people of Stockport, but am yet to go into full St Francis of Assisi mode, and fling open my own front door.

Instead, I sit patiently waiting for “something to be done”, such as the industrious hammering up of the “affordable homes” that several Governments in my lifetime have promised. Obviously, in truth, builders and councils have no true interest in building dirt-cheap accommodation. That’s why flyers for luxury two-bedroom executive apartments, for £250,000, flood my letterbox daily. Neither do I envisage a full-throated “Golly, we were wrong” return to public housing by the Conservatives – or Labour having any muscle to do anything, especially as these days socialists love owning homes too.

Broadly speaking, I would say the Government has no real concern or plans for the rising numbers of rough sleepers, as the impoverished don’t fit in with ideals of enterprise or self-interest. Obviously, several ears may have pricked up when an advertising agency experimented with making homeless people  into 4G hotspots, in Texas, last March, but attention dwindled soon after. Furthermore I hold no hope of the homeless wangling their way onto half-buy schemes, of which the paperwork is more flummoxing and the cost more expensive than a regular mortgage. Do I have any solutions? One-bedroom stackable pods, built by charities (aka The Nimby armageddon)? Wide-scale homelessness “boot camps” where thousands of jobless graduates, trained in social care, help people in a life quandary? OK, that’s a bit kumbayah isn’t it? And, now I’ve written it down, perhaps a tiny bit Third Reich too. So, indeed, my current approach to homelessness is to build on my ongoing, ever-comfortable numbness, possibly leading one day to my simply stepping over a corpse on the way to ASDA mumbling “Oh, what a shame! Something must really be done.” If anything, Stockport’s cave people might be making a point. They’re isolated from help, but at least they’re avoiding our hand-wringing and ultimate hypocrisy.