Casino Capitalism: Is it time to Stop the Games and play for real?
The myriad shortcomings of global capitalism is a recurring theme these monthly epistles. I often say that I’m not anti-business — just anti-business-as-usual. However, the eyebrows of even the most vociferous supporters of the current economic system must have been raised this past week and with the GameStop investment fiasco.
For those of you who may have missed this (you’d have to have been in self isolation on the moon), then let me give you the briefest of summaries. A group of major hedge funds decided “to short” (or in layman’s terms, bet against) the stock of a fairly troubled old school US retailer of video games called GameStop. When an investor forum on the platform Reddit noticed how exposed these hedge fund managers were, they saw the opportunity to give the Wolves of Wall Street a very bloody nose. Through their collective and coordinated action, they were able to significantly move the share price of GameStop skywards and watch with glee as their Wall Street nemeses lost fortunes.
Doubtless, there were no shortage of crocodile tears as the rest of us watched from the side lines as the little guys appeared to get one over on the big guys. Beyond simply watching Wall Street get their comeuppance, there were a number of other takeaways from this experience:
Many commentators pointed to the need for an overhaul of the system that allows this so-called “casino capitalism”. It does seem absolutely ridiculous that the value of GameStop shares rose almost 20 fold, rising from less than $20 to almost $350 at one point. That’s without them selling any more video games, opening any more shops, cutting any more jobs or doing anything whatsoever to change their business fundamentals. This is not investing. This is pure speculation — another form of online gambling like digital poker. Personally, I don’t believe many of these sophisticated investment vehicles such as options or derivative trading serve any significant positive purpose to the real economy.
Others highlighted the risk that many of the small, inexperienced investors were facing if they got caught out badly by the volatility of these share prices. Whether we like it or not, these hedge funds have far deeper pockets than the average Joe and we need to make sure there are safeguards in place to protect innocent small investors losing their life savings in a day.
While there are certainly some serious lessons to be learned from last week’s experience, it was a very different aspect of the whole story that caught my imagination. Namely, the latent potential of mass, coordinated actioned by numerous small investors to influence markets and share prices significantly.
What if, rather than the objective being to teach Wall Street a lesson, instead it was to reward corporate behaviour around things we all care about, for example, their efforts to address climate change? What if rather than short selling stock, a green army of small retail investors decided to favour or “go long” on corporates deemed to be doing good things i.e. take out an option to buy the stock at a higher price in the future, thus putting upward pressure on its price? It could be coordinated through the Reddit investor forum or it might be something altogether new, a sort of “Bloomberg for good platform” that could provide real-time non-financial information on the corporate’s performance against, say, the 17. UN Sustainable Development Goals.
It’s still early days and the dust is far from settled from last week’s GameStop furore. But having written fairly often about the need to bring greater democracy into global corporations (see October’s Bullog for example), last week’s experience I believe, offers significant hope and some insight as to just what that might look like and the latent potential that mass, coordinated, “democratic” action can have on financial markets.
This article is an extract from the February edition of The Bullog*, my monthly blog. To read the full blog or to sign up to receive The Bullog directly each month visit………Make sense? Not bulldog, nor is it bulls**t although I’ll let you be the judge of that! It’s a brief synopsis on recent articles, events and opinions from my world and the things that have caught my attention over the past few weeks. www.gibbulloch.com/bullog
Originally published at https://www.linkedin.com.