Three weeks into lockdown I got into the market. At home one afternoon while the incipient pandemic took off, I got a phone call from a friend who told me that a friend of his had been making hundreds of dollars trading financial instruments online. With only slightly better timing, he would’ve been up thousands. Now my friend, too, was in the market, and he was also up. This was not to apply pressure, of course, he just didn’t want me to miss out. Plus my stimulus check was practically in the mail, and I’d been given no immediate indication that my job was in jeopardy. So I routed $1000 into a Fidelity free online trading account and set to daytrading myself. I would, I felt, have been foolish not to.
This, to be clear, was definitely not a pyramid scheme. It was the stock market—a venerable American institution, albeit one in the midst of a rough patch. The previous six weeks had featured eight of the ten worst days in the history of the Dow Jones Industrial Average, a historic financial pileup that I’d spectated from behind the rolled-up window of a car in a distant lane, headed the other direction. Like most millennials, I was the proud owner of basically nothing in terms of assets. I’d never even been offered a job with retirement benefits that might have tethered my status to the market, like a pension, or pulled a consistent paycheck in excess enough of my expenses that I’d have money left over to put into stocks or corporate equities or mutual funds. I had only a few months prior opened a savings account.
On April 6 I made my first purchase. TVIX, 2 shares, $515. Cheap enough, and according to a post on Reddit that my friend had seen, it would go up when the market went down—a very rational move, I thought, given that the entire global economy was in various stages of virus-induced shutdown. TVIX didn’t actually do that—I later found out that it returned double the volatility index, an exchange-traded note, a third-degree derivative, a leveraged derivative of an index, according to Investopedia. Inquiring minds might ask what that means or how it was determined, but I already knew two people making money on it, and I wasn’t going to let some mathematical arcana get in the way of plunder.
For a week I watched compulsively as it whipsawed, down, then up, then down again. Antsy, worried about losing more, I sold it for $495, a $20 loss. Not great, but not bad enough to feel like I’d learned any hard lessons. So four days later I bought back in for $506; four days after that I sold at $546, up $40, up $20 in total. Then I bought in a third time, bigger: in at $804, out at $909, plus $105. This admittedly was not very much, but it was proof of concept: I, too, could get rich off this recession. That I might be profiting off of Wall Street’s misery was just a bonus.
We weren’t the only ones with this great idea. The “free”1 online trading platforms—Robinhood, Charles Schwab, TD Ameritrade, WeBull, CashApp and ETrade—saw as much as an 170 percent increase in new accounts in the first few months of 2020, over a million new joiners, mostly young people. The average age of a Robinhood user is just 31. Meanwhile, the social networks exploded with novices trading investment tips; TikTok, Discord, and Reddit all teemed with dubious financial know-how. In some sense this was a good idea: millennials, already locked out of wealth via homeownership, could start making up ground via the only other way to accumulate personal wealth in America—by buying blue-chip dividend-paying stocks. In very many other senses it was not a good idea at all: those same people, who had borne the brunt of the last recession, were also the most likely to lose jobs, income, and housing in this one. The last thing they needed was to lose even more money in the market. To make matters worse, they were gravitating towards short-term, high-volume, leveraged bets, derivatives and options trading, the stuff that had tanked the global economy in the hands of experts in 2008. The financial press wrote up this peculiar trend with a combination of bemusement and scorn. This was not nest-egg behavior.
The modern recession, by rule and by design, is a massive upward redistributor of wealth. With every crash the asset-owning class has emerged better off. In 2008, 9 million Americans lost jobs, 10 million lost houses. Three years later, the bottom 93 percent of Americans by aggregate net worth were still worse off; lifetime earnings for millennials never recovered. The federal government, of course, responded to a crisis of rogue derivatives traders by bailing out assets, and nothing else. So the top 7 percent bought up houses, equities, and especially stocks on the cheap, or just held tight; that same three years later their wealth was up 28 percent. 2020 was just bigger and faster: 50 million Americans lost jobs or wages, 40 percent skipped meals, 400,000 died. It should come as no surprise that within that same year corporate profits shattered records, American billionaires added over $1 trillion to their wealth, and we even minted 56 new ones.
This did not happen in secret, in smoke-filled rooms; it happened because the market, an exceptionally efficient mover of money upwards, and once again underwritten by a lavish federal bailout package, went up. Way, way up. Recessions have not, at least historically, made the nonrich rich. A bunch of kids, many deeply in debt or unemployed, with a parasitic smartphone app and a $1200 check, weren’t going to stop that massive transfer of wealth already underway. But why not take up those very same financial instruments and join in? That money—as rent, student loans, credit card, or medical debt—was on its way to Wall Street anyway. If you weren’t trading you weren’t trying.
Five days after that third sale I, emboldened, bought in again, bigger: more TVIX, for $804, plus $288 of SQQQ, which would go up if tech stocks went down. This time they did not. Stocks went up and my derivatives went down; on the rare days when stocks did go down, my derivatives somehow went down also.
Because I, too, was not paying close enough attention. That stocks might go down is a nice idea. Sometimes, for a while, a stock even does. But in the actual, real-life market, stocks, in the aggregate and over time, do not. This was crass and oversimplified internet logic, and yet: look at the charts! The United States’s astronomical, world-historical inequality could plausibly be summed up in three words: stocks go up. Economists knew it, historians knew it, rich people definitely knew it. And if stocks went up, the real money was in call options,2 leveraged bets that would bring even bigger windfalls when they did (or else go to zero). Which meant that TVIX, decaying quickly in my Fidelity account, was radioactive evidence of my own naïveté. I was trading the wrong derivatives. I didn’t want to sell for a loss, and soon I was too stressed to even look. I downloaded Robinhood and wired in another $800, filled out the permission questionnaire that the app requires of users willing to lose big, and began trading options.
An inexplicably controversial definition of the market goes like this: it’s a place where the private sector enriches the rich until the public sector steps in and does it. It isn’t a rigged game, but the rigged game.
This isn’t exactly how Milton Friedman—father of neoliberalism, arch defender of free markets, the most influential economist of the back half of the 1900s, or most important public intellectual of the 20th century, depending on whom you ask—put it in his 1970 New York Times Magazine essay “A Friedman Doctrine: The Social Responsibility of Business is to Increase Its Profits,” which decreed that the sole purpose of a business, its highest calling, was to maximally enrich its shareholders. Whatever the business class might have been worried about under the old philanthropic regime—literacy rate or youth homeless or unemployment or life expectancy—had us hurtling towards totalitarianism. Profit was the only path to a free society.
The business class, of course, took Friedman’s call as catechism, and, in tandem with his gospels on minimizing government and maximizing markets and unleashing corporate power, an army of true believers descended on the private and public sectors both, obliterating every possible obstacle to shareholder enrichment. Every last sector was deregulated; spending on social services slashed; welfare gutted; taxes whittled down to nothing. The Jack Welchs and Ronald Reagans hollowed out union density and depressed wages; since basically the moment the ink dried on Friedman’s Times piece, wages for most Americans haven’t budged an inch (except for the very rich, some of whom have compensation made up partly of stock options).
Wall Street, once a minor industry, metastasized. The stock market became “the market,” the consecration of those most sanctified free-market principles that were to be sought and championed above all else. Everything from housing to health care had to avail itself to profit-taking from investors. All that wasn’t bolted to the floor was returned to them via dividends or put towards inflating the value of their shares: the 466 companies continuously listed on the S&P between 2009 and 2018 spent 92 percent of profits on share buybacks and dividends. And all that capital accumulated in predictable places: 84 percent of corporate stock is owned by the wealthiest ten percent of Americans; the top 1 percent own sixty percent of corporate shares themselves. That might begin to explain how, according to a recent Rand corporation report, $50 trillion moved from the bottom 90 percent of Americans to the top 1 percent since 1975.
The catch was that all that fattening of the shareholder turned out to be a fairly precarious way to organize society. The Friedman doctrine set in motion a series of successive crashes, each one bigger and more catastrophic than the last. When the stock market tanked in 1987, Reagan’s Fed Chair Alan Greenspan pledged to use federal resources to bail out Wall Street, a commitment that was “paid for” by cutting social services even further (Wall Street called this the “Greenspan put”). In theory, shareholders were rewarded for taking risk and rationally allocating capital to the most competitive firms. But through the ’80s, ’90s, 2000s, federal policy made sure that there was actually no risk at all. Some people lost sometimes, but not really. All that rhetoric about competition and value creation and fundamentals and expertise were just post facto moral justifications. Maybe the shareholding class really believed it. In any case, investment gains were tribute to the rich, for being rich enough to invest.
“This is the basic reason why the doctrine of ‘social responsibility’ involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses,” theorized Friedman in his essay. In practice, defending shareholder value required an immense amount of political effort. Not even twenty years later his blueprint for avoiding socialism had delivered a system that, for one class only, worked a lot like socialism.
By the time the coronavirus hit, asset holders were rewarded with another stunning $4 trillion, allocated to steady the market. That was 75 percent of the money in the CARES Act, which was supposedly solving a public health crisis. Unemployment ran out, rent relief funding zeroed; the slush fund for large companies ended the year with money left over.
Every sector was hard up all the time, except the stock market, where money flowed in abundance. By the time the pandemic hit basically every American institution failed, except, crucially, for the market. American society emerged like some genetically modified chicken, with cartoonishly oversized financial markets hanging from the chest of a body that could barely walk, see, or breathe. In the words of r/wallstreetbets Redditor ColdBoldGoldMold, “Up and down the board it’s just fucked. Every profession and every training pathway. College? Yeah why don’t you go fuck off and start life $100k in the hole . . . entry level position that requires a bachelor’s? $13.50/hour. You’ll be in your 40s before you realize your salary is barely keeping up with inflation . . . So why not go to the one place that still giving out money indescriminately [sic]? . . . f you lose that $5000 you’ll just stay in the basement or get back on food stamps. So fuck it.” You wouldn’t mistake that for Thomas Piketty, but Piketty had 1000 pages to get to the point.
The next time I checked TVIX, I found out that Credit Suisse had chosen to delist it, on the grounds that it didn’t “align” with its broader growth plan, which seemed to suggest pretty clearly that stocks going down was against the spirit, if not the rules, of the game. I have no idea where derivatives go when they die, but I didn’t wait to find out. I sold it, and SQQQ, for a loss. Anyway, at that point I had already moved on to trading options on Robinhood. I bought an extremely short-term option on Zillow, because the housing market was strong, it was cheap, and it had gone down the day before. The next day, it went up, and I sold, up 100 percent. Then I bought a short-term option on Redfin, the other online real estate site, because it was even cheaper than Zillow. I lost money on that. I bought a short-term call option on Twitter because I use it a lot, that didn’t work out either. Blowing through most of my stimulus check, I made a bunch of abortive trades that I canceled quickly, others I escaped with various degrees of failure or success. I tried to go back to the housing stocks to duplicate the magic, buying one contract of Redfin, which went down, then another, buying the dip. They both went bust. As totalizing a force as the market had been on society, so too was it on my time. I started researching market futures every night before bed, looking for a hint as to whether the next day would be good or bad; checking the markets upon the opening bell implanted itself in my morning routine. I would refresh feverishly throughout the day. Trading promised money for nothing, but it came at a high psychic cost. Also I was actually losing money, fast.
My friends weren’t doing much better. One of them, the one who got me going, was up for the recession, but he’d had his hours cut in half at his job, which muted the triumph. His friend who’d gotten him involved was doing even worse than me. He’d bet $30,000, good for half his life savings, on short-term Amazon calls, betting it’d go up after an earnings call. The company, predictably, posted huge profits, but the stock went down anyway, at least for the rest of the week (I have no idea why, or whether this was standard or aberrant; Amazon is up easily 30 percent since then), and the friend lost it all. Not long afterward, he got laid off from his tech job.
The problem, of course, beyond the fact that we had no idea what we were buying or how it worked, was money. We didn’t have enough. Almost all of the stocks I had been betting on went up over time—if I had had enough money to buy any meaningful quantity of them, or to buy options that didn’t expire immediately, I would have been raking it in. At that point, chastened, I just put the rest of my money into ten shares of Peloton stock, and swore to stop with the options.
But maybe the problem was that my picks weren’t bad enough.
Early this past summer, the financial press began tracking the tickers of stocks favored by retail traders who had the gall to try outsmarting the world’s most sophisticated financial markets. Experts cycled through CNBC predicting a beatdown, a hard lesson taught by free-market principles. Upon reviewing some retail favorites, billionaire investor Leon Cooperman asserted, “They are doing stupid things, and, in my opinion, this will end in tears.” (Speaking of tears, you may remember Cooperman for crying on TV about Elizabeth Warren’s suggestion of a wealth tax.)
To Cooperman’s credit, it’s hard to say with a straight face that the retail traders weren’t stupid. The Robinhood portfolio, a loose collection of the most popular stocks on the app, looked a lot like the Bad News Bears, apparently the most obvious agglomeration of losers one could possibly assemble. The traders bought up cruise ship companies Carnival and Norwegian, even though they were legally prohibited from setting sail for most of the year. They bought up airlines, American, Delta, and United, all of which were functionally grounded and hemorrhaging money. In a shocking moment in market history in April, the USO, an index that tracks American oil prices, went negative. Retail traders dove into that too.
Of course, every single one of these companies was benefiting from record public-sector largesse, in the form of multibillion-dollar bailout or free loans. Airlines were colorful, repeat offenders, frequently in need of public bailout; much of the American oil market, particularly the fracking boom, had never made money, but was propped up the Federal Reserve in the wake of the last financial crisis and was a primary bailout recipient this time, too. Tesla, another retail favorite, was built on billions in public funding and basically forbidden from failing. By rational economic logic, these were objectively terrible companies that lost money prodigiously. But those were not the rules of the game being played. For daytraders, these profit-losing stock picks were not the Bad News Bears; crucially, in stock market parlance, they were not any type of bears at all.
And the stuff did go up. Airlines went up, oil went up. Retail traders in the aggregate were even, at some point, outpacing some hedge funds and becoming the subject of journalistic scorn. When executives at Moderna pumped their share prices with suggestive press releases about a vaccine being developed almost entirely with public money, and then sold the stock a day later, that was business as usual. When retailers allegedly drove the stock price up, it was depraved. When Kodak shot up right before the Trump Administration announced a $765 million deal with the defunct film company to make pharmaceuticals—one of the most brazen instances of insider trading in recent history—much of the coverage was about the Robinhooders who’d piled into it with no inside information once it started going up. (Soon after, Kodak lost the loan.) Widespread accusations of market manipulation became commonplace. “There’s the Reddit, Robinhoody market and you can’t lose in that market. It’s like a slot machine that always comes up with three bars,” was how Jim Cramer put it, a fairly apt description of how the market actually worked for people with real money.
The apotheosis of this ethic, of course, was GameStop. The story goes that someone on Reddit realized that if a bunch of people went into one low-value, heavily shorted stock at once, they could move it meaningfully, and induce those institutional investors, who were betting against the company, to buy it, too. I still don’t think that’s how it started. As a fairly regular reader of the subreddit, I’d seen lots of people recommending GME for months, either without explanation or on the grounds that it was “undervalued,” and the stock had trudged along unspectacularly; I never saw the “short squeeze” strategy, which is now somehow a widely used pop cultural appellation, in league with “sea shanties,” articulated.
Then, last week, it happened: those retail traders apparently plowed enough money into the nearly bankrupt mall-based retailer of video games that its stock went wild, delivering huge gains for investors and taking billions from the hedge fund Melvin Capital, which held a significant short position against the company. The situation was so extreme the fund had to get bailed out by a multibillion cash infusion from rivals Citadel and Point72, the funds of Steven Cohen and Ken Griffin, two well-known Wall Street villains. Suddenly this campaign, which had seemed like a relatively ludicrous and misguided attempt to make money, had a recognizable enemy, and a new purpose. Melvin doubled down; the Redditors were undeterred. Soon the hedge fund had vaporized $8 billion, GameStop’s valuation went up over $20 billion, the stock rose 465 percent in a week, the novices declared victory. Finally internet traders were an object of broad national concern, and stock talk was everywhere. Hedge funders called it “shameful,” cried about market manipulation and called on the SEC to investigate, condemned daytraders for using derivatives recklessly. Imagine! Daytraders had made a mockery of the markets. What was the joke? Maybe it was more accurate to say that the market was a giant joke the rich played on everyone else, that, for a day or two, had its absurdity interrupted by a different, more scrutably absurd arrangement.
It was appealing to feel like, finally, twelve years after the financial crisis, fifty years into Friedman’s fever dream, the little guys won one. Bloomberg’s Tracy Alloway referred to wallstreetbets as “exploiting a financial system which is perceived to have locked them out for years,” said that “populist forces” had “figured out a way to capitalize on this system and bend it to their own will.” Out of a deeply amoral system at a moment of peak cruelty, the possibility that some highly moral revenge narrative might be spun was extremely compelling. Squint hard enough and maybe you could see some strange solidarity, the idea that, with teamwork, you could commandeer the pyramid scheme to your own ends: successfully imitate a hedge fund, manipulate the market, enjoy its spoils, profit, like so many Wall Street firms. They’d exposed the dark heart of the market’s nihilism, its basic tautology. What makes a stock go up? Not fundamentals or profit or growth or value—just other people buying it. Perhaps the explosive exposure of this fact was a triumph, though of course it was also hard to root for wallstreetbets. The page was crude, rank, and exceedingly homophobic (anyone who thought a stock might go down was ridiculed as a “gay bear,” short term call options were FDs, “faggots’ delight”); it owed a not insignificant debt of rhetorical gratitude to 4chan. They wanted other Redditors to invest in GME because it would make their own holdings go up, so that they wouldn’t be the last one in, standing flat-footed when the music invariably stopped (and it did). They had not made revolution, but a smaller, secondary pyramid scheme. They had made a bunch of rich people even richer.
It brings me no pleasure to tell you that I was not in on GameStop. But I was in on Blackberry, another similarly valueless enterprise. The phone company hasn’t made a phone since 2016. One day it started moving up and, despite my many months’ commitment not to, I relented to the Reddit approach, stopped trying to do things that seemed smart, bought a low-price option. The stock soared 150 percent; my option went up 450 percent in just a few days. I earned back all my losses and slightly more on that one trade. The company issued a press release saying it had no idea why it was up. I bought into AMC and made money; I bought into AMC again and lost much of it back. So it was stupid, so what? My second stimulus check never even came. A few days later I got an email from Robinhood saying I’d been identified as a “pattern day-trader,” and banned for ninety days unless I ponied up $25,000. That was, probably to my own benefit, the end of that.
Did retail traders really hijack the markets? It was taken as a foregone conclusion that GME was the work of retailer traders, primarily because of the profound lack of temperance and respect for traditional market principles that its movement insinuated. This was a company that sold video games on discs in malls—most video game consoles don’t even have a disc drive anymore—and that had no plan to turn a profit until 2023. On January 26, Bloomberg laid out the case that it had indeed all been the retail traders: trading options had given retailers enough leverage that, working in tandem, they could in fact move the market.
But I remain a little skeptical. Wallstreetbets became a phenomenon in the GameStop frenzy, and eclipsed 2.5 million subscribers—that $20+ billion surge in GME market cap would require every single subscriber to be actively trading and have put up over $8,000. Not impossible, of course. But the retail investors were alleged to be behind other concurrent and unlikely multibillion-dollar surges, too: in addition to raising the price of Palantir, electric vehicles, and weed stocks, they were said to be manipulating Bed Bath & Beyond, BlackBerry, AMC Theaters, Dillards, Trivago, Express. Most of the movement in those stocks happened after hours, when retailer traders aren’t even allowed to trade. I spent a lot of time reading the daily activity thread on r/wsb; it was mostly people begging the others not to sell and drive down the price, or lamenting the fact that, despite their purchases, things were not going up as planned. This was not exactly the market marauder’s mindset.
In the nine months I followed wallstreetbets, retailers were more than a few times accused of manipulating the markets, and each time it turned out that some institutional investor had been behind it. When tech stocks ballooned in the summer, commentators pegged it to Robinhooder exuberance; eventually the financial press reported that it in fact had been SoftBank’s Masayoshi Son trading options. Shortly after oil bounced, Warren Buffett announced he was playing pipelines and buying American gas company Dominion. Occasionally people posted screenshots of portfolio sporting huge gains, though few of them had actually sold their holdings and converted them to cash. I do know that a bunch of hedge funds that benefitted, including Scion Capital’s Michael Burry, the guy from The Big Short. The single largest owner of GameStop, at 13.2 percent, is BlackRock. Elon Musk, the world’s richest man, was rumored to be boosting GameStop to push Melvin Capital into insolvency as payback for its shorting Tesla. Citadel, the hedge fund whose manager, Ken Griffin, is the richest man in Illinois, lapped up profitable parts of the distressed Melvin Capital on the cheap thanks to GME’s rise. Much of the trading of GME was being done in 10,000-share blocks, a near certain sign that this was institutional money. Not even a week later GameStop tanked.
It was Ken Griffin’s hedge fund Citadel Capital Management that feasted on the smaller Melvin Capital. It was Ken Griffin’s Citadel Capital Management that happened to be the primary market maker for Robinhood. Citadel was fined extensively for front-running those retail trades and making a handsome profit doing it; it was not fined for the very legal payment for order flow business, which was a plenty lucrative racket as is. See if you can count all the different ways daytraders buying GameStop made rich Wall Street investors richer. In fact, the banks all posted record-setting years, in part thanks to all the boom in trading, and were encouraged, right around the 300,000th American coronavirus death, to get back to their time-honored tradition: buying back shares.
And anyway, was it really the case that a significant number of Robinhooders were getting rich? There was plenty of research, and my own transaction history, to say no. A June report from Barclays said emphatically that not only were retail investors not responsible for market rallies, but that their top picks tended to underperform. “More Robinhood customers moving into a stock has corresponded to lower returns, rather than higher,” reported the bank’s analyst Ryan Preclaw. Options traders were even worse. Some were definitely winning. But people in finance like to say that you can’t beat the market, and most daytraders lose—and the more they trade the faster it happens.
Even the success stories, those who boasted of paying off student loans or making enough money to help their fixed-income parents—were they beating marketization? Did they win enough to offset the stunning transfer of wealth that continues to be underway? My friend’s 15-year-old sister, somehow trading vaccine stocks she found on google on an E-Trade account registered under her brother’s social security number, grew a $1500 investment by 250 percent. That’s not enough to cover the tuition increases between now and the time she’ll enroll in college.
The real heist was not GameStop. It was not oil, or American Airlines, or any one stock going up. It was, rather, that all stocks went up, and hustled trillions of dollars to higher income brackets in the process. It’s hard to make sense of what it actually means to operate in a system where all the rules are rigged toward one outcome, internally and externally, where every move that’s made is guaranteed to somehow generate profit for Wall Street that redounds to the ultra-wealthy, underwritten by the federal government without scrutiny or any real debate. No matter which way you turn, you’re making them money. There’s no scrappy underdog story hidden anywhere in that ticker tape.
The last time Robin Hood was of particular governmental concern came in 1953, when a Republican member of Indiana Textbook Commission called it to be banned from all state schools. “Communists have gone to work twisting the meaning of the Robin Hood legend,” claimed Governor George Craig, claiming that the “steal from the rich, give to the poor” interpretation was a pinko perversion of the tale. The book wasn’t banned; eventually, his reading was right.
Free trading apps are not free as in not costing money to use. instead, those apps are paid by Wall Street firms to bring them these purchases, a process called “payment for order flow,” where middleman companies like Robinhood sell the trade to a high-volume market maker on Wall Street—not the one that grants the user the best price, but rather the one that pays Robinhood the most for bringing them the order. Also, those market makers can look at the order and make their own trades ahead of it, betting on or against an order before filling it, knowing which way it might move based on the information those apps have delivered. This new formation has proven to be exceptionally profitable, much more than the $5.99 flat fee per transaction that was once standard. The SEC and FINRA, two notoriously toothless regulatory bodies, have fined or sued both the market makers that fill these orders (like Citadel Securities, more on them shortly) as well as Robinhood repeatedly over the dishonesty of this setup. Bernie Madoff actually, literally, thought it up. In their defense, free trading apps are “free” in terms of their exceptional permissiveness—so long as you fill out a perfunctory form you can wield a whole quiver of advanced financial instruments that amateurs didn’t used to have access to. ↩
A call option is a contract that gives a buyer the right to buy 100 shares of a stock at a certain price within a certain amount of time. That may not feel like a satisfying or sufficient informative explanation—how is the price determined, you may wonder—but at no point in my trading nor my research have I been able to understand it any better than that. ↩
