In this first month of 2021, two major events have dominated the media. The first one being the storming of the Capitol, and the second event being the gamma squeeze in GameStop orchestrated by r/WallStreetBets, onwards WSB.
The two events are quite different in many aspects. The storming of the Capitol being motivated by far-right sympathies and it actually involved a, very real, threat of violence against the publicly elected officials of the American government. In that respect, the GME squeeze did not involve any physical violence, even though it has wreaked havoc in the realm of capital and wealth.
The political motivation of the GME squeeze was an anger against the “suits” of Wall Street, that can use their wealth to manipulate the market in their favor. All while destroying firms in the process. Therefore, GME offered an opportunity of a lifetime. Over 100% of the float was being shorted by large hedge funds, by buying the stock and pushing up the price WSB can force the hedge funds to close their short positions at huge losses.
This highlights another possible difference between the two events, the success of WSB and the failure of the storming of the Capital. Although, I am not sure that the WSB have succeeded in their mission to stick it to the suits. A squeeze cannot go on forever, and a lot of regular people are going to lose a lot of money on the backside of this event. It might be that hedge funds are going to view this as a lesson, maybe they are not going to utilize short selling to the same extent anymore, but I am sceptic. The hedge funds are huge, and their power is immense, odds are that they are going to take smaller stakes and that they will monitor the activity of retail investors with even more rigor now that the retail investors have shown their power.
However, the point of this post was not to analyze the eventual effects of these events. Instead, I am going to explore the underlying motivations of these events and their similarities.
I think the motivations for these events are expressed quite clearly in two different expressions used by the crowds behind the events. The crowd behind the Capitol events have frequently been using the expression “drain the swamp”. An allusion to the morally corrupt environment of government. It expresses an anger with corrupt officials, a disappointment of being left behind by the government, and a wish to reshape government to get rid of corruption and mistreatment. And even though it seems as if this crowd has the wrong idea of how to go about “draining the swamp”, I think the anger is justified in some sense. The overall sentiment in the event and the expression is an anger toward the elites that run the country politically.
The expressions used by the WSB crowd are “the suits” and “diamond hands”. “The suits” is the expression of the common enemy, the Wall Street hedge funds. And again, the anger is directed at an elite, this time it is an economic elite. In “diamond hands” lay a fundamental difference between the Capitol storming and the GME squeeze. Although the crowd storming the Capitol had a common enemy and a common goal, they never expressed the same conviction and cohesion that the WSB crowd has through “diamond hands”. Diamond hands signifies the unity that the WSB crowd must keep against the suits if they are going to win the battle. To win, the retail investors must hold the stocks thy have bought with diamond hands. If they sell, the hedge funds can cover their shorts.
Now we have found the common denominator for these two events, the anger towards elites, be it political or economic elites, and the growing feeling that these elites do not play by the same rules as the little people. The hedge funds can manipulate the market to earn more and more money with little to no consequence to themselves and the elected officials can favor themselves and the upper middle class at the expense of the “deplorables”.
The main problem lies in centralized institutions. I think that the ever-increasing prevalence of politics in our everyday lives has reduced the agency that people feel significantly. Now, when we spend 5 minutes of every hour on Twitter we are bombarded by political discussions and messages. Our minds are constantly drawn to think about the world at large, about people we do not know, about events we have not experienced. I think this reduces our experienced agency, we feel less and less that we have an agency over our lives, instead we feel that more and more of our lives are determined by the actions of the government. In some sense our actual agency has been reduced the last few years as well, more and more parts of our lives are in some way guided by the heavy hand of the government.
Even when making financial decisions are we being sidelined by the huge financial institutions that do not abide by the same rules that we do. They manipulate and make profit almost either way.
What’s the solution to this problem of agency? It could be solved by spending less time on social media and more time involving oneself in community matters. In a smaller community one can have actual agency and one’s actions matter, while at Twitter, no one cares about your opinion or your actions.
However, that is a small-scale solution that won’t have a large effect. Instead, I think that decentralization is the solution that we are looking for. To return the agency of our lives into the hands of ourselves we need to build decentralized institutions. Institutions where all individuals have the same ability to participate and where the agency lies with each participant rather than with a decentralized authority.
The discrepancy between elites and the rest can possibly be bridged by decentralized institutions where everyone can participate under the same rules. Blockchain-technologies are examples of such systems that allow for decentralized participation, where everyone can have access to knowledge about transactions and the history of the system. I don’t think that it is impossible to build other systems like Bitcoin and Ethereum that can span over broad ranges of societal usage, that can allow society to flourish without elites determining the agenda, be it economic or political.