And what if what happened in the strange GameStop speculation saga was indicative of much deeper issues at stake?…
Finance has always been a place for rumours, lies, and false news, for desperate companies or governments to attract capital, deceive competitors and make big profits. Many media outlets, especially in France, have even lived for a long time, during the 19th and 20th centuries, by commercializing false news, through financial advertisements disguised as articles by honourable journalists, and committing other turpitudes.
Today, it is not surprising if the situation has taken on a completely different dimension.
First, because we have moved from print to online media and social networks, which have exponentially multiplied the means through which false news are transmitted. Moreover, because we have seen emerge, on these networks, new ways for everyone to express themselves: digitalisation and democratisation lead to an economy of rage and anger against the rich and powerful, those who monopolise money, power and knowledge; and the emergence of sometimes very sensible demands against privileges, scandals, and for more equality and respect. On the other hand, they also lead to the proliferation of lies, fake news, and the emergence of cults such as QAnon, the denunciation of imaginary crimes, and deadly manhunts.
The alliance between big tech and democratisation is taking the media into a maelstrom from which few will emerge alive, unless global regulations limit the powers of the masters of the social networks that have become public services by nature, and unless the other media outlets are given the means to combat fakes news, with the particular help of schools and universities.
We should not be surprised if finance is threatened by the same development:
For a long time now, the digital transformation of the financial industry has been happening. More recently, it has also become an activity for the masses, thanks to the emergence of simple applications allowing everyone to acquire stocks, just like social networks has allowed everyone to become a journalist.
The alliance between the tech sector and democratisation could only lead, as with the media, to the emergence of a great anger of the smaller players against the big players.
Firstly, it was the anger of small investors of the stock market against those who make a lot of money by speculating on the demise of a company; for example, by betting on the drop of the price of a share (what we called in stock market language “shorting,” i.e. the investor borrows a stock that he does not own, sells the stock, and then buys the stock back when the price has dropped (as the investor predicted) to return it to the lender). This is what happened recently, when an army of small retail investors, having realised that large hedge funds had decided to short the stocks of unstable companies, such as GameStop, Blackberry and AMC Entertainment, gathered in virtual meeting places, such as Reddit, and coalesced to drive up the price of the company’s stocks, forcing the hedge funds to buy these stocks at a higher price to be able to close the sale they had committed to (i.e. executing a short squeeze). Some of these hedge funds, such as Melvin Capital, had to find huge sums of money to close their deals. Robinhood, one of the most important online commission-free stock trading platforms recently created even had to temporarily shut down certain trades to replenish its reserves, to the great anger of its clients; and some small retail investors have earned considerable sums by punishing the big ones.
What comes next? One can imagine that these meeting places between a few small retail investors, these chatrooms, becoming meeting and coalition places for millions of retail investors, to launch an upward or downward operation against a stock, whatever its real value. To earn money. To harm a particular company, rightly or wrongly labelled as harmful. To sabotage confidence in the financial markets. To denounce financial capitalism. To destroy Americans’ wealth and pension plans. To destroy this way of financing companies and markets. Or for any other political reason. By risking small sums of money, a very large number of tiny players in digital finance, if they get together and organize a narrative, can temporarily destabilise any firm or market. We can perfectly imagine, for this reason, that false news will be launched in these chat rooms, which will find people to believe it.
Can these manoeuvres become successful? Can digital finance participate in the great anger at work against the powerful and the speculators, against those who are only concerned with their immediate profits without looking at the global impact of these companies? Can we also see the development of a “fake finance” as harmful as fakes news is?
Here again, if we do not take the lead quickly, and if very strict regulations are not implemented to prevent it, fake finance will rise and the worst is yet to come.
Let us look on the bright side: like any crisis, this one offers us an opportunity to solve problems that we did not dare to tackle before: regulating the global financial markets; putting an end to unproductive speculation; fighting false news; and perhaps, we can dream a little: better distributing financial wealth among all and directing finance toward sustainable, positive enterprises, to serve the economy of life.
j@attali.com