Gamestop is the endgame of net-fueled demonetization

As an ‘early millennial’, I heard the sermon about markets a zillion times during my teenage and adolescent years. The sermon where they said the fundamentals were great, the markets would take care of themselves and that regulation was anathema.

There was nothing Wall Street hated more than regulation. Even the 2008 meltdown led not to self reflection but to frenzied attempts to lobby the new Obama-led administration to not inflict regulatory ‘harm’ on Wall Street. Attempts which largely worked in spite of the populist movement Occupy Wall Street. And yet Dem supporters wonder why their party bled House and Senate majorities during the Obama years…

But I classified this write up under economics and not politics so the objective is not to indulge in bipartisan bashing of politicians. That’s so boring and so 2020.

I want to talk, instead, about the most exciting bit of news I have heard in a long, long time. That is, of a bunch of Redditors ganging up to make the stock of the ailing company Gamestop soar, not just frustrating hedge funds attempting to short sell the stock but pushing one of them, namely Melvin Capital, to the brink of bankruptcy. If you truly are out of the loop about this, you can read here. Or watch here.

The popular narrative about this is of internet successfully trolling Wall Street fat cats or the more romantic notion of stealing from the rich to give it to the poor.

But Gamestop-gate also represents the endgame of a game propelled by big tech for a long, long time and one that Wall Street endorsed right until now – that of demonetization.

This is not demonetization in the sense we Indians understand it thanks to what our Supreme Leader did back in 2016.

In this context, demonetization literally means destroying the monetary value of a service. Now…that service could be producing and selling a music album, publishing a book, booking a cab and so on. They don’t call it demonetization, at least not most of the time. They call it disintermediation and that makes it much more popular with the customers.

They purport to eliminate the middle man from all these transactions (also including other things like flight booking) to deliver convenience and economy to you – the customer. The problems with this argument are two fold. One, in a service-led economy, a lot of our work is indeed facilitating a service by being a middleman (or working for one). So…you may enjoy this consumer utopia right up to the point your own industry gets disintermediated out of existence. Two, if a multitude of small intermediaries are collectively replaced by one or two or at the most a handful of tech oligarchs, it is not clear that this will continue to benefit the customer long term.

There is a third problem too. It may or may not be a problem depending on how you see it but this is where the force of demonetization is most potent. This process of demonetization is thus far biased in favour of customers at the expense of producers. But it also democratizes the playing field for producers. So…if you are a budding musician, you can today reach out to listeners worldwide by putting up your work on Youtube, Facebook or Spotify. Your monetary potential out of said reaching out is also, however, limited. And there aren’t very many ‘record labels’ left to dole out fat advances to musicians (except a small club of popstars).

I intentionally put record label in quotes. You see, the record, notwithstanding small scale nostalgia for vinyls, as your means of acquiring music died out a long time. It was killed through piracy, by illegally uploading an artist’s work for free on the internet for anybody to download. Whenever Google or the file sharing services like Rapidshare were asked about it, they expressed helplessness and said they had no control over what people uploaded.

Frustrated, the RIAA made attempts to get Congress to pass legislation that would bring Google and others under greater regulation. It almost passed in Congress…until Google asked lawmakers to imagine a life without Google. This would not be the last time. Recently, they similarly arm twisted Australia with the threat of deactivating the search engine for Australia.

The lawmakers predictably caved in. And in that period, the music industry bled some more and by the time streaming services took over, CDs were nearly dead. That is, an album by itself was worth nothing beyond pennies at best. As I said, the potential reward for an album that sold a lot of copies (or got listened to by lots of people) shrunk dramatically. But this was justified as for the greater good of the consumer and musicians be damned!

The same happened with albeit less detrimental consequences in publishing. You can now self publish your work effortlessly. But the fact that you can means traditional publishers are struggling. Big ticket consolidation is already underway in publishing as the only means to survive Amazon. Again, I could publish something, get a few people to read it and feel good about it but that’s mostly as far as it goes. Big advances for star writers are increasingly a thing of the past.

I do not think it is entirely a coincidence that the art world bore the brunt of this disintermediation attack. If you subscribe to Horseshoe Theory of ideologies, you already know that the Far Right and the Far Left often mirror each other in terms of tactics (eg. preferring utter conquest and subjugation to consensus or compromise). Likewise, the uber capitalists share Marxists’ disdain for art. For Marxists, art is airy fairy and lacks the glory of hard labour. For uber capitalists, art is airy fairy and cannot match the high of making money. So… if artists are now struggling, who cares. Maybe they should get themselves a CS degree before it’s too late to sign up to work for a hot tech start up ASAP, right? Newsflash: That’s what many musicians already do, or some version of it.

Anyway, moving on. ‘Demonetization’ has killed music stores and CDs, bookstores and is increasingly imperiling the existence of supermarkets as well. After all, the reason Gamestop was seen as ripe for a mother of all short sells was its business model consisted of offering videogames at malls. Even restaurants aren’t completely free; friends from Bangalore say they dine out a lot less because they order from Zomato. See! So it’s conceivable that an upscale restaurant could shut down because somebody running a home kitchen sells good enough food at a much lower price!

The point I am making is, yes, you CAN have everything conveniently at home and for free or almost for free. But what remains then of social life if there are no bookstores or music shops to go to to hunt for your favourites, no malls to hang out at, no restaurants to have a good time with friends? So far, museums and clubs are impervious to the threat of demonetization but a few more pandemics should do the trick. Note that I don’t advocate one way or the other about this; rather, I am trying to ask the question. I am alarmed, on the other hand, that we are so much in thrall of capitalism that we self-censor ourselves and do not even ask these questions. I mean, do you really think your beloved billionaires are so vulnerable that having a free wheeling discussion about this would somehow imperil them?

So why were the billionaires happy with this arrangement? Because they were making billions more on Wall Street, dummy. Even as the pandemic raged on, they continued to make money on the stock market unabated. It was all good…until Gamestop-Reddit happened.

Now, after all these years, Wall Street is actually talking about the need for, um, regulation. Yes! Not multiple stock market crashes, not the GFC, all it took was a bunch of Reddit nerds beating short sellers at their own game. Suddenly, they feel threatened by these invisible enemies; suddenly, they know what Lars Ulrich felt like about Napster back in 2000.

Too late, the genie is out of the bottle and has been for a long time. If some suits lose their cushy jobs in the ensuing democratization of Wall Street, it wouldn’t be a moment too soon. Wall Street has enthusiastically cheered on the creation of a tech led utopia that would literally represent the ‘End of Work‘ – because there would be no jobs! It’s about time they got a good taste of what this utopia looks like too and I do sincerely hope they like it, nay, love it. Come on, man, markets can take care of themselves. That’s what you told me!

4 Responses to “Gamestop is the endgame of net-fueled demonetization”

  1. Anonymous Violin Says:

    Great piece. Just today I learned like terms “short” and “short squeeze” as I was reading about the Game Stop incident. This piece really puts what’s happening into perspective.

    You’ve also got me considering social implications of everything being “at home”.

    • Madan Says:

      Thanks man! As somebody who did have to study terms like long/short and call/put in his syllabus, I was still not aware of something like a short squeeze. I guess I never thought they would be so audacious as to short 100% or more of the entire stock holding. I am happy to have provoked thought, because that is ultimately what I aim for with these pieces. Gonna be interesting to see how this unfolds. If they actually enact regulations, it will make Wall Street much more like many other stock exchanges and could be the beginning of, um, socialist America.

  2. Voldemort Says:

    Not surprising coming from a writer of your calibre but still, wow! This is easily the best piece I’ve read about Gamestop. You combine insight + great writing making it a brilliant read.

    * Now, after all these years, Wall Street is actually talking about the need for, um, regulation. Yes! Not multiple stock market crashes, not the GFC, all it took was a bunch of Reddit nerds beating short sellers at their own game. Suddenly, they feel threatened by these invisible enemies; suddenly, they know what Lars Ulrich felt like about Napster back in 2000.*

    Couldn’t have said it better!

    By the way, how different do you think would the situation have been if the US exchanges had circuit limits?

    • Madan Says:

      Thanks a lot for the comment and the validation. Honestly I wondered when I wrote this if these connections would ring true with others so it’s good to know they have.

      Yes indeed, I think with circuit breakers, you could never have a run like this. Likewise, in many countries (like India), not everybody can play the options market at the click of a mouse as you can with Robinhood. The deregulated fluidity that Wall Street loved and coveted at any cost has now come back to bite them.

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