Finance, Our Welfare and Class

The recent debacle caused by a bunch of pissed off day traders gaming the stock market and hedge funds that rely on "shorts" to create wealth has blown open the contradictions of the stock market and its class nature. It is about time that we publicly had a serious discussion about the nature of these things.

In case you've been living under a very cosy rock for the past week, here's the lowdown: a few small-time investors on Reddit realised that the shares for the US corporation GameStop were undervalued. After some investigation, they came to the conclusion that the stock is being purposefully shorted by a particular hedge-fund. 

With me so far? Don't worry if not, thankfully some kind soul has already prepared a guide to the shenanigans so I don't need to go beyond my remit with overly technical jargon. Right-click the image and open in a new tab if you can't see it properly.

The Game Is Rigged

So now you hopefully understand the basics of the situation. Here comes the good stuff...

It turns out that the app most of these day-traders were using to buy shares, Robinhood, has very close ties with Citadel, a hedge fund. When I say very close, they are one of two hedge funds that provide 40% of Robinhood's revenue. 

That's how close they are.

It's also alleged that Citadel owns Melvin Capital Management or has close ties to them. This is important because Melvin Capital is the group that is shorting GameStop stock and hence keeping the share price below its actual value. Citadel and another hedge fund decided to pour $2.75 BILLION into Melvin after it lost 30% of its value in the short-squeeze created by those pissed off Redditors.

So how does this all tie together? Well, Robinhood suspended purchasing of GameStop shares after a short period of growth. Some traders were lucky and made some cash, others had their capital held hostage for a short period and then had their orders cancelled. 

Given that Citadel, Robinhood and Melvin Capital all share a close financial relationship, it's not a stretch to presume that the orders to suspend trading came directly from Citadel. Trading was later resumed but in a restricted manner after the positions of all three had been secured.

If this isn't market manipulation, corruption even, then I don't know what is. If Adam Smith were alive today, he'd probably remark on how oddly visible the invisible hand of the free market has become.

There are clear financial ties between these hedge funds and capital management firms, and clear vested interests. But it isn't being called market manipulation and it doesn't appear that the links between these interests are being scrutinised by the state or media. In fact, the state did threaten to intervene, no doubt to protect those interests.

Yet when a group of day-traders get together to make a modest profit from purchasing shares, they are simply locked out of the system. 

We're frequently told that capitalism works for the "small" guy, that we can purchase shares with our own money and use it to create capital for ourselves and create our own wealth. This self-evidently can not be the case when the small guy is prohibited from engaging in these markets in the same way that the big finance guys do, through collusion, manipulation or simple organisation.

It is absolutely hypocritical.

Our Welfare

Hedge funds are one of the most grotesque forms of profiteering and financial wrangling. The managers of such things aggressively engage in all sorts of financial cajolery to turn a profit for their clients. This includes buying up stock, shorting shares, and speculating on commodities and futures, regardless of the consequences. An ex-banker has disclosed his own account of hedge funds in the Dorset Eye.

What's concerning though is how hedge funds have seemingly crept in through the back door as a method of funding. Not just funding for investors and the financial sector, but for things that are tied to our welfare. Pensions, for example, often invest in them for a greater return as part of a diversified strategy.

The predatory nature of hedge funds and the blatant disregard for how profit is acquired means they have started to see opportunities everywhere.

They have been "lured" toward Britain's housing crisis, a problem that has existed for decades and has yet to be solved for some reason. They are being used to finance the energy and water sectors; essential public utilities that should not be subject to the profit motive, and they are blatantly screwing over the care home sector. Then there is PFI, the finance initiative Blair's "New Labour" devised for funding the building of new hospitals.

Furthermore, there has been talk for some time now about using private finance to fund the NHS, which really does boggle the mind. Did we suddenly forget about the disastrous experiment in private management of an NHS hospital? Never mind the fact that private finance relies on the profit motive which has time and time again proven a failure in areas where welfare is paramount.

To put it bluntly, hedge funds are the reason why your nan's care home is so expensive yet understaffed and in disrepair. They bet on things going wrong and they profit when they do. Then that profit is reinvested in another sector. They are even profiteering by exploiting the Covid-19 pandemic!

Private finance and hedge funds, in particular, are far more involved with our welfare than they should be. It's even reported that hedge funds are driving UK policy thanks to the corrupt Tory government. Our very welfare is now at the beck and call of private investors and finance initiatives. This should make us all feel very uncomfortable given how volatile some of these initiatives have proven to be.

What is clear though is that hedge funds are being used to plug the gap left by state funding, which is nothing if not ideological. They are attractive because they produce such huge returns. But this presents another problem, one for the small-time traders and workers, beyond what I've illustrated here. 

The Role of Class

The trading app, Robinhood, was launched with the following mission statement:

"Robinhood’s mission is to democratize finance for all. We believe that everyone should have access to the financial markets, so we’ve built Robinhood from the ground up to make investing friendly, approachable, and understandable for newcomers and experts alike."

Nothing could be further from the truth. The GameStop fiasco has blown this facade wide open enough for us to all take a long hard look at the gory truth within.

It turns out that there are stringent limits to who can use financial markets for personal gain and that limit is defined by class. It is defined by private wealth and the ownership of capital. 

In other words, the lower classes can only utilise the financial markets so long as it does not interfere with business as usual for the capitalists. They cannot organise to dominate it or greatly enrich themselves in the same way the capitalists do. The capitalists will do anything to retain exclusivity of financial wranglings.

One of the reasons for this is because private finance is being increasingly utilised as a funding mechanism for things like care homes and pension funds. If a band of merry Redditors were to stumble upon shares that were being shorted to fund a care home, for example, it'd be a disaster. Not only would the hedge fund go bankrupt, but potentially so would the care home. 

It's an awful, vicious circle of absurdity.

Given the increasing incursion of private finance into our well-being, this is becoming more and more likely to happen. Unless our access to financial markets were restricted in some way, of course...

To simplify all of this:

1. The small-time traders and workers will never be allowed to game financial markets in the same way the corporations, hedge funds and oligarchs can because...
2. Our welfare, including many of our jobs, is being intimately tied to the wealth of the capital holding class through the same markets!

So you see that once again, the class nature of capitalism rears its ugly head and stomps its boot upon the face of the workers. The financial markets will only ever work for the already rich, not for the impoverished.

In a world where corporations and private enterprise act as the fourth arm of government, it's no surprise that capital has authority over the worker. If you want healthcare, insurance, a pension, a house, or even a car, you must, in one way or another, remain an impoverished worker subjugated to finance, the wealth of the upper class. 

How do we know this to be true? Consider that total private debt in the UK stands at £1.45 TRILLION as of 2017, possibly more by now. If everyone paid off their debt at once, the entire system of private finance would collapse. Hell, even if only half of that was paid off at once, that would still be a catastrophe. It must be true by necessity!

Finance, fictitious capital in Marxist terms, relies on a zero-sum game of credit and debt. It is a means to exploit the decades-old wage-productivity gap, and the hole left by the state. It allows the state to step back and maintain the illusion of "non-interference". The workers, who hold no capital, are kept permanently in debt in exchange for credit which affords them the wealth that they produce collectively anyway!

What ridiculous system! 

The neoliberalisation of the economy has resulted in the development of a paternalistic class system where lower classes are repressed so that another can profit as the feeding hand. This system is being developed in such a way that it'll eventually become a symbiotic relationship, one which closely resembles parasitism.

It maintains the class system and it props up capitalism. Any claim of democratising finance is facile at best. It always was and will always remain a tool and plaything purely for the capitalists.

And those Redditors have blown the lid off this charade.

All of us on the left need to weaponise this spontaneous event to incite mass organisation and action amongst ourselves, our friends and family, and those who are not yet class-conscious. 

We must give this event a political character, that of class struggle.