Odd Lots - Is The GameStop Trade Really A Political Rebellion?

Episode Date: February 2, 2021

The GameStop short squeeze is one of the most extraordinary events to ever happen in markets. But does it have political significance? Some are saying that it represents the manifestation of Occupy Wall Street, that it is some kind of class warfare against hedge fund elites. Or is it just an interesting trade. We discussed what this moment really means, and what its impact going forward will be, with George Pearkes of Bespoke Investment and Jill Carlson of Slow Ventures.See omnystudio.com/listener for privacy information.

Thanks for listening to Oddlots. Follow the show on Amazon Music for more future episodes or just ask Alexa, play the podcast, Odd Lots on Amazon Music. Oh, and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, I can't tell whether I feel bad for you that you're in Hong Kong and missing out on U.S. trading hours these days or whether I'm really jealous of you that you're in Hong Kong and missing out. out on U.S. trading hours these days. Feel bad for me. I feel bad for me. I would love to be in New York during, like, the most dramatic moments of some of the recent

U.S. market action that we've seen. Yeah, no, I do feel bad for you. I mean, it is really fun. Like, I've definitely never before had a whole, like, Bloomberg monitor just devoted to the real-time price of GameStop. So that's pretty cool. On the other hand, you are missing out, blessedly, just a truly, awful takes about all this. And every cable news channel and pundit and everything is like

pontificating about what all this means. And I'm not, I don't feel bad that you're missing that. Okay. So it's true. I haven't seen a lot of what the U.S. television channels are saying. I will, I will say, though, I'm on Twitter basically at nighttime in the U.S. And so I get a lot of cranks and crazies around, you know, the hours of like midnight to 4 a.m. So I do see some of the conspiracy theory stuff. I get enough of that. Yeah, exactly. But I get the sense that I'm missing something in the whole GameStop commentary that

that has been annoying you. Yes. So, I mean, look, I love this story. And I don't really want it to end any time soon. Let's get that out. And I've learned, I've already, like, learned a bunch just like over the last week. about how the markets work, like, it's been very educational. But I do think there is this proclivity of everyone who has an agenda to find a way to, like,

work it in. And you have, like, Donald Trump Jr. talking about it and Ted Cruz and AOC and Dave Portnoy and the Winkelvoss brothers. And, like, Glenn Greenwald and Matt Stoller. And, like, literally anyone who has an opinion on anything, the GameStop trade bolsters their you. So I totally agree with that agenda point. There's something for everyone in the GameStop story, whether it's true or not. But I do think the fact that it's this sort of Roersharsh test for a bunch of people talking about it, like I think that is part of the GameStop phenomenon. And so I think

you have to talk about it and you have to recognize its importance. Yeah. And a big question too is like, is there something like political? Like, is there a big class warfare element of this? And, like, obviously the answer is kind of yes. And people, like, on the Wall Street bets love the idea that they're, like, sticking it to the bankers. On the other hand, you know, you have these people like, this is finally the mission of Occupy Wall Street has now been fulfilled.

And, like, my eyes just roll out the side of my head when I see stuff like that. So we're going to try to figure out, like, what does this mean? Is there a political message? Is this Occupy Wall Street? 2.0, or is this just something fun? Is it just a trade? Like, what does this all mean? All right. This is going to be an interesting episode. Let's do it. And we should note we have, we have not one, but two guests, because it's such a polarizing topic, I suppose. Yeah, we're going to have a debate, although I'm worried that our guests are going to be

too friendly and that it's just going to be me and you fighting against each other. That's okay. But I'm very excited about our two guests today. Two of our absolute favorite people here, two of the sharpest people who understand markets and market structure and finance and even politics. Very excited. We're going to be speaking with George Perks. He is a macro strategist at Bespoke Investment Group and Jill Carlson. She is a partner at Slow Ventures and does a lot. We've talked to her in the past about Bitcoin and blockchain stuff and money. And they've both written, I guess you could say, takes of the last week. And George has a great piece. up on Business Insider that you should check out.

And Jill has a great piece on Coin Desk that you should check out. And so we're going to hopefully get the full range of perspective here. So George and Jill, thank you very much for joining us. Yeah. Thank you. And I will note the irony that both George and I have now contributed to the sea of bad takes and are continuing to do so. No, both of your takes are the only good takes.

Sometimes the best take is that the takes are bad. And, you know, we can't avoid having someone saying that. And I think both Jill and I tried to do a little bit of that this past week. The ultimate meta take. The meta take. That's my role, the meta take. Okay. Let's start and maybe we'll get some opening statements from me.

We'll start with George. George, what you're more on the view. It's like, this is a trade. It's an interesting trade. It probably does not fit into anyone's political narrative too well. what's your take? So the sort of way that this has been described by a lot of people is that these are sort of neck beardy redditors who are all in their basements and spending their stimulus checks,

their last few dollars on out of the money calls and margin bets on GME. And that's somehow a revenge against the big bad hedge funds and one percenters and billionaires that have been stepping on the necks of this class of people for a long time. And it's just really hard to take that with a straight face. The single biggest holder of GameStop is the guy that pioneered subprime auto finance. He's a billionaire named Donald Foss. He owns 5% of the company. Like, I'm sorry, just that fact alone, forget anything else.

Just that fact alone suggests that, oh, this is a proletarian revolution of the day traders is the wrong take straight up. If you look at the composition of the sort of folks that are in GameStop, I mean, the guy that has benefited the most, in terms of percentage return, as far as anyone can tell, is this guy who goes by Roaring Kitty on Twitter, who's, who had a position that was worth upwards of 50 million at various points over the past week, thanks, you know, on a 50,000. It could be 100 million by the time people are listed. Right. Who knows where it's at.

But he put up 50K and it's, you know. So, you know, this is a guy who's a financial advisor, former financial advisor for a Massachusetts insurance company. You know, and I'm not trying to come out and bash this guy, but I'm sorry. that's not, you know, the masses in the United States. $50,000 that he, you know, yolode into the stock is half of U.S. media and net worth. And most of that net worth isn't liquid assets. It's tied up in real estate.

So, you know, really anyone that can come up with 50K to put into the stock market on this kind of bet is doing substantially better than the typical person. I think it's fair to say. So, you know, I just, my basic take is just this is not some working class revolution. against capital as represented by hedge funds. So I understand the point about deep effing value, as he's known around here, and the fact that a lot of the people on Reddit are quite sophisticated in the way they talk about options and the fact that they're targeting a gamma squeeze is a very non-retail activity.

But your point about one of the biggest holders in GME being the subprime auto finance guy, Like, you can have a bad populist movement or a badly coordinated or effective populist movement. I mean, we arguably just saw one of those in the U.S. at the beginning of the year with the storming of the capital. Like, could it not just be that these people are trying to make a political statement, but they're just not doing a very good job? I mean, I think if you ask the people on Wall Street bats, like, why are you in this? I mean, you know, if the attendees didn't exist, they wouldn't be in it, right? This is not a political project as a first order, you know, goal. There's definitely some political spin on it.

But that's always true. I mean, one of my favorite memories from my career in markets is watching Bill Ackman and, what's his name? Icon. Duke it out with Scott Wapner on CNBC, Scott Wapner moderating on CNBC and I think it was 2013 over Herbalife, which was this similar situation where there was a large short interest. and ICON was long and, you know, it turned into a political question, right? Like Herbalife is extracting rents from these poor folks and, you know, it's a pyramid scheme and that's evil and we need to stop that. And, you know, whereas icons on the outside saying, actually, people get a lot of value out of this and, you know, I don't particularly find it compelling. But hey, they like it and it seems to work for them.

So what's the issue here? You know, everything gets politicized. And, you know, I think with GameStop, we've seen that two. a degree that's just so over the top. So, you know, the takes that have emerged out of it are just so beyond the pale that you've got avowed communists saying that this is like the best thing that's ever happened to workers and, you know, at the start of the giant revolution. And it's like, what are you people talking about? Right. Like, um, so yeah, I just think it's hyperbole. That's the issue. I want to, yeah. I want to jump in there because George, I actually remember watching that

Ackman icon debate as well. And I'm pretty sure that you and I were probably texting each. I want to, texting each other at the time or bantering about it because that was around the time we got to know each other. But what I think is so beautiful about the last couple of weeks and about what this sort of Reddit revolution has shown is that now anyone can be ACMN or ICON. Anyone can get up on their soapbox and make a case for how the market should be playing out for what should be happening in a given single name stock. And yes, of course that's going to be politicized. And I think to a degree it should be. Because to your point about the fact that some of these redditors are quite sophisticated,

that's actually part of the point. That just goes to show how high the bar to entry is and how big you can still be in the sense of education or even net worth and still be a little guy compared to one of these big institutions. You know, formerly, you had to be Ackman to be Ackman. You had to have raised hundreds of millions, if not. billions from LPs. You had to have your own fund and you had to be candidly, probably a white guy in a suit, getting on CNBC to have that kind of a soapbox. And that's not the case anymore. And I think that that's a really important part of the paradigm shift here that says to me that this is

not actually just about the attendees. You know, these are not just purely kind of rational economic actors here. Because if you look at the discourse at least around who's taking money off the table, who's taking profit on these trades. There are a lot of people with irrational money still in the game who are holding the line, as they like to say, just to stick it to the suits. And that sounds pretty political to me. George, can anyone be an Ackman now? I wasn't around during the internet stock bubble of the late 1990s and early 2000s.

I was still in grade school back then. But I know, Joe, you've told anecdotes about reading message boards back then about people hyping stocks and about stocks doing the kind of thing that stocks are doing today, maybe not through a short squeeze and a gamma squeeze, but through, you know, mass participation in markets, you know, the democratization, as it were, I think that's the wrong word for it, but it's I think what people will identify of going to decimilization, of having expanded access to brokerage accounts that happened in the 1990s. Like, that all happened before, right? People signed up for e-trade accounts to ride the internet stock bubble higher in the late 1990.

and, you know, we're able to participate, we're able to coordinate in just the same way that we're seeing now. I think you could make the case that the specific strategy is a little bit more complex now, but I don't think it's actually something new, and I don't think it's actually something that's changed significantly. I will admit that it's easier to get into the market and speculate today with an app like Robin Hood than it would have been 20 years ago. And it probably is a little bit easier to coordinate via some of these large-scale network. affect online communities like Reddit, Wall Street Betts, or like Twitter or whatever. But I don't think that's a new phenomenon at its core. It's maybe a more intense version of something we've seen previously. But I think there has been ample precedent in relatively recent history for this

exact same pattern of behavior. And so we're not seeing some new emergent factor, but just a standard rehash of what's happened before. Maybe Joe knows the answer to this, but I wasn't trading in the late 1990s, early 2000s, but I don't remember anyone talking about specific options contracts that they could gang up on to create a gamma squeeze. Like, that feels relatively new to me. Yeah, I mean, you know, I'll jump, you know, my 20 second take is like, yeah, there were message boards. Yeah, the message boards moved markets. There, A, I do think George is right. The coordination is sort of more intense these days. And I think this sophistication is just way more intense these days.

I mean, the level of intelligence, I think we would agree, at least on some say, like Wall Street Beds posters, is extremely high. Some of them, at least, have very good understanding of how the derivatives markets work and where the pressure points are merging and they know how to communicate as such. And also in the case of DFV, the Roaring Kitty, like also very high level understanding of business. I mean, Jill, I guess I would ask you, though, like, yes, the markets are changing and that is new and anyone can sort of like tell a story in a way that maybe previously would be reserved for a hedge fund manager. But is that like, is that political or is that just changing market structure? Well, part of what I love about all of the commentary that has occurred around this is that for the first time, people are paying attention to market structure and paying attention to all of the implications that come along with market structure. structure in a way that frankly, even Wall Street didn't. You know, George and I will both remember when we were working at banks, working at banks, excuse me, right out of college, you know,

the least loved task was interfacing with middle and back office, was wading through all of the new regulations that were coming out post 2008. It turns out, you know, now looking back 10 years later for me, that was some of the most important work that I did because it gave me this understanding of how the market is structured, why it's structured this way, and all of the knock-on effects and implications that that has on who can access the market, who can access the market in what ways, who can access information and data flow, who can access leverage, who can access various financial products. And again, I think that that should be political. And I think that we've seen over the last year people waking up to the system around them, the fish waking up

to the water. And I think that this is yet another example of that, whether, you know, we look at the storming of the Capitol building or even the election of Donald Trump, you know, that was a subset of the American people waking up and say, you know what? The current system, it's not working for me. It doesn't serve me. Even the BLM protests last spring, of course, that was a very different sort of belief system and ideology that was driving that. But still, it was people waking up and saying, this system doesn't serve me. And I think that this fits somehow with all of those other examples of this sort of zeitgeisting context of the time that we're in of people waking up this time to market structure and saying the market structure is broken.

I like that idea that market structure and market access should be political. I think that's a good way of framing it. So I just wanted to go back to the notion of what is actually motivated Wall Street Betts on aggregate. So if you spend time on the message board, it's pretty clear to me that there is a strong sense of community, although I guess you could argue over the past week that might be changing since they've gone up to 7 million followers or something crazy like that, and it's starting to change the makeup of the forum.

But if you go back to like a few months, like Wall Street Betts had a very defined identity it had its own language, its own culture. And it feels to me like when you have that commonality, when you have that much in common, you have that unity. And part of that unity is developed by having a common identifiable enemy. And it feels like Wall Street bets settled on Wall Street or parts of Wall Street and the financial industry as their common enemy.

So I don't really get how we can ignore that side of things. Well, I mean, if you're someone who's well off, who's done well in society, who has five figures to risk on relatively high, relatively low expected return trades, which is what deep out of the money call options and highly concentrated positions and margin all, you know, imply. If you're resentful towards someone who's, you know, got a nice suit on that works at a business that ends in the word capital, I mean, that that's all well and good. I mean, I don't deny that there a certain group of people on, you know, the Wall Street bets or however you want to frame this community is resentful of the classic hedge fund crowd. But I would also say that that's very different from something like the Occupy Wall Street movement in the post-crisis. period, right? Where, you know, that was not upper middle class people getting super mad about, you know, the fact that they didn't get enough respect in markets or that they, you know, that hedge funds got all the attention and their ideas were overlooked. Like that was a, that was a

rejection of the larger distribution of wealth, the distribution of resources in this country, so on and so forth. It didn't end up being, you know, something that metastasized into the broader politics of of the United States, but at least not long term. But I do think you can make that case. Whereas the, you know, I'm glad Jill brought up the U.S. capital sacking. I mean, that group of people was by any measure, a diverse group of people in terms of the amount of social resources they controlled around the types of work they do around, you know, their status as labor or capital, right?

You had people flying to that event on private planes. And you also had people who were solid by any definition, working. class and not doing as well as other folks in society. You know, so to me, both the U.S. Capitol and the Wall Street Pets phenomenon and GameStop, whatever, are really good examples of trying to paint over, you know, a group of people with diverse and, you know, unified interests, but unified interests that don't really break down along the lines of broader political economy, right? It's, it's, and that's really what I object to most about some of the takes is that you're

trying to fit interesting shaped pegs into holes that are just a different shape. But George, haven't you just painted over this group as a bunch of people who have the five figures to throw away as a bunch of people who are jealous of the suits? Not at all. They're absolutely people. Yeah, there are absolutely people in this, in this diverse range of folks that use wallace your bets who are not super high income, who may be spending their last couple hundred dollars on GME calls or whatever. the trade is, right? I totally acknowledge there are people like that in there. My point is,

my point is not, is that if you're just going to ignore those people, you shouldn't ignore those people any more than you should ignore the people that are also benefiting it, benefiting who don't fit into that category, right? You can't, you can't decide that this, you know, this is not a universal group of little guys. There's certainly some little guys in there and there's some big fish in there too. That's, that's my point. I think that it's, I think that it's super worth acknowledging that so many of the people on the Wall Street Beds Forum and participating in discourse and in the ways that they are here, whether that's on the discord or wherever you want to point to, they're doing it under anonymous accounts or pseudonyms, right? And I think that

that to me just drives home this point, that in a way, it doesn't matter who they are. It doesn't matter what their socioeconomic background is, what their motivations are, but they are all participating in this kind of stick it to the man, stick it to the suits narrative. And sure, I'm sure that you can break down from each individual the nuanced differences of how they see the world and why they're doing this, you know, why they've put money into GameStop. I'm sure that there are some who are more rational economic actors than others. But at the end of the day, you have this population of folks who are, again, populating this message board that is driving home this narrative that is fundamentally political. And I think that that's a huge paradigm shift from what Wall Street has been to date, where again, you had to be a known name and have a track record in order to have power. Now you have people who are, you know, going under inappropriate names. and going by cat avatars having the same level of influence and voice.

So, George, I mean, you're a finance professional and you've written on Business Insider about GameStop. I'm curious, how much vitriol have you encountered on social media? Because I'm sure between Joe and myself, we've gotten quite a lot of abuse over the past week just by working at Bloomberg and therefore being considered part of the financial establishment. people must be responding to you, right? Not really. I mean, like, I, anytime I say something that's like at all, it's just us, anytime I say something that's at all, like,

outside of consensus opinion on Twitter, I'm going to have people in my mentions being annoyed. But, like, it hasn't been anything unreasonable, in my opinion. I haven't had people, maybe, I don't know, maybe Twitter's quality filter is doing a good job or something, but I haven't been harassed or anything like that. I'm sorry, y'all have. And, you know, I don't say that to, you know, say that y'all have it.

You know what's awful? The other night I made chicken tenders and I tweeted about it and someone said, I work at Bloomberg so I could never really appreciate tendees. Someone, they said someone, yeah, I can't eat tendies the way the common men can. So that's, yeah, I do. It is just so interesting that I, back to what Jill said, like, I just should we, I mean, maybe we should care if the petite bourgeois is really mad at, you know, capitalists. But to me, like, there are bigger, more pressing political narratives here that, that ascribing these groups is like, they're the underdog when, like, socioeconomically, they're definitely not the clear underdog, right? Compared to, like, the worst off people in this country or in any other country around the world right now. Like, is that the people we should be holding up as, like, the underdogs who are fighting against injustice and being shut out of the system?

And like, I'm a lot more worried about my friends who, you know, have been formerly incarcerated and therefore can't rent an apartment. Like, that to me is like the people we should be worried about as underdogs, not people who are mad that they can't get as many attendees as they want on Robin Hood. Everyone will have their own fight to fight. And I don't, I don't think it's for me to, uh, to dismiss this fight over another fight, although even if personally I, I don't disagree. And again, you know, we covered this earlier, but in the macro sense of what defines

the haves versus the haves have-nots in the United States. You're absolutely right, George. Anyone with 50K to thrown to a high-risk trade goes into the category of the haves under that, under that more macro framing. But again, it just goes to highlight how unequal access is to markets today. On April 4th, 2023, around two in the morning, a man was found stabbed multiple times on the sidewalk in downtown San Francisco. Hey, we did this to you.

What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Ask a question, and I'm glad you ended on that note because there's been part of the narrative that's been bugging me a little bit, but maybe others have different views. And the story that I hear a lot of people saying is, why are people complaining about people on Reddit manipulating the price of stocks? The market's been manipulated forever. People on Wall Street are manipulating the stock market all the time.

And I do not, I know this is going to be very, actually, the thing that I said that got the most abuse so far in the last week, was when I tweeted that prior to this, I do not think that U.S. capital markets are actually particularly manipulated. I think they're pretty transparent, by and large. I think that access has been pretty level for a while, thanks to index ETFs, people have low-cost ways of investing that are arguably better than they've ever been. And then in the old days, it was much worse. But other people think, like, oh, it's like riven with manipulation. I'd love to hear both of your takes, like, was prior to the Wall Street bets emerging were big players on Wall Street constantly manipulating U.S. capital market? I'm going to let the former Ian Bond trader go first.

I was going to say, Joe, I mean, I think it's all relative, right? Certainly U.S. markets, relative to some of the emerging markets that I dealt with in my former life once upon a time. Sure, very transparent, very fair and equal market access. But, you know, I think that that doesn't mean that it's good enough. And I think that that's the distinction that I would draw. But, you know, it is very easy to make that argument and to have that comeback of, well, look at how lucky we are here relative to most of the world. Yeah, I agree with that. I mean, so if you look at a market like Hong Kong,

like the sort of capital structure manipulation that goes on with property developers over there, I mean, Tracy, I'm sure you can speak to Evergrand and some of these companies, right? I mean, we, that would not fly in the U.S. it, you know, yeah, just not going to happen. So comparing a relatively developed emerging market infrastructure, financial markets, infrastructure like Hong Kong's, and I'm sure you could pick out other examples, you know, look at Japan and how companies over there are able to avoid acting in shareholder interest, you know, in favor of long-term holders or

even some of the stuff that goes on in Europe sometimes. I mean, the U.S. markets are accessible and, you know, cheap and generally fair. Also compared to history of the U.S. markets, right? We've come a long way. And honestly, a lot of the part of the reason for that is this sort of market mechanics that drove Robin Hood to stop people from trading, right? That ultimately, they were following a course prescribed by regulation, right? And that regulation in the long run does a really a much better job.

than it could protecting individual investors and making sure things are equitable. But that doesn't mean we can't go further. And I definitely agree with the idea that things could be more equitable, things could be more fair, and that there are instances of manipulation where they need to be enforced.

And maybe, I'm not a lawyer, but maybe the Wall Street bet stuff falls into that category. It's possible we're gonna find out that the SEC has evidence that people were posting from multiple accounts and people were misleading people in a public forum and, you know, yada, yada, yada. Not to say that everything that was going on was manipulation or anything like that. But, you know, I do think we could see a lot more enforcement of, you know, general anti-minipulative law and securities law in this country.

And it would only do good things for individual investors. I have been down this whole kind of rabbit hole about what market manipulation actually means over the last week. And it's actually a very weird kind of question if you remove it from obviously the legal parameters and definitions of just can you be a market participant without in some way manipulating the market because people now take market manipulation just to mean influence or outside influence on the market. And I think that the problem that people are pointing to when they talk about market manipulation in this context is just that a few big market players have become or can be.

be in the market as it stands, kingmakers or world destroyers. And the question is, should a few hedge funds get to decide that GameStop is a bad company and should go under? Equally, should retail investors get to decide that AMC lives and should get this big cash infusion? And I don't really know what to make of that, but I think that that is more what we're getting at when we talk about market manipulation now. I definitely agree that there's a technical issue where there's

what the actual definition is and versus the popular perception are way on different planets. Yeah. I think Jill's point about this idea that eventually what's going on in markets might have an impact on an actual company. So AMC averted bankruptcy recently because its stock had been squeezed up so high and we even saw its bond prices start to go up. So, you know, the influence of Wall Street bets was really felt across the capital structure of AMC. see GameStop hasn't really done much with its searching stock price, but who knows, maybe that'll change. I think that idea is really, really interesting. I also think on the manipulation point, it's going to be, we've seen talk about maybe prosecuting Wall Street Betts people for some sort

of coordinated manipulation, but I think it's going to be really hard to accuse someone of, you know, buying GameStop shares because they like them and then planning to hold them for a long time. Like that doesn't really seem like a coordinated pump and dump effort. But anyway, sorry, I'm getting slightly off track. Can I respond to that really quickly, Tracy? Yeah, yeah, of course. It just begs the question to me of why is it okay when hedge fund managers get together at LeBernadine, you know, the smoky backroom of the restaurant in New York,

and they share their trade positions with each other? Why is it okay that even sell-side research is still totally restricted to the clients of that, of that given firm. You know, why, why are we okay with these elements of the way that the markets are structured? And we're talking about prosecuting people who are posting openly on a Reddit forum. That to me is just a big part of what is so insane here and what the rebellion is against. Last thing I'll say. I'll be so shocked weekend. The one thing you definitely can't fault Wall Street bets for is transparency, right? Like, everything is out in the open. And it is in one way, like one of the most level playing fields

out there. I wanted to go back to Robin Hood, though, because when we're talking about populist outrage, I feel like a lot of that has been directed at Robin Hood in recent days ever since they decided to shut down availability of trading on GameStop and some other companies. People are really, really upset about that decision. And then there are people on the other side, maybe like George, who are describing this as a pretty rational stance by Robin Hood. It wants to preserve its business. How should we be thinking about that? So it's really important to understand why Robin Hood restricted trading, right?

They didn't do it because Ken Griffin called them up and said, you're not allowed to trade in these stocks anymore. That's not what happened, right? They had a mechanical margin call from the Depository Trust and Clearing Corporation that was due to huge new exposure in Robin Hood accounts that operate under Reg T, their margin accounts, type two accounts. You can call them a bunch of different things. that created a need for Robin Hood to post large amounts of cash to ensure that they performed on their end of trades during the T-plus-2 settlement cycle.

And the amount of cash they had to post went up in part because these stocks were so volatile and in part because they just had so many people on their platform opening exposure to them. All of that, the increase in margin related to volatility, the fact that Robin Hood had to come up with the cash itself, all of that is designed to protect the people that. own stocks via Robin Hood. It's designed to make sure that Robin Hood is able to perform on their behalf from a financial perspective. And they did. Robin Hood did have to go out and raise cash through bank loans and through credit lines and through a new capital raise. And that is how the system is supposed to work. And the reason it's supposed to work that way is so that Robin Hood doesn't end up blowing up because they can't perform on their obligations to the clearinghouse and end up having all of their customer accounts liquidated through what amounts to a bankruptcy process.

And so, you know, Jill and I, early in our careers, we hit the street right after something related happened at MF Global, right? John Corzine was being too aggressive with customer collateral, and it ended up going the wrong way on him. His trades actually ended up being correct. It's just he got margin squeeze in the interim. And it created a big blowup related to collateral. role. And so, you know, I just, I really, it's really frustrating to see regulation that is definitely in customers' interests, that is definitely, you know, especially over the long term, and that is being rationally managed by the broker, Robin Hood, be sort of ascribed to some shadowy backroom

plot involving Citadel and some other people and I don't really understand, you know, because people just don't understand how the plumbing works. And it's okay. People don't understand how the plumbing works, but that's another thing that's frustrating about these takes is that they were also unaware of the mechanics of the market. So, yeah. This is why, like, so Tracy got mad at me this morning over IB, and she's like, why are you anti-takes? And it was actually mostly this, because it's not that I really, you know,

everyone has an opinion, that's fine, is that I actually think, like, some of the misunderstandings about this stuff was, like, worsening the public's understanding of this to a negative degree. I agree. I mean, some of it I don't like the whole, like, you know, Occupy Wall Street stuff. But also, like, people miss explaining why, you know, the margin call aspect and everything and plotting what is a sort of system, a rules designed to keep the system from blowing up as rules designed to punish the little guy or prevent the little guy from doing the same trades as hedge funds do. That was like the part where I think, like, okay, some of these takes are like actually corrosive. So that's why Tracy. But Jill, were you going to say something? Joe, wait, I have to respond to that.

Wait, wait, wait, wait. I think, look, I think you need to be more specific when you do your own takes on how there are too many takes. Because you just go out and say, oh, all these takes suck. But you need to be much, much more specific about which ones you're talking about. Because otherwise it just sounds like you don't want anyone to have an opinion on it. Same goes to you, George. Same goes to you. No, I mean, I think, look, as someone who has worked for a long time in the cryptocurrency and blockchain space, I can absolutely sympathize with the feeling that there are too many takes and that those takes are actually educating people in the wrong direction and leaving them with misconceptions.

I think there's no doubt that we're going to come out the other side of this whole GameStop thing and the whole Robin Hood halting trading fiasco with a whole bunch of conspiracy theories, as George points. too around Ken Griffin. But my perspective is that if even one percent of the people who were affected by this learned something about the DTCC and settlement cycles in the United States and have an opinion on that, I'll call that a win. That's my own hot take there. I agree that's a win. And it's awesome that, I mean, first off, it's really harmful that Robin Hood signed up everybody by default for a margin account, for a reg team market. margin. And that's the thing that no one is talking about. A hundred percent. And we should absolutely hold their feet to the fire for that because I think that's that that that harmed a lot

of people. Because by the way, if they hadn't been signed up for margin accounts, if they had been signed up in regular cash accounts, the margining works different. They wouldn't have had to shut down trading if everyone had been trading in cash accounts as opposed to margin accounts. They did the margin account stuff for other reasons. They want to get people trading quickly. They want to get people doing stuff that's volatile. So, you know, you get the gambling aspect that hooks It's a growth half. Exactly. Exactly. And so, yeah, I think, I think that, I'm totally, I'm thrilled that people are talking about collateral settlement and, you know, how T plus two works and, you know, how we just went from T plus three a few years ago to T plus two and what the DTCC is. That's great. Awesome. But you've got people with huge platforms with millions of people able to see what they're saying who are trying to hold themselves forward as experts and are saying stuff that has nothing to do with all that. And so I agree that there's a benefit to this, that more knowledge and market infrastructure for everyone involved is good.

That's great. We should celebrate that. But if the cost to that is 10 times as many people having the complete opposite level of information, I'm not, I don't think that's worth the cost at all. I'm sorry. I think it's really harmful for venture capitalists to go out and say, well, you know, my company that is a competitor of Robin Hood offer, you know, you should be using them instead because they won't do what these evil Robin Hood guys are doing, which is listening to

and Griffin's Citadel when their company that they're referring to does the same, did the exact same thing for the exact same reasons. That's really harmful, right? And we need to say that. So, you know, I'm with you, Jill. Say his name, George. Say his name. I have actually never heard.

That's a massive sub-tweet. I've never heard John's last name pronounced. So I'm not going to be able to pronounce his last name. I'm really sorry about that. I don't want to boshed it. He's been a guest. Chimoth Pollyhappatia is who you're referring to, who called out Robin Hood, and who is is as part of a SPAC taking SOFI public and SOFI's stock trading operations.

People come on the episode again at some point have a similar business model to Robin. And did put restrictions on trading and had the same kind of margin calls of the DTCCC. Like, I'm sorry, what? Well, Jill, I want to go to you because we're going to get to the blockchain discussion in a second. We're going to leave that to the very end. But before we get there, we're sort of a transition. used to be a trader, and now you're on the West Coast. You're surrounded by FinTech people and VC people.

And so, like, on this whole, like, growth hack conversation and the gamification of trading and stuff like that, like, is this sort of, in your view, like, a sort of pivotal moment where perhaps there's, like, a limit to the degree to which sort of, like, the West Coast mindset, when brought to bear on something like finance and trade? trading kind of reaches its limit and maybe it's sort of like a wake up moment for a lot of the people on your side of the country when thinking about disrupting Wall Street and stuff like that and the sort of the limits there. Oh, Joe, I wish that I could say that that was at all part of the narrative here. I mean, I have long been a proponent of the narrative that you can't move fast and break things when you're building something in finance, when you're building something that actually touches people's money.

But that is not really the narrative that is playing out on the back of this. If anything, I think that the narrative is how do we speed up the ability of people to get involved and play the markets? How do we build infrastructure, forums, social apps, you name it, that will continue to reduce the frictions at play without any regard, really. to the fact that those frictions, as George very well pointed out earlier, were built in for the integrity of the system and also to some degree, at least, to protect the little guy. But no, it's all been emphasis on apps like common stock and public and Adam. There's a new one that I've heard of coming out called tendies.endies.aF. Yes, I am serious. That's where all of the hype and excitement around innovation is there has not been a whole lot of self-reflection or self-awareness.

It's too bad we're not saving the video for this because we, you know, we're looking at each other on video and George's face right now with his hands in his face is just like capturing it all. Is 10 days.com? 10 days.com. You know, I just. The year is 2050. I think it's awesome. I think it's awesome that people are getting exposed to the stock market. I, you know, like financial markets are fascinating, fascinating things to, you know, be involved with from almost any perspective. You know, I just really hope that this, whether there are people that have come to the stock market in the past week because of all the headlines or have come to the stock market in the

past couple years because of the advances apps like Robin Hood, et cetera, I just really hope that they understand that they're taking big risk by just piling in and, you know, whatever. I had a conversation with someone last night who said, yeah, I own, um, GME and I own AMC and I own a couple other, you know, I think Nokia and maybe Blackberry, like all the meme socks. Like I put, but if they all go to zero, it's fine. Like, I'm comfortable with that outcome. It's not so much money that it'll ruin me.

And I said, great. That's awesome. Good for you. Like, you're getting involved with the market, but you're doing it in a way that isn't betting your entire existence on it. And I think that's awesome. And I just really hope that as these, you know, as this accessibility, whether it's to, the stock market, crypto, whatever thing, right, as it continues to expand, that we also try and

do the best job we can educating people around the rest of taking. I think that tone does have a lot to do with it, George. And I think that the tone in which the education is happening really matters. And I think that, you know, if I look back at sort of the history of fintech innovation, none of this is really that new. I think certainly the degree to which it's taking off right now is that new. but something that a lot of people don't realize about wealth front is that it actually started as basically a social app geared towards getting people involved in the markets. I think it was called Kaching, which you can even take the name of the company and ask questions about sort of the motivations, probably, that it was imbueing in its customer base.

But I think that it's notable that that then ended up as wealth front, which I think arguably has done a lot to democratize finance and investment. very responsible way. So we'll see where all of the tech innovation that's happening around the markets right now ends up this time around. But I do agree, George, it's about sort of responsibility. Can we go back to the settlement issue? Because I unfortunately am old enough to remember, not just when T plus three changed into T plus two, but when the DTCCC actually started talking about it and looking into this. And that was, I think, back in 2012. And so it was a multi-year process to get down from T-plus-3 to T-plus-2, so to eliminate one day in the clearing time. What are the chances that this actually sparks some sort of improvement in the clearing system? Because I got to say,

like, it would be quite unexpected and ironic if, you know, a subreddit basically led to a more efficient U.S. back office clearing system. But I'm curious what you think. Well, I mean, everything's going to settle at a leg. No matter what, there is no way to have instant, you know, settlement in a in a exchange environment. It's not possible. If you look at other markets as an example, whether it's foreign exchange, treasuries, futures, whatever, there's always a settlement leg and it has to be that way. And there are ways to, you know, shorten it. So I don't know, does T plus two versus T plus one actually mean that this situation wouldn't have played out the way it does? It's a technical question that I don't think we can know from where we all sit. But,

you know, I do think lower settlement cycles or shorter settlement cycles reduce risk, but you're always going to have some kind of settlement cycles. So, you know, trying to avoid it entirely, I've seen takes where people are like, we need to have stock settling in microseconds. And it's like, no, that's not going to work. Like, we're just not going to get there. You know, I don't think it's realistic. Jill might have a different perspective on that with her rooting in blockchain. Yeah, I mean, if you weighed deep enough into the sea of bad takes on all of this,

many of those takes that have been coming out of the corner of the internet that I frequent anyway, have been around the fact that blockchain would have provided. prevented this or blockchains would save us from this. Let's hear it. Let's hear it. And look, I don't want to say that that is hard and fast, not true. But I think at a minimum, you don't need a blockchain to reduce settlement times, right? Like, you can do that with a centralized database. If you look at certificates of deposits and other short-term paper, they already settle on a T-plus-0 basis. And I think that there's this kind of techno-utopia. angle that people want to impose upon this situation and say, oh, you know, we can fix this

with technology and wave this magic wand blockchain is going to be a panacea. No, no, no, no. It is much more about getting alignment within the current actors of the financial system to want to change things, to want to change processes in particular. And look, do I think that it is insane the amount of power that the DTCCC wields over market structure. Yes, I do think that. They are effectively a monopoly. And as long as they don't want something to change, it probably won't. So I'm hopeful that Joe, to your point, this whole conversation that this this subreddit may, in fact, start to change the tide of where that power lies. That would be great. But it is going to be much more about getting them on board and getting other market participants on board.

And I think it'll be much easier to do that using existing technology than it will be to get the whole system to rip and replace and put in a blockchain. Well, on that note, that was a fantastic discussion. Love talking to both of you. I think we struck the right tone of politeness without being too friendly. So Jill Carlson and George Perks, thanks for coming on Nodlons. Thanks for having me. Yeah, thanks so much.

This is fun. A lot of short daily news podcasts focus on just one story. But right now, you probably need more. On Up First from NPR, we bring you three of the world's top headlines every day in under 15 minutes. Because no one's story can capture all that's happening in this big, crazy world of ours on any given morning. Listen now to the Up First podcast from NPR. Hi, I'm PJ Vote. My podcast search engine has a new two-part series for you.

Of all the new technologies coming out of AI, the most transformative one might be driverless cars. They're already on the road in 10 American cities, and they're quickly coming to more. We tell the story of how we got here. The secret team at Google that spent 15 years building what might be the safest vehicle on the road, and we cover the fights brewing in blue cities, where unions and politicians are working to keep those cars off the streets. Listen to search engine wherever you get your podcasts. Tracy, Georgia and Jill are great to talk to. I actually, I definitely have probably moved off.

I actually, I mean, I haven't like changed my overall views too much. But I think Jill's argument, which is that although we have seen versions of this kind of class conflict and political conflict in the past, that it's kind of like a new thing when applied to the stock market, the idea of like sticking it to the man, going after the suit, but within the context of trading is kind of new and interesting. It's like maybe it's like I give the political story a little bit more credit than I previously did. Like maybe I'm like somewhere in the middle now. I'm going to chalk that up as a win. I will note that in an episode in which, you know, two of the four people on it were complaining about how many takes there were.

I am the only one who did not deliver a take in that 50 minutes. So I'm going to do it right now. Okay, I want your check. But, okay, so to me, so to me, my take is that it's impossible to separate the takes, both good and bad, from the success of GameStop. So the whole thing depends on creating a short squeeze or a gamma squeeze, forcing the share price up. And in order to do that, you have to get as many people as possible actually coming into the trade. And in order to get as many people as possible, you have to serve up these different narratives. these different motivations, and you have to have things that appeal to as wide a range of people as possible.

And to me, that's why the takes, even if they're terrible, are very, very important because they're things that get people involved in it. You know, Tracy, I 100% agree with that. And I, you know, like, I don't think it's Occupy Wall Street or like the proletary revolution or whatever. But I do think that the idea that I can download an app and be on the other side, of a trade from like Steve Cohen or Melvin Capital or whatever is really irresistible. And I can see why that narrative is a big part of what drove the trade. Now, what I object to are the people who are like saying it's too real. Like I don't really think, like, I guess that's where I like, like, a lot where I sort of like draw or like, where I sort of make the distinction.

Like that narrative is so good. It's fantastic. it's absolutely irresistible. I could see why people are doing it. On the other hand, sort of like people who know better who are like feeding into this idea that you're like helping overthrow capitalism

or overthrowing the 1% by trading on this VC-funded app on your iPhone with your spare cash. Like I don't buy that. And I think that's been way oversold and way over-egged. But you are 100% right. Like that without that,

if it's just a mechanical trade, if it's just a short squeeze. Like if we're like, like, people wouldn't have gotten excited about this if it was like that like the Porsche VW short squeeze from a few years ago. Like that class angle is a big part of like what I think made the trade work. So I 100% agree with you there. Oh, okay.

Another win. I think that's right. But it also begs the question. I mean, the thing that we're getting at with the bad takes is that at some point it becomes really difficult to counter them because they just kind of get out there and take a life on their own. So for instance, if you tweet anything in defense of Robin Hood at the moment, you're going to get a bunch of people talking about Citadel and all of that.

And it just becomes really hard to change the narrative. And I mean, I can tell you from personal experience that, of course, I've spoken to my dad about this, who is a noted conspiracy theorist and fairly right wing. And, you know, he thinks it's all market manipulation. It's the hedge funds, ganging up with, Robin Hood, all of that. And even though I'm a financial journalist, his daughter, who presumably he has a reasonable amount of confidence in, I cannot change his mind about how all of this is working. It's just impossible. Well, this is like the thing, which is that there's no way to actually

like disprove it. And that like if you, if you try to like say, well, this actually, it's not that exciting that, you know, this is the DCCC. These are capital requirements that actually protect the unbroker and users of Robin Hood, you're just like a hedge fund shell. And if you sort of like make up a story, this is, it's very difficult. This is, I actually feel like you're coming around to my view a little bit that like a lot of these takes need to be reined in. No, I totally, I agree there are terrible takes. Okay.

But they're sort of part. They're part of the success. Because you can have, you can have an alluring yet factually incorrect story. around something that brings a lot of people in. And it's probably going to be more interesting and probably more simple than the explanation of what's actually happening. We talked about this with Bitcoin and inflation, remember? Like, it's much easier to talk. Oh, totally.

You know what? Yeah. We could just go on and on about this. So I'm going to say, yeah, let's, all right, let's leave it there. Let's leave it there. Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Allowway. You can follow me on Twitter at Tracy Alloway.

And I'm Jill Wisenthal. You can follow me on Twitter at the stalwart. Definitely follow our great guests on Twitter, George Perks. His handle is at Perks. Jill Carlson, she's at Jill Ruth Carlson. Follow our producers. Thank you to our substitute producer today. Topher Forges. He's at Forges-T. Thank you to follow our producer, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast. Francesca Levy at Francesca today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all.

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