Once again Wall Street’s short rorts are risking thousands of Australian jobs. And once again Australia’s media is more interested in reporting the LARP* theatrics of hedge funds and Redditors than the real life impact.
Here’s a dose of real life: GameStop’s Australian “#1 gaming and pop culture retailer”, EB Games, has hundreds of shops across shopping malls, employing somewhere between 2000 and 4000 people (although the pandemic makes numbers uncertain).
Like all retail (and other IRL** experiences such as cinema), it’s under pressure because of digital disruption and the stay-at-home COVID-19 lifestyle. Last year EB Games closed about 20 stores. Unlike, say, similarly disrupted old media, retail lacks the political clout to get the government to shake down tech platforms on its behalf.
Rather than leave matters to the actual marketplace of buyers and sellers, the masters of the universe in the financial markets decided to hurry on the collapse of retail by using “shorts”, borrowing shares to sell now, buy back (cheaper) later.
The play has been hollowing out capitalism for 30-odd years in a five-step death spiral: manufactured share price collapse through shorting, which allows a cheap private equity buyout, who gut through sackings and closures, then relaunch or rebrand, before quietly closing.
In journalism, movies and TV, the hedge funds are proudly the misunderstood anti-hero. Take the fictional Bobby Axelrod in Stan’s anchor program Billions: “We’re white blood cells scrubbing out bad companies, earning for our investors, preventing bubbles. A hedge fund like mine is a market regulator.”
The reality is that hedge funds create no value. They’re money-sloshing machines that make money on turnover, not results. This means they’re incentivised to “do something” to maximise turnover, whether that’s moving the market through shorts, falsifying results (hello Bernie Madoff!) or offering, umm, alternative services like the late Jeffrey Epstein.
That’s where the business media comes in. The best skill a fundie can have is to be able to talk a good game on business cable shows or be a source of insider gossip for the financial papers (and now newsletters and blogs).
It’s the business model of the bookmaker: the media-mediated publicity dangles the lure of comparative greed, of a “my return is bigger than yours” brag, to pull in a cashflow of investor billions which in turn deliver easy millions to the hedge fund courtesy of a 2% clip.
The result? Most hedge funds underperform the sharemarket index most of the time and charge significantly higher fees for the privilege.
The traders who populate hedge fund floors in some job creation scheme for the MBA-educated offspring of the ruling class are more like bookmakers’ pencillers than the masters of the universe they aspire to be.
Australia — and Australian media — bears some of the blame. Long before the country shipped Rupert Murdoch offshore to New York, Melbourne-born Fortune journalist Alfred Jones decided it would be safer to hedge shareholdings by using buy and sell options rather than buying and selling actual shares.
In finance, no good metaphor goes unabused: “hedge funds” are the face of systemic risk.
Post-GFC, Australia has reduced the risk: investors increasingly opt for index funds with returns boosted by franked dividends while big institutional investors, like Australia’s industry funds, have proved cautious. Most industry funds avoid hedge funds and most decline to lend shares for shorting.
So what next? Just as pokies in pubs “democratised” gambling, gamified online trading apps like the now infamous Robinhood are “democratising” access to these financial instruments. More importantly, the squeeze that r/WallStreetBets put on Wall Street funds (by bidding up GameStop stock when the hedge funds had bet on it going down) reveals what happens, as Bismark warned of politics, when people get to see just how the financial sausage is made.
It’s teaching “Wall Street” a hard lesson: it might be long on money, but it’s short on trust. As a bogey for both new Democratic progressives and right-wing Trumpian populists, it faces being clipped in turn with serious regulation.
Forget the stock exchange theatre. That’s the story journalists need to be watching.
*Live Action Role Play; **In Real Life