Finance is Funds and Games Until It Stops (For Hedge Funds in New York)

By Nazli Azergun

Two weeks ago, we experienced a flamboyant coda to an extremely eventful month. Between processing the assault of the US Capitol and Trump’s departure from the office, few of us expected the rather sudden and forced meltdown of a long-brewed shorting strategy on GameStop shares. Established in 1984 as a partnership of two Stanford graduates, GameStop is one of the relics from the brick-and-mortar retail era and a source of 90s nostalgia. GameStop has been losing ground since the rise of Amazon and other Web-based gaming stores; this downturn has been showing up in poor earnings performance and ever-decreasing share prices. Undoubtedly, this struggling relic has been a battleground for multiple conflicting interests. Hedge funds such as Melvin Capital Management and Maplelane Capital have been piling options of GameStop since at least mid-2019, meaning that they aimed to sell the shares dearly at a given time with the hope of buying them cheaply later, while investor Ryan Cohen, co-founder of successful ecommerce startup, bought 10 percent of GameStop shares in late 2020 [1]. This meant that while some people rubbed their hands in anticipation of GameStop’s destitute failure others hoped that the company would recover upon shedding its anachronistic makeup. Months later, when the retail investors stepped in, they dramatically shattered the former’s dreams and left them scrambling for cash to buy their already sold shares.

The positioning on GameStop shares by retail investors goes further back than the earthshaking few weeks in January kindled by the day-trading Redditors. When Youtuber Roaring Kitty, aka Keith Gill, noticed the hedge funds’ shorting strategy on GameStop around June 2019, shares were trading at around $5.5. Perhaps hoping for an eventual rise in GameStop shares, perhaps anticipating hedge fund failure, Gill started buying GameStop shares. It was not until about 18 months later that he would see profits: exactly a year prior to the incredible 1500% surge in share prices, GameStop traded at around $3.90 per share [2]. Then, one day in January 2021, posters in the Reddit channel r/WallStreetbets once again pointed out the extreme shorting on GameStop by hedge funds (and of course, Elon Musk had to put gasoline to this fire by his one-liner on Twitter). No doubt, the rest is history: Redditors and other retail traders who heard about getting rich and sticking it to the Man too, start buying GameStop shares or use call options on these shares. As more retail investors buy GameStop shares, the increased supply drove up the share price. This meant that those who bought and held on to GameStop shares would be in net gain, so long as the growth in demand is sustained. On top of that, if they refused to sell their shares to those who needed them, i.e., hedge funds, they would not only see their gains rise but also the shorting investors crumble––which is what happened in the last week of January 2021. The GameStop shares rose from $19 to $350 in less than a month [3].

Of course, such an anomalous movement in the stock market did not go unnoticed, nor un-intervened for that matter. Seeing mega-scale asset managers slip, financial institutions stepped in to infuse credit into these hedge funds and financial intermediaries—even the self-claimed activist ones such as Robin Hood—halted the trading for GameStop shares. Following the rather illegitimate interventions, which make up foul play in the market capitalism book and brought the two polar opposites of the Congressional spectrum, Alexandria Ocasio-Cortez and Ted Cruz, to a shared opinion, GameStop shares stabilized around the $90-$50 band per share, in the first week of February 2021––definitely underwhelming compared to the surge a week prior [4]. While the public opinion waits for the hearings of the Congress and the Securities and Exchange Commission (SEC), Redditors went to look for other heavily-shorted, poorly-performing relics of a bygone brick-and-mortar retail era, including but not limited to AMC Theaters, Blackberry, and Bed Bath & Beyond.

While many do not imagine anthropologists as studying finance, Anthropology of Finance has been a thriving branch of the discipline since 1980s. It became all the more active and important following the 2008 Recession, which forced people to take account of finance’s relationship to society [5]. And anomalies like the GameStop short-squeeze open up a window into understanding contemporary financial capitalism as a political project based on a social convention around valuation of commodities, time, and risk. This social convention is not an impartial contract as many claim it to be but enacts a political agenda to reinforce the privileges of the few. Finance is actively made through seemingly neutral technologies such as short-sell, derivatives trading, or call options. Perhaps, by looking at this constellation through an anthropological perspective, we can push for ways in which technologies of finance are employed for redistribution rather than dispossession. Or maybe not.

Shorting performs value, which performs inequality

An important part of the public reaction against GameStop short-squeeze stems from the hazy aura around its legitimacy and legality in profiting off of financial markets. While shorting can be highly speculative, as investors bet on stocks to lose value, there is nothing inherently illegal or illegitimate about shorting, at least according to the US law and regulators [6]. Shorting, however, proves more problematic when we look at it from a valuation perspective and when we think about how this speculative profiting technology has become an accepted and commonplace financial strategy. Very briefly, shorting happens when an investor borrows a stock and sells it on the market to use the gains for investing in other instruments. The investor’s lender has the right to call back a stock, which means that when asked, the investor has to give back the stock, and not its money equivalent. If the initial stock is in a decreasing trend, the investor is lucky: they can sell a stock for, say, $5 and then buy the stock back at, say, $3 when the lender asks. The $2 difference is the shorting investor’s profit and can be used in investing further. The added value of this investment operation stems primarily from the fact that the investor won their initial bet that the shorted stock would further drop in value. If the investor had been wrong, and the stock prices rose, they would be at a loss—which is what happened this past month when people flocked the market to buy more and more GameStop shares that the hedge funds shorted.

In one sense, shorting looks quite different from how we imagine added value and exchange operate in contemporary capitalism. At the most basic level, for instance, when a buyer gets a shirt in exchange for money, the buyer does not sell the shirt; they do not use the money in making more money, and then return the shirt to the seller in exchange for the initial sum paid for the shirt. In basic commodity exchange, the transaction is definitive and concludes momentarily. Of course, the buyer of the shirt can sell the shirt to another buyer and then use the money to earn more money. However, they cannot bring the shirt back to get their initial sum back, unless the shirt seller has a very generous return policy. The basic commodity exchange operates in “temporal succession,” as Marx would say, which means each act of exchange depends on the completion of the preceding transaction. Why then is the stock exchange an exception, organized more haphazardly, with seemingly no temporal ordering or limitations? [7]

“In other words, markets are not efficient in and of themselves; what makes them efficient is the discourse that they are efficient.”

When French sociologist Michel Callon tried to answer this question in the late 1990s, he positioned himself between the economic arguments, which took markets to be the natural and naturally efficient consequences of human interaction, and the arguments of political economy, which argued that markets can exist through regulator and government planning and intervention [8]. Callon, in a sense, fused these two outlooks and argued that the markets did not exist on their own to impose calculative frames and transactional obligations upon individuals, institutions, and disciplines involved; rather, the components of the market economy dynamically made and remade markets and the economy in general, over and over again [Ibid.]. In other words, markets are not efficient in and of themselves; what makes them efficient is the discourse that they are efficient, along with the plethora of arrangements and practices that realize markets’ efficient quality in the process. Like a wedding, as described by the philosopher John L. Austin, where the utterance ‘I wed thee…’ inaugurates a matrimony, the economists’ assumption that markets are efficient and reflect all the available information immediately, creates a reality whereby one cannot beat the financial market because it is already momentously adapting to the changes in prices [9].

As Callon introduced a huge breakthrough into social studies of finance, moving the frontier of discussion beyond a binary between embeddedness and naturality, many scholars followed suit and took Callon’s performativity thesis to explain the workings of financial markets and various investment tools. Perhaps the account of options trading by sociologists MacKenzie and Millo can also shed light on the performance of shorting. In their 2003 article, MacKenzie and Millo show the parallel development of Chicago Board Options Exchange, a venue for trading stock options, and the Black-Scholes-Merton formula, used in options pricing to forecast volatility and profitability [10]. Regulatory restrictions around agricultural price floors in 1960s compelled Chicago Board of Trade to resort to options, which are fundamentally the contracts to buy a product in the future for a price set now. However, options were ad-hoc contracts created between two parties and as such, required standardization for its trading at a larger scale. To ensure standardization and less risky transactions, the Chicago Board recruited economists, securities lawyers, former SEC officials, and current Board members to find out the best standardized product and lobby for its acceptance as a legal investment instrument. Economists Fischer Black, Myron Scholes, and Robert Merton came up with a model that formed the foundation of standard options pricing. The BSM model was believed to “hedge any [risks associated with] option transaction[s] perfectly” given that the markets were efficient [Ibid.]. But there was a catch was––the markets were not efficient. Hence, come 1972, when the model was first tested against the prices of ad-hoc options already traded on the market, it had little empiric validity [Ibid.]. This did not discourage the trio of economists, nor the Board executives. Throughout the following decade, the model’s fit was improved by changing variables or taking their derivative; by actualizing the model’s assumptions through regulation, like lobbying to reduce commission fees for options trading or lifting the restrictions over the use of credit in portfolio creation; or by adopting it as the guide for incoming traders [Ibid.]. As MacKenzie and Millo argue, options trading was made to “gain greater verisimilitude” by strengthening the social convention around its acceptance as an effective and legitimate tool [Ibid.]. Similar accounts of performative creation of financial reality and principles can be compiled for practices such as portfolio diversification [11][12], arbitraging [13], passive investing [14], whereby the right to property and other financial regulations [8], the temporality of financial transactions [15][16], and the physical properties of the financial market [17], among others, make up financial markets and practice––and shorting is just another example of this.

Having understood shorting as a logistical possibility and a makeshift arrangement that performs part and parcel of the financial markets, I now turn to how in the world it came to be accepted as a commonplace, value-generating, legitimate financial tool. True, there is some questioning around the legitimacy of shorting, which was kindled by the GameStop phenomenon. However, there have not been significant sanctions against shorting so far and many believe that the hedge funds’ shorting of GameStop will not yield sanctions nor regulatory action [6].

“Mauss’ work shows us…that the modern understanding of exchange as asocial might be a fiction.”

As an anthropologist, I keep coming back to Karl Marx and Marcel Mauss in asking about the origins of societal value. Both Marx and Mauss framed value as part of a social convention, created through a contract held by the members of society. For Marx, the contractual value becomes visible in the ability of people to engage in exchange: the fact that we are able to exchange incommensurable entities, commodities, by using a universal equivalent, money, attests to an implicit social convention around the commensurability of goods by way of monetary conversion. To put it simply, when I sell a quart of milk to get a loaf of bread, I resort to money to build commensurability between these two goods; if it was not for money, it would be quite burdensome for me to find a baker who needs exactly one quart of milk. And the universal quality of money-form in exchange stems from its acceptance, willing or forced, by the members of the society—hence, the social convention and its importance in generating value [7]. For Mauss, on the other hand, exchange relations reflect a bundle of social obligations, roughly put as to give, to receive, and to repay. As opposed to how exchange of goods is understood in Mauss’ homeland, devoid of social content and responsibilities, many indigenous communities around the world regard exchange as inherently social and fundamentally the medium of fulfilling one’s various social obligations [18]. While Mauss’ work shows us the contexts in which exchange can be social, it also allows us to consider that the modern understanding of exchange as asocial might be a fiction [Ibid.]. I wish to make a similar argument here, using Marx and Mauss: Shorting, concocted through models, formulas, regulations, and accessible venues, creates considerable value, which is mostly considered legitimate, because we, as members of contemporary capitalist societies, implicitly accept financial markets as legitimate and effective venues for value creation. Moreover, the participants in the financial system, e.g. regulators, investment bankers, retail traders, households, take on and fulfill appropriate social roles as the oversees, masters, ordinary participants, and so on. The widespread participation of society in the financial system bolsters the understanding that financial markets have little social embeddedness: when the government figures as an inactive regulator and numerous other actors can participate in finance in their own fashion, it is easier to argue that financial markets are just different actors freely and naturally coming together to create an efficient distribution of resources, with little imposed social coordination. Does the assumption that financial markets are almost devoid of any social links mean that anyone can take up any role within financial markets? Does the accepted impartiality of the markets mean that anyone who plays by the book of finance can profit?

Not really, as it seems.

Intervening in the name of the un-intervenable: Robinhood stops transactions on GME

It was at the height of the GameStop share surge when social media begin to blow up with angry posts about Robinhood and screenshots showing the error message users encountered when they tried to trade the stocks of many shorted companies: “You can close out your position in this stock, but you cannot purchase additional shares” [19]. As the hedge funds kept bleeding money, it turns out, trading platforms stepped up to control the extreme surges in stock prices of GameStop and other heavily shorted companies. The reaction was even more intense in the context of Robinhood: “How come Robinhood, the [self-claimed] pinnacle of democratized finance, out of all, could do this to people?”: After all, this online trading app, founded in 2013, “pitched itself to investors as the antithesis of Wall Street,” where ordinary people could easily invest without being bound by high commission fees or other gatekeeping restrictions [20]. Of course, those who happened to know how Robinhood earns money, that is, by selling user data to big clearing houses and financial intermediaries, would know such claims are mostly air [31].

 Despite this knowledge, Robinhood’s particular hypocrisy in the GameStop short-squeeze remains unbearable for many. However, Robinhood defends its stance by saying that it is still bound by clearinghouses and regulators who are trying to make sure that the market does not collapse all of a sudden. In that vein, Robinhood claims, its hands are tied. What makes the hypocrisy all the more unbearable is the double-standard around what market collapse actually means: it is definitely not market collapse when hedge funds, which by the way market themselves as the seekers of high-risk/high-return investments, carve value out of the low-performing companies; it is market collapse when retail investors call hedge funds on their bluff. And although there might be some hearings by the Congress and the SEC, and maybe even some class action lawsuits against trading platforms for illegally halting transactions, the status quo serving the interests of institutional investors and financial elite will stay intact.

The case of Robinhood against Redditors shares similarities with that of Jonathan Lebed, the 15-year-old who speculated penny stocks (of small public companies) through Yahoo! Finance message boards in the late 1990s-early 2000s [6]. Disguising his identity through different usernames he picked, Lebed sent numerous messages to public forums about stocks; by doing this, he hoped to increase the demand, hence the prices, for the stocks he held. What he did was toeing legality; according to some, it did not differ a lot from what your everyday asset managers and financial analysts would do on a given day [21]. Regardless of the murky legal standing, Lebed did make about $800,000 in the six months he had been trading, before the SEC began to investigate his activities [Ibid.]. The case did not go to court but Lebed ended up returning almost half of his stock trade earnings [Ibid.].

“The problem here lies in the fact that regulation…serves to make the rich richer and the poor poorer through selective distribution of financial accumulation.”

While some commentators lament these events as proving the shortcomings of financial regulation and use them as a cautionary tale for future regulators, they also show the existence of a political agenda informing the definitions of what is legal and legitimate in financial markets [6]. For instance, Steven Pearlstein argues in one of his most recent op-eds: “In terms of manipulating the market, either both groups [hedge funds and retail investors] engaged in market manipulation or neither did. And the ridiculous thing is that, in the eyes of market regulators […] it’s all perfectly legal.” [Ibid.]. Then, what compels market regulators to step in and re-organize financial markets is not a legal or a moral consideration of doing what is right and good, but a biased urge to distribute financial resources to some and not others—by way of designing and implementing interventions. There is not anything inherently wrong with intervening in markets or resource distribution mechanisms; in fact, it would be desirable in cases where it is difficult to ensure a sustainable and equitable distribution out of the blue. The problem here lies in the fact that regulation, or its implementation, serves to make the rich (and their super-managers) richer and the poor poorer through selective distribution of financial accumulation, while keeping a face of non-intervention and naturally-occurring efficiency, effectiveness, and justice [22]. From one perspective, financial accumulation operates as the modern-day schismogenesis, creating a gulf between different groups of actors, say between day-traders, capital-owners, and underbanked individuals; enlarging this gulf through practice and regulatory intervention (and non-intervention); and thereby further reinforcing unequal social relations [23].

The only way out is through?

            While it is easy to blame finance and financialization as they worsen the societal inequalities, especially in the context of capital ownership but also in terms of access to basic necessities, I also wish to point out that it is an important technology of value creation. For example, at face value, Collateralized Debt Obligations (CDOs), which generate value out of a debt claim by insuring it, seem to be one of the most brilliant inventions of human beings. However, as many anthropologists and critics of finance have underlined thus far, it comes with two issues: First, as anthropologist David Graeber would argue, the transformation of debt from a future promise into a forceful legal and moral obligation involves an institutional and violent imposition that is at its core colonial, white supremacist, and heteronormative [29]. Second, as feminist anthropologist Laura Bear shows in her recent critique of speculation as serving extractive and exploitative ends, the uneventful acceptance of financial technologies, most of which rely on speculation and other non-transparent and mostly exploitative techniques, naturalizes and reinforces the inequitable distribution of resources along the lines of race, nation, class, gender, and so on [30]. Understanding how certain financial instruments serve certain communities at the expense of others helps situate finance vis-à-vis historical injury and systemic violence inflicted on underserved communities and more-than-human environments [24][25][26]. But is there a way to turn this around and re-purpose finance for (re)possession and empowerment?

            Once again, as Laura Bear points out, the financial technologies that are widely used by the financial elite and their benefactors at the expense of others can be adopted by those who are marginalized by the current financial system [30]. In repurposing this technology, these traditionally excluded communities can re-assert their share in the distribution of resources, and thereby potentially enact a more just financial system [Ibid.]. There have certainly been some promising examples to this end. In fact, some may count the Reddit-inspired take-down of hedge funds this past January as one example. After all, Redditors shook the financial markets so much that even Goldman Sachs analysts now take them more seriously as investor groups with significant potential for coordination against established financial actors [27]. The recent surge in GameStop share prices and the refusal of investors to sell their stocks showed the world that retail investors, who definitely lack the monetary and social capital to be on par with asset managers and institutional investors, can be a powerful actor within the distribution of financial capital and resources. However, like many others, I have my own rightful doubts about whether Reddit can be the place for financial re-possession, as it is also a hub for white nationalism, sexism, and heteronormativity. But there are also other examples of attempted (re)possession by way of financial repurposing. For example, this past year, Native financial intermediaries, like Oweesta CDFI, in the United States have been working with the Native-owned small businesses applying to CARES Act loans provided in response to the COVID-19 pandemic. These non-governmental Native organizations helped coordinate Native business owners, who have traditionally lacked access to traditional financial institutions, to get much-needed loans for them to survive the economic impact of the ongoing pandemic. On the other hand, within the sustainable investing movement, which saw a huge jump in volume and demand during 2020, financial institutions are resorting to the power of financing to force corporations to be more environmentally and socially sustainable. These are indeed promising examples, one can say. We also need to be wary of how even these promising examples are bound by the current governing principles of finance, like shareholder primacy or government categorizations, which can along the way stem their potential for meaningful changes for a more equitable distribution. Maybe this is disheartening. Or maybe not––maybe they “mediate diverse life projects” directed for (re)possession and anticolonialism by “articulat[ing] with [the] dominant processes in unexpected ways” [24] until we figure out a “post-shareholder value world” devoid of colonial violence [28].

About the Author

I am a PhD student in Anthropology at the University of Virginia, Charlottesville, USA. My research interests revolve around sustainability in finance and beyond, ethics of finance and capitalism, corporations and alternative economic systems like income-sharing communities or cooperatives. I did ethnographic research in an income-sharing community in rural Virginia, US, where I tried to see what contributes to a community that is striving for equity. I received an MA degree in Global Studies from the UC Santa Barbara and BA in Political Science from Bogazici University, Istanbul, Turkey. I enjoy swing dancing, swimming, and writing poems and stories.






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About Nick Mizer

Although much of my work focuses on tabletop role-playing games, I think that geek culture in general has a lot to offer for anthropological study, from understandings of modernity and consumerism to the role of the imagination and wonder in the midst of those more “serious” trends. As I explore these things, I find myself straddling the borders between anthropology, folkloristics, and performance studies.

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