Dominic Morgan, the Faustian CEO of the NYL in the TV series Devils, loosely based on the novel of the same name by Guido Maria Brera, reflects on the events of Reddit and GameStop, and for the first time he cannot fall asleep.
I rarely have trouble sleeping. I have my worries, but they don’t affect me much. My character and the intangibility of my power are excellent protection. However, these weeks are testing the lintels on which the system I believe in rests. In the end, the only one possible. The events of GameStop and the subsequent stocks, the onslaught of the Reddit community, are a substantial threat. Yes, I can sleep less easily.
The events of Reddit and GameStop are shaking the lintels of the system I believe in. Ultimately, the only one possible.
In itself, the fact is almost trivial. A short squeeze is a market practice. Some gain, some lose: nothing extraordinary. In itself, the single GameStop trade would have been perfect in our narrative. People like us thrive on stories of sudden gains and big crashes. We’re happy with the exceptional feat, which breaks the surface line like a fish and shows that evolution is always in flux. All this plays into our hands. It drives the desire for individual success, it feeds our engine.
The news of these weeks is to be read in perspective: the systemic problem that a new army of financial sleepwalkers could trigger. Because as long as we are fighting in our own arena, the sphere of control contains every step. But this time is very different.
The investor community has felt the monetary paradigm shift.
First, the context that created the conditions is dangerous. The amount of liquidity available to the system no longer provides for shorts. The new mantra is that no one can be left behind. “Fiat money” has become the answer to everything, and failure has been reduced to an impossible event. Speculative bets on decaying industries lose all meaning, if everything has to survive through volumes of money that amount to therapeutic overkill. Valuations without the possibility of failure make no sense.
Reddit’s WallStreetBets are forming an army of soldiers and financial terrorists. Men and machines coming together to undermine the system. They can strike everywhere, attack every ganglion, and so far there seem to be no barriers to stop them. The foundations of finance are in danger. A coalition gathering tens of millions of people around the planet is in front of them.
The small traders seem to be the new bastions of freedom, fighting in the name of the people. We seem to be watching the final scenes of Joker, in which the masked people take to the streets. Both the virality of this story and its impact on the imagination are of an unknown power.
I see a common thread linking the GameStop case to two major events of our present: the pandemic and the assault on Capitol Hill. Because everything that seemed isolated becomes systemic. The virus conquers the individual organism and spreads to threaten the community. Conspiracy theories enter Congress and attack democracy. Groups of irrelevant traders aggregate and grow so much that Wall Street shakes.
Heads are being knocked off in the hedge fund world, and this does not worry me. It’s collateral damage. Actually, every now and then the fall of a big guy is healthy: it certifies the democratic nature of the complex. No, my attention is elsewhere: systemic risks.
I see a common thread linking the GameStop case to two major events of our present: the pandemic and the assault on Capitol Hill.
The real emergency will be to manage the staggering amount of liquidity in circulation. We must be ready for a major financial crackdown, when the time comes, of course, as now it would be premature. If the hunt for all the shorts were to start, the financial world would risk collapse. And with it, the world in general. The correlations on which FinTech rests would blow up, algorithms would go crazy. Above all, there would be a collective realisation that they could really influence the markets. This is the main problem. From controlled creative destruction and fake permanent revolution, we would move to perpetual chaos.
These are the same risks as in 2009, but with a different DNA and appearance: no longer is the system imploding because of its excesses, it is exploding because of the treatment it has been subjected to. The shock therapy that cured the pandemic could turn into a disease. And it could conclude the work of the Great Financial Crisis, another occasion when the great danger came from the loss of control.
Small investors aggregated by social networks are like swarms. They strike with sudden violence, they move unpredictably. However, our strength is based on the predictability of behaviour, the direction of capital flows, the measurement and manipulation of impulses. Recalling the free market, individual freedom, is of course an illusion. A great fiction. For us, everything revolves around controlling what happens: losing control is the only fear that can keep us awake.
All these warriors, ready to fight for the freedom of the markets, do not realise that 99% of them will end up being the biggest losers. No matter what, whatever the scenario. Because the house always wins, but if it loses, it spells trouble for everyone. Perhaps, this story will be adapted into films, books, TV series, and it would imply that we would have won — once again. Still, before I can fall asleep, I think and admit that the ending, this time, might not be written yet.