You’ve probably seen by now some of those new—and jaw-dropping—stats on billionaire wealth. Analysts at Inequality.org started the statistical ball rolling this past fall with riveting research on how much the fortunes of America’s super rich have climbed since Covid began crushing the U.S. economy. This week those same researchers have come back with an alarming update.
Since mid-March, the latest numbers show, America’s billionaire fortunes have climbed 38.6 percent, over $1.1 trillion, enough to send “every one of the roughly 331 million people in the United States” a Covid stimulus check of over $3,400.
We know exactly—at least mathematically—why billionaire fortunes are rising so fast: Billionaires own a disproportionately large share of corporate stock. Corporate share values have skyrocketed since Covid entered our lives, and no one has benefited more from that rise than billionaires, many of whom happen to run those corporations whose shares are skyrocketing.
These billionaire top execs, insist their cheerleaders, owe their good fortune to their exceptional talents. Today’s richest corporate titans do their best, naturally, to feed this CEO-as-genius perspective, no one more so than Tesla’s Elon Musk. His electric car company now rates as far and away the most valuable automaker in the world.
Musk has watched his fortune leap from $24.6 billion ten months ago to $179.2 billion last week. Tesla now has a market value higher than the combined value of the world’s other nine carmakers—despite only annually manufacturing a fraction of the cars these other manufacturers are making.
The many Musk fanboys tribute that formidable market value to their hero’s visionary genius. But let’s get real here. Today’s soaring share prices don’t reflect CEO visionary smarts or even high levels of two-feet-on-the-ground executive competence. They reflect the plutocracy-friendly government policies and speculative madness that overtake economies whenever a precious few have accumulated too outrageously much.
What exactly is going on? Let’s start with those plutocratic-friendly government policies. Support for these policies—on everything from deregulation to trade—predates the Trump years and crosses party lines. But Trump’s generous tax cuts for the rich and various other moves injected sizeable piles of new cash into the pockets of the deep-pocket set. Where to put it all?
The Federal Reserve made that decision easy. The Fed’s low-interest rate policies—a response to anemic growth in the “real” economy—depressed returns from bonds and other fixed-income investments. Stocks became, in a sense, the only game in town for investors with cash aplenty, and the resulting “gusher of money with nowhere to go but speculative assets” drove up share prices. In 2020, the tech-heavy Nasdaq share index rose 44 percent, and the Dow Jones and S&P 500 also hit record highs.
These record share prices, in turn, have driven up the net wealth of the nation’s corporate and financial elite, the core of the top 1 percent. This lofty single percentile, notes a Federal Reserve December 28 statistical update, holds 52.7 percent of corporate equities and mutual fund shares. The bottom 90 percent of Americans own just 11.7 percent.
In this wonderfully rich-people friendly environment, Wall Street has nurtured new financial instruments for helping rich people get even richer. Since the start of 2020, speculators have raised over $93 billion for “SPACs,” short for “special acquisition companies,” entities that venture out into the financial markets flush with all the cash they need to buy up shares in companies with execs eager to cash out or expand.
All these SPAC billions, of course, create still more demand for shares and even more windfalls for top corporate execs, who need not have done anything of note to “deserve” their ever-greater good fortune.
But the speculative madness runs far deeper, as we’ve seen so vividly this week. A failing 37-year-old video games chain, GameStop, has become front-page news the nation over. No surprise there. Not every day, after all, that a company’s shares hurtle from $19 to $483 in just a few weeks.
Media reports have generally been painting this GameStop story as a “David-and-Goliath battle between an army of small investors and Wall Street.” Average Americans mobilized via online message boards, the tale goes, have snookered high-and-mighty financial hedge funds at their own speculative games.
That spin does have an element of truth to it. Some of the now over 6 million average Americans who’ve gathered online together via the Reddit group WallStreetBets have so far made many thousands of dollars in stock-trading profits off relatively tiny initial investments. And some hedge funds, most notably Melvin Capital Management, have taken a substantial hit.
We have no need here to go into the intricacies of the financial warfare that’s pitted Wall Street masters of the universe against the suburban-basement peasants of WallStreetBets. Analysts elsewhere have done noble work explaining the ins and outs of stock options and short-selling.
In a quick nutshell: Hedge fund billionaires have been betting for decades on companies to fail—and sometimes nudging them over the edge. The WallStreetsBets gang called that bet on the hedging around GameStop. They mobilized en masse to buy up shares of the sputtering company, a move that sent its share price soaring and left hedge fund billionaires muttering.
But the whole episode, on closer inspection, turns out to be less David vs. Goliath than “Goliath vs Goliath, with David as a fig leaf.”
The financial insurrectionists of WallStreetBets, for instance, are doing the bulk of their stock trading on the “commission-free” Robinhood brokerage platform. But Robinhood is hardly stealing from the rich and giving to the poor. Robinhood is routinely executing its clients’ trades through “third-party” financial powerhouses that give those clients less than what they should be getting for their money. These third-parties pay Robinhood a fee for the privilege of nickel-and-diming each client trade. The nickels and dimes add up.
“The Street always wins,” observes analyst Elizabeth Lopatto at the Verge, “especially if you’re trading with Robinhood.”
The biggest of the third-party fleecers in the GameStop story, Citadel Securities, actually belongs to hedge fund billionaire Ken Griffin, part of a troika of companies that operate under the Citadel LLC umbrella. The hedge fund part of that troika helped bail out Melvin Capital Management, the biggest hedge fund loser in the GameStop war, and took a hefty ownership share of Melvin Capital in the process.
Among the other major Wall Street players lurking in the GameStop story: Goldman Sachs, JPMorgan Chase, and all the other big banks that host “dark pools,” opaque private exchanges that serve huge institutional investors. These dark pools “have been making tens of thousands of trades in the shares of GameStop on an ongoing weekly basis,” note analysts Pam and Russ Martens at Wall Street on Parade, but our banking giants need not report out the details of their trading on a specific or timely basis, rendering the data they do provide “useless in terms of monitoring price manipulation.”
Wall Street’s banking giants, the Martens team adds, have every incentive to manipulate, “to suck in the small investor at the top of a market bubble in order to create an escape route for themselves”—and actually did that sucking big-time during the 1990s dot.com bubble.
And what, might we ask, of GameStop itself? The company’s corner office crowd has been royally enjoying all the fuss. CEO George Sherman has watched his personal stash of GameStop shares run up “from $45 million a month ago to as high as $1.13 billion.” His largest shareholder, the former CEO of the Chewy online pet-products retailer, at one point this week was gaining $4 million per hour.
Workers at GameStop, meanwhile, don’t have much to look forward to. The company is still planning to close 450 more local stores in 2021.
Let’s end this reflection with an emphasis on the positive. This entire GameStop episode may eventually wind up making a valuable contribution to our political and economic debate. How can anyone now argue—with a straight face —that our financial markets serve to efficiently move capital to innovating enterprises that make significant contributions to our social well-being?
What sort of social order, the GameStop saga forces us to ask, lets people get rich betting on whether companies are going to fail? What sort of society lets top corporate execs enjoy the betting?
What kind of society? The one we have now. The one we have to change.
Content licensed under a Creative Commons 3.0 License
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Some corporate-suite context for the fun and games at GameStop
Amid a rising billionaire tide, could a blip help change our national economic conversation?
Posted on February 1, 2021 by Sam Pizzigati
You’ve probably seen by now some of those new—and jaw-dropping—stats on billionaire wealth. Analysts at Inequality.org started the statistical ball rolling this past fall with riveting research on how much the fortunes of America’s super rich have climbed since Covid began crushing the U.S. economy. This week those same researchers have come back with an alarming update.
Since mid-March, the latest numbers show, America’s billionaire fortunes have climbed 38.6 percent, over $1.1 trillion, enough to send “every one of the roughly 331 million people in the United States” a Covid stimulus check of over $3,400.
We know exactly—at least mathematically—why billionaire fortunes are rising so fast: Billionaires own a disproportionately large share of corporate stock. Corporate share values have skyrocketed since Covid entered our lives, and no one has benefited more from that rise than billionaires, many of whom happen to run those corporations whose shares are skyrocketing.
These billionaire top execs, insist their cheerleaders, owe their good fortune to their exceptional talents. Today’s richest corporate titans do their best, naturally, to feed this CEO-as-genius perspective, no one more so than Tesla’s Elon Musk. His electric car company now rates as far and away the most valuable automaker in the world.
Musk has watched his fortune leap from $24.6 billion ten months ago to $179.2 billion last week. Tesla now has a market value higher than the combined value of the world’s other nine carmakers—despite only annually manufacturing a fraction of the cars these other manufacturers are making.
The many Musk fanboys tribute that formidable market value to their hero’s visionary genius. But let’s get real here. Today’s soaring share prices don’t reflect CEO visionary smarts or even high levels of two-feet-on-the-ground executive competence. They reflect the plutocracy-friendly government policies and speculative madness that overtake economies whenever a precious few have accumulated too outrageously much.
What exactly is going on? Let’s start with those plutocratic-friendly government policies. Support for these policies—on everything from deregulation to trade—predates the Trump years and crosses party lines. But Trump’s generous tax cuts for the rich and various other moves injected sizeable piles of new cash into the pockets of the deep-pocket set. Where to put it all?
The Federal Reserve made that decision easy. The Fed’s low-interest rate policies—a response to anemic growth in the “real” economy—depressed returns from bonds and other fixed-income investments. Stocks became, in a sense, the only game in town for investors with cash aplenty, and the resulting “gusher of money with nowhere to go but speculative assets” drove up share prices. In 2020, the tech-heavy Nasdaq share index rose 44 percent, and the Dow Jones and S&P 500 also hit record highs.
These record share prices, in turn, have driven up the net wealth of the nation’s corporate and financial elite, the core of the top 1 percent. This lofty single percentile, notes a Federal Reserve December 28 statistical update, holds 52.7 percent of corporate equities and mutual fund shares. The bottom 90 percent of Americans own just 11.7 percent.
In this wonderfully rich-people friendly environment, Wall Street has nurtured new financial instruments for helping rich people get even richer. Since the start of 2020, speculators have raised over $93 billion for “SPACs,” short for “special acquisition companies,” entities that venture out into the financial markets flush with all the cash they need to buy up shares in companies with execs eager to cash out or expand.
All these SPAC billions, of course, create still more demand for shares and even more windfalls for top corporate execs, who need not have done anything of note to “deserve” their ever-greater good fortune.
But the speculative madness runs far deeper, as we’ve seen so vividly this week. A failing 37-year-old video games chain, GameStop, has become front-page news the nation over. No surprise there. Not every day, after all, that a company’s shares hurtle from $19 to $483 in just a few weeks.
Media reports have generally been painting this GameStop story as a “David-and-Goliath battle between an army of small investors and Wall Street.” Average Americans mobilized via online message boards, the tale goes, have snookered high-and-mighty financial hedge funds at their own speculative games.
That spin does have an element of truth to it. Some of the now over 6 million average Americans who’ve gathered online together via the Reddit group WallStreetBets have so far made many thousands of dollars in stock-trading profits off relatively tiny initial investments. And some hedge funds, most notably Melvin Capital Management, have taken a substantial hit.
We have no need here to go into the intricacies of the financial warfare that’s pitted Wall Street masters of the universe against the suburban-basement peasants of WallStreetBets. Analysts elsewhere have done noble work explaining the ins and outs of stock options and short-selling.
In a quick nutshell: Hedge fund billionaires have been betting for decades on companies to fail—and sometimes nudging them over the edge. The WallStreetsBets gang called that bet on the hedging around GameStop. They mobilized en masse to buy up shares of the sputtering company, a move that sent its share price soaring and left hedge fund billionaires muttering.
But the whole episode, on closer inspection, turns out to be less David vs. Goliath than “Goliath vs Goliath, with David as a fig leaf.”
The financial insurrectionists of WallStreetBets, for instance, are doing the bulk of their stock trading on the “commission-free” Robinhood brokerage platform. But Robinhood is hardly stealing from the rich and giving to the poor. Robinhood is routinely executing its clients’ trades through “third-party” financial powerhouses that give those clients less than what they should be getting for their money. These third-parties pay Robinhood a fee for the privilege of nickel-and-diming each client trade. The nickels and dimes add up.
“The Street always wins,” observes analyst Elizabeth Lopatto at the Verge, “especially if you’re trading with Robinhood.”
The biggest of the third-party fleecers in the GameStop story, Citadel Securities, actually belongs to hedge fund billionaire Ken Griffin, part of a troika of companies that operate under the Citadel LLC umbrella. The hedge fund part of that troika helped bail out Melvin Capital Management, the biggest hedge fund loser in the GameStop war, and took a hefty ownership share of Melvin Capital in the process.
Among the other major Wall Street players lurking in the GameStop story: Goldman Sachs, JPMorgan Chase, and all the other big banks that host “dark pools,” opaque private exchanges that serve huge institutional investors. These dark pools “have been making tens of thousands of trades in the shares of GameStop on an ongoing weekly basis,” note analysts Pam and Russ Martens at Wall Street on Parade, but our banking giants need not report out the details of their trading on a specific or timely basis, rendering the data they do provide “useless in terms of monitoring price manipulation.”
Wall Street’s banking giants, the Martens team adds, have every incentive to manipulate, “to suck in the small investor at the top of a market bubble in order to create an escape route for themselves”—and actually did that sucking big-time during the 1990s dot.com bubble.
And what, might we ask, of GameStop itself? The company’s corner office crowd has been royally enjoying all the fuss. CEO George Sherman has watched his personal stash of GameStop shares run up “from $45 million a month ago to as high as $1.13 billion.” His largest shareholder, the former CEO of the Chewy online pet-products retailer, at one point this week was gaining $4 million per hour.
Workers at GameStop, meanwhile, don’t have much to look forward to. The company is still planning to close 450 more local stores in 2021.
Let’s end this reflection with an emphasis on the positive. This entire GameStop episode may eventually wind up making a valuable contribution to our political and economic debate. How can anyone now argue—with a straight face —that our financial markets serve to efficiently move capital to innovating enterprises that make significant contributions to our social well-being?
What sort of social order, the GameStop saga forces us to ask, lets people get rich betting on whether companies are going to fail? What sort of society lets top corporate execs enjoy the betting?
What kind of society? The one we have now. The one we have to change.
Content licensed under a Creative Commons 3.0 License
Sam Pizzigati co-edits Inequality.org. His latest book, The Case for a Maximum Wage, has just been published. Among his other books on maldistributed income and wealth: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Follow him at @Too_Much_Online.