The recent GameStop scandal is not easy to understand. Suffice it to say that it involves stock market tricks that traders play to make money off the misfortunes of declining companies. By placing bets on bleak futures, traders can game the system to garner profits.
Such tricks add nothing to market value. They do not represent shareholders or protect their investment. Indeed, these flash shareholders hold (or even rent) shares only long enough to either shave off their profits or minimize their losses from a bad call.
The GameStop Game
These tricks usually do not cause an uproar since they are not illegal. However, in the case of GameStop stocks, all hell broke loose.
The tricksters were day traders, amateurs and basement computer geeks who outsmarted the establishment brokers and hedge fund managers who incurred billions of dollars in losses. The amateurs pumped up the price of GameStop while the brokers placed their bets downward.
Adding to the confusion, the brokers turned the system against the intruders to recover their losses. Robin Hood, the trader app that enables the “populist” newcomers to trade without commissions, betrayed its namesake and helped the brokers take back from the poor what had come from the rich.
The media have turned this narrative into a Marxist drama of oppressive giant tricksters pitted against the oppressed small tricksters. It is framed as a “populist” revolt against the system. What they forget is that both parties are tricksters.
Who Is at Fault?
Stock market watchers are debating whether the move bidding up GameStop broke trading rules. The stock exchange has regulations to prevent “pump and dump” maneuvers that openly conspire against stock prices.
There is much room for criticism from both parties. Some criticize the practice of stalking and circling weakened companies to make profits. Others question the rapid and coordinated bidding up of GameStalk stocks to many times the going price. Many resent the tactics of the brokers that pressured Robin Hood to change its trading rules.
Everyone forgets that both parties exhibit a behavior that is harmful to markets and sound investing. People don’t think about how the trading action arbitrarily distorted the true value of the company. Parties won and lost money by furiously bidding against each other, frustrating the purpose of investing.
An Undercurrent of Frenetic Intemperance
Both parties represent a volatile and toxic undercurrent in the economy that has a destabilizing effect on society.
In the history of modern economy, honest merchants, businessmen and investors have generated unprecedented prosperity by following business and moral norms. However, there have always been those inside this toxic undercurrent with a restless and reckless spirit. They foment a drive to throw off legitimate restraints and throw markets out of balance.
This undercurrent is defined by what might be called frenetic intemperance, an explosive expansion of human desires beyond traditional and moral bounds.
Its frenetic nature leads those of this undercurrent to scorn the spiritual, religious, moral and cultural values that normally serve to order and temper economic activity. It constantly probes the limits of what is allowed in search of ways to game the system.
A Moral Problem Getting Ever Worse
Thus, tricks to game the system are not specifically economic problems but moral and psychological ones deep within the soul of modern man that manifests themselves in the economy. The whole culture reflects this tendency to unrestraint and flight from virtue.
Explosive outbursts like the GameStop game only serve to highlight the self-destructive character of this intemperate undercurrent that will eventually destroy free markets, undermining order and eroding moral values.
If there is to be a return to order, America needs to address the moral problem of frenetic intemperance that turns society away from virtue and God. The problem is not the gaming of GameStop stock. It is stopping the frenetically intemperate GameStop game.
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