Our latest January/February issue is finally at the printer (and about to be sent to e-subscribers). Yesterday we published the lead article by economist John Summa, The attraction of the “democratization” of finance. Find the table of contents here. And here is Fr. 2 editorial note:
Finances and class
In a recent article on “the stock meme revolution,” the the wall street journal reported that the twelve largest stock brokerages in the United States made a total of $3.8 billion in 2021, up 33% from 2020, to “sell buy orders from ‘stocks and options of their customers’ to e-commerce companies. What does this mean and how can stock brokers make money doing this?
As John Summa says in his in-depth article on Robinhood Financial and last year’s “meme stocks” bubble, brokerage firms like Robinhood sell their customers’ orders to wholesalers like Citadel LLC and Virtu Financial who fulfill orders from obscure “black pool” inventory – but not at the best prices customers would find on public exchanges like the New York Stock Exchange.
The bribery scheme, called “payment for order flow”, has been banned in other countries and was criticized in a recent report by the Security and Exchange Commission on the social media bubble of the last year. The program is also key to explaining how so-called “democratizing” trends in the investment world, like user-friendly smartphone apps that make stock and options trading a game, are attracting millions of investors. beginners just to get their money. siphoned off by Wall Street insiders whose profits swell as trading volume increases.
Variations of this story are told again and again in our special issue on finance and class: financial markets are supposed to direct savings towards productive investment, but in practice they redirect the savings of ordinary people towards pockets of big money interest. And the innovations in finance that are marketed as helping the little guy only reinforce the class dynamics in finance, where ordinary people risk their meager winnings in a casino where the house – the big financiers of Wall Street – almost always wins. .
Hadas Thier’s article on cryptocurrency traces this class dynamic, while debunking claims that digital currencies are a “liberating leaderless movement to overthrow the plutocrats who have profited hand-in-hand from our centralized banking system. “. Thier demonstrates that, far from undermining plutocracy, cryptocurrencies exacerbate existing concentrations of wealth and power. And on top of that, the digital “mining” technology they depend on is extremely destructive to the environment.
Doug Orr talks about one of the ways ordinary people can use finance to fight corporate bad actors, especially through “labour capital,” pension funds. But he argues that one of the strategies favored by activists – calling on institutional investors to divest from problematic industries like fossil fuels and private prisons – is not as effective as using investment funds as leverage. to change business behavior.
Bill Barclay guides us through the world of financial derivatives, futures and options to the alphabetical soup of derivatives we remember (sort of) from the Great Financial Crisis – MBS, CDOs, CDS, etc. – with a historical introduction that will arm us for the next time these “financial instruments” – the tools of financiers – come back to bite us. And they inevitably will, since trading volume is on the rise and the murky OTC trading that led to the last crisis is still under-regulated.
Our columnists provide context: John Miller on the Fed’s proposed ‘racial equity mandate’ at a time when the Fed is feeling pressure to end its low interest rate ‘easy money’ policies interest; Ed Ford gives a reminder on the concentration of shareholding; and Arthur MacEwan explains how the growth of the financial sector has combined with other factors to generate massive inequalities.
Since finance is even more full of jargon than other topics we cover in Dollars and senses, we have made a special effort to highlight our authors’ definitions and explanations of specialized terms. And we tapped cartoonist Masheka Wood, who illustrated two previous issues on big investors and corporations, to illustrate the features of this issue on cryptocurrency and derivatives. We hope that, taken together, these articles will help show how for-profit finance benefits big-money interests at the expense of the rest of us, perhaps especially when it claims otherwise.