Pushkin from Pushkin Industries. This is Deep Background, the show where we explore the stories behind the stories in the news. I'm Noah Feldman. This is still the beginning of our new season here on Deep Background, and we've been talking about the Trump transition, the impeachment trial, and of course the ongoing pandemic. This week, though, another story emerged from out of the blue, a story sufficiently interesting and unexpected that we decided we shouldn't ignore it, in particular because this year we're focused on the theme of power. By now, pretty much all of you must have heard about last week's run on game Stop stock, a short squeeze that began around a Reddit group called Wall Street Bets. Within ten days, the game Stop stock gained more than ten times its value, causing billions and losses to hedge funds who had short at the stock, raising the stock to a point where almost inevitably it will have to come down very substantial because the markets teetered for a moment. This became a lead story around the world, and it's a strange story. The odd issue on which it appears. Both Alexandrio Casio Cortez and Donald Trump Junior seemed to be on the same side. Here to speak to us today and make sense of this complex and fascinating topic is Alexis Goldstein, a former Wall Street pro who now works as a senior policy analyst at Americans for Financial Reform. She writes the popular newsletter Markets Weekly. I asked her to begin by giving us a little summary of the game Stop craziness before turning to the question of what it means for the allocation of power in markets in Polity and beyond. Alexis, thank you so much for joining me. Maybe we could start by my just asking you, for purposes of the general listener, what happened specifically with respect to the Game Stop stock last week. So there has been a real increase in what we call retail trading since the pandemic. So retail trading just refers to non Wall Street people. Maybe it's you, maybe it's me, Maybe it's our friends using some kind of online brokerage like e Trade, like Fidelity, like Interactive Brokers, and more recently like robin Hood just to trade, you know, as a non professional. So there has been this really big surge in retail trading since the pandemic. Maybe you know, part of that is because people are at home. And there's also been this growth in the popularity of a particular selb breddit called Wall Street Bets that is focused on basically gambling in my opinion on the stock market and picking, you know, hot stocks to bet four or against. And there was one particular person on that subreddit who really thought that game Stop was a goodbye and have been talking about it for a while. And I guess the popularity of that as a position grew and grew, and then it was sort of compounded by the fact that this reddit forum was looking at the list of stocks that are most frequently shorted. So a short is when you are betting that the stock price will fall, and the way that that is operationalized is you borrow the stock from somebody who owns it. They lend it to you, You immediately sell it, and then you sit tight and hopefully you don't worry too much and wait for the stock to drop, and if it drops, you can buy it back at a cheaper price, return it to the person who loaned it to You give a little bit of interest on the loan of the stock, and you make a nice profit. That's how it's supposed to work. So they were looking at this list of all of these stocks that were very frequently shorted, and GameStop was one of them, and they decided to manufacture what is called a short squeeze. And a short squeeze is essentially, if I'm short a stock and I don't want to give it up yet, and it starts to move against me, and it starts to rise above where I sold at, and it rises and rise and rises. The person that lends me the stock isn't just going to be like chill and normal and wait for me to turn a profit again. They're gonna demand some cash because they're worried I'm going to blow up and I won't be able to perhaps return the stocks to them because I won't have any money left. And that's what's called a margin call. And so a short squeeze is kind of like when collectively all of these shorts start to have their positions move against them, the lenders of the stock to them demand some money, right, they make a margin call on all of them, and then they have a choice. They either have to close out the position at a huge loss, or they have to sell a bunch of other stuff in order to put up some money so that they can keep going in hope maybe this position will move against them. So these folks on Reddit basically decided collectively, all together they were going to try and manufacture a short squeeze on game Stop by a bunch of retail traders all buying games Stopped together at the same time, and they did so. That was a great setup. And collective is actually a fascinating word here, because although all the people on Reddit in some sense acted collectively to do this together, none of them was looking over the other's shoulder in such a way that they could actually judge whether they were really doing it. But as it happens, they really did do it. And once they started doing that, the price of game Stop stock started going up, which it would have gone up in any case if a lot of people were trying to buy it, and then that in turn led the short sellers to have to buy more of the stock, which also drove the price up, and by the end of the process the stock was at a remarkably huge multiple of its prior value, right right. And it's sort of compounded by the fact that a lot of the folks using robin Hood and all Reddit are also buying options. So an option gives you the right, but not the obligation, to purchase or sell a hundred shares of a stock at some point in the future for a set price. But the person that you typically buy an option from is a market maker who does what's called hedges their position by buying the stock. Right, if I'm selling you, Noah, an option that lets you buy something from me in the future, I need to have that hundred shares of stocks to give to you, and so typically, if I don't already have it, I'm going to go out in the market and buy it. So it was even further compounded by the fact that there was all of this options activity, which the people who sell the options have to hedge by again buying the stock. So it was just sort of this confluence of things. And then the only other wrinkle that I will add to it. And this is just my suspicion, right, I don't think we know for sure, but I don't think this was just right. I don't think this was just retail traders. They were very public about their plans, and I suspect that you had a lot of institutional players, maybe hedge funds that were also pushing the stock up and making their own purchases. We don't know for sure, right, but that's my suspicion, And just to clarify less, your theory would be that those people were basically or those actors, institutional actors were just piggybacking, right. They saw it happening, they thought there was some probability that it would work, and they said, oh, well, the stock's gonna go up. Let's also buy some of the stock earlier on. That would have driven the price to stock up as well. It's not that those institutional actors would have thought that there was quote unquote real value at the higher price point. It's just that they saw the squeeze happening and they thought they'd want to get in on the fun. Right. That's my speculation, right, don't I don't think we know. And the other sort of added wrinkle to that is there are plenty of players who don't really wait around for that, who trade in and out of things very quickly, over and over again, over fast time periods that may also have been trying to profit off of it as it went up because there's some volatility, right, It didn't just shoot straight up like sometimes it goes up, it goes down at Gozepico scone. So I think it was a combination of things. But the short version is I suspect while Street had some hand in this as well, it wasn't just retail. Yeah, and if it were institutional investors, that doesn't just mean human beings of training desks. It also means algorithmic training programs that don't care what the thing is, but if they see a pattern of rise, they might make the prediction and to buy, So that could have contributed to it potentially as well. That leaves just one last piece of the setup before we start turning to the implications. And I just want to hit on that because everything you've said so far just sounds like it's a potentially happy story. Right, somebody is short the stock, the prices go up. Not good for the prisoner shorts to stock, but good for everybody else. The stock goes up and up and up. But there's a downside, which is that what goes up in this context almost certainly must come down. So explain why the stock has come down somewhat since then, and what ultimately, at least in the view of most financial professionals, yourself included gives us reason to believe the stock will end up way, way, way lower than it was at its peak, and in fact, maybe not so far from where it was when this all started. So my concern, and I think other people's concerns here, is that this looks like a bubble, and traditionally, when you're in a bubble, the bubble bursts, and one of the sort of traditional signs that you are in a bubble. I don't know if it's scientific, but like at least in the dot com bubble and the pre two thousand and eight bubble, when you start to hear from people who aren't typically paying attention to the markets asking you if they should buy into the markets all of a sudden, that's usually the sign that the bubbles about to burst. And I don't know about you Know it, but I've had a lot of people asking me should I buy you know, Nokia or BlackBerry? Right now? Should I buy dog coin? There's a lot of interest from my friends who are typically not people paying attention to the financial markets, which says to me that we may be approaching what's called the top right and when the bubble burst, the bottom falls out. The prices collapse. And the other reason that they that very well might happen is GameStop isn't really I don't think that it's underlying value justifies its current prices. It's certainly been widely reported that there is skepticism about the current valuation of GameStop and some of these other names like AMC, right, which let's think about what that is. It's movie theaters. We're still here in a pandemic. People aren't really going to movie theaters that much. Does it really make sense for the price of AMC to be surging, And so I think that there's a concern that with the media attention, it's going to draw in even more people to buy these stocks, and some of those people are unfortunately probably going to buy at the top and then it will collapse. But you know what, like it's hard to predict when that will happen, and I don't really have a prediction, and I don't I think anyone who tells you when it will happen doesn't really know for sure. The high public interest is always reminiscent of the probably apocryphal story about JP Morgan, whose shoeshine boy supposedly asked him a few days before the big stock market crash in October of nineteen twenty nine, could he the shoeshine Boy and some of his friends buy forty dollars of stock through JP Morgan's brokerage firm, And according to the story, JP Morgan went back to his office and told everybody, we're getting out of our positions. We're going into cash because this is not a good situation. And then Morgan looked like a genius. Now again, there's there's a good amount of apocryphy of that story, but I agree with you as a kind of it's a good indicator. And in my household, the indicator is my fifteen year old son, whose interest both in crypto and in the stock market was actively piqued by the recent rise in crypto prices, by the game stop short squeeze, and I think by the attention among people in his online worlds to these issues. So that's a nice proxy as well for when everybody's excited and involved, even the teenagers, there's reason in historical terms, you think that maybe you're in some kind of a bubble. I should add, by the way, that when I pointed this out to my son, he made the sophisticated point that you were ascribing to the institutional investors, which is, of course that's true. But if you know how to get in on it on the way up and don't stay in it for too long, there's still profits to be made. And you know, unfortunately for me, he is analytically speaking correct about that problem. The problem is how do you know when to get out? So yeah, exactly, exactly. Okay, Now let's turn to analysis. And there's been a huge amount of analysis just in a few days that this has been going on about what is the deeper meaning of these events? And I want to talk about a bunch of different angles, but let's start with your take, which I found particularly valuable, and that was to sum it up, I'm using the quote from your piece the GameStop madness. Isn't David against Goliath, namely the little guys on the subreddit against the hedge funds. It's Goliath against goliath with David as a fig leaf. So explain what you mean, please, Alexis. So there's a narrative that's taken hold that this is a triumph and a disruption of our financial system, and that the folks on reddit are you know, figuring out how to play Wall Streets game and then play it against them and winning. And while I don't dispute that they are absolutely using techniques that Wall Street firms use, right like the short squeeze is not an invention of Reddit. It is something that I think hedge funds try to do to other hedge funds all the time. I don't think that this is going to topple the financial system, and in fact, I believe and I don't have a crystal ball, but I would predict that when we see the first quarter earnings of the major Wall Street banks that are typically the best in terms of trading operations, that they're going to have extremely profitable first quarters. And the reason that I'm guessing that is because I used to work on the technology team with the equity derivatives trading desks at Mary Lynch and then later at Deutsche Bank, and their most profitable days by far, like the day that they made the most money of the whole year, was the days when prices were going crazy and there was tons of what's called volatility, which is just kind of like you know, price moving going up and down, and unpredictable action in the markets. That was their favorite kind of day, right, And I don't think that Goldman Sachs and Morgan Stanley's they're called flow trading desks, but they basically sort of sit there as intermediaries between buyers and sellers. It's maybe hedge funds, it could be insurance companies. It's all these big institutional players that want to trade. Sometimes they don't even want to trade on in an exchange. They want to trade what's called over the counter, which is this sort of market that is between Wall Street itself, totally unavailable to retail traders, totally unavailable to these people on writing you cannot trade over the counter through robin Hood. You know, they have sophisticated risk management tools. They have sophisticated trading software. They manage their risk. I worked with the options trading desk, and so they had they had a lot of really fancy risk management software, and they knew how to hedge their orders and so they didn't really care if the price went up or down because they were hedged. And hedge just means like you have some sort of risk management strategy in place so that whatever the price does, you're not going to lose too much money. You also won't make too much money, but you're going to be okay, and they make money on volume. So I suspect that the big titans on Wall Street are doing quite fine, and if anything, this whole mania is probably making them a ton of money. That's sort of my one piece. The second piece is, so let's move off the more traditional Wall Street and look at hedge funds. So Wall Street that's the the subreddit that has been in the news a lot cheered the collapse of Melvin Capital, which was a hedge fund that was betting against Game Stop and fell victim to the short squeeze. They were rescued by two hedge funds. One of them is Citadel LLC, which is run by a billionaire named Ken Griffin out of Chicago, and the other is Point seventy two, which is the new fund of Steve Cohen, who he's also the New York Mets owner, so people may know him from that. But his old fund sac plaged guilty in twenty thirteen to insider trading and had to shut down. So why am I bringing this up. I'm bringing this up because one hedge fund blows up, other hedge funds rescue it. Now they get to have a revenue sharing agreement with Melvin Capital in the future that's probably going to be profitable for them, right. So I just don't really think that the Goliaths are suffering. And I do think that some of the David's are going to get rich and have gotten rich, but I just don't think that that means that we're going to have a fundamental shift in the way that the system works. If anything, I think it might make a lot of the goliath a lot more rich. Let me press on your critique of the narrative, and let me be clear, I couldn't agree with you more that the big institutional players will be fine, and that the hedge fund industry will be fine. And what's more, even that you know Melvin Capital and Gabriel Plotkin, who is the extremely well thought of person who runs the fun will be he will be just fine. He probably is just fine. But I want to ask about what's really going on behind the David versus Goliath narrative. I mean, just focusing on this one episode in which a small number of people who were not for the most part, it seems professional investors were able to achieve something on their own as it were, and that seemed to me to have a kind of symbolic effect, you know, the perception that Wall Street wealth is something that's only available to the very well healed seemed to east in a moment be broken and there in that sense, it seemed to be a kind of populism associated with the moment, not unlike the populism of the Donald Trump movement. And that narrative seems to have some legs to it. Even if everything you say is true, as I believe that it is, let me ask you about the kind of populous side of the narrative. I mean, look, yes, is this a triumph of financial literacy and education and people learning perhaps more about options than they may have previously planned. Yes? And is this an interesting way to try and move markets and is it going to be a way that other people will try to move markets in the future. Yes? And are there people that are making astonishing amounts of money right now? Yes? Yes, all of that is yes. But look, let's think about the moment that we're in. We're in a moment of extreme inequality that's getting worse. We have millions of people unemployed, We have over four hundred thousand dead from the coronavirus. And I think speculation is an incredibly alluring thing right now in the absence of larger government support for our people, which I would point out is perhaps an aberration here in the United States when you compare us to some of the other countries in the world. And so, yes, it perhaps is a feel good story, and it's going to be a really great tangible material benefit to the people that happen to get into game stop in time. But I am more concerned with, you know, what do we actually do to make sure that everybody is okay? And I don't think that using Wall Street's own tools against Wall Street is the right way to lift all boats here, because Wall Street is, let's remember, at the end of the day, a zero sum game, and so when you have winners, you are also going to have losers. And who are those losers? And what happened when there was the short squeeze? Right when there was the short squeeze, the hedge ones had to sell some of their assets in order to pay the margin call or to close out their position, and the rest of the stock market went down. And there are people who have pensions, and there are people who have for k is. And look, let's I always like to remind people plenty of people have absolutely no exposure to the stock market whatsoever. Forty seven percent of America has absolutely no dog in the Wall Street, you know, in the stock market. They don't have a pension fund, they don't have a four O one K, they don't have an IRA, they don't have stocks, they have nothing. Right, So, yes, this is a really interesting collective moment, but it's not helping people across the board. And That's what I'm interested in. And I think that's what I am concerned about, is people claiming victory that is bigger than perhaps the victory actually is. And I would also point out that when Wall Street itself talks about what is the solution to poverty, sometimes they say it's financial literacy. We just need to educate people about how they can invest in Wall Street? Right, how can you open an IRA? How can you be a smart investor? And I don't think that that is the right way to make sure that everybody has enough, you know, at the end of their lifetime or in order to retire, right, I think the answer is public polity, see like Social Security and other programs like that. So I'm just a little concerned that the triumph here mirrors a little too closely what Wall Street itself holds out as the solution for things like poverty. We'll be right back. I entirely agree with you that mere education isn't enough. I mean the fact that the people you're describing who have nothing in the stock market the most fundamental level, they are not able to participate in the processes of capitalism, and any wealth creation that happens in the markets leaves them frankly out, and education is not enough. But surely education plus a steak would actually be a help. Well, I would agree with that, but only if we give them a stake, and right now we don't. Right, So, if we're combining this idea that let's educate everyone about how stocks work, with baby bonds or some program that's actually giving people an investment, some capital that they can actually invest, then I would agree. But that's not what we have, right we have if you just pull yourself up by your bootstraps, somehow managed to save money when most people don't have, you know, whatever, it is two hundred dollars to cover an emergency expense, and maybe you put two hundred bucks on game stock and you get really lucky. Like, that's just not a solution in my mind to the like structural inequalities of society. Oh, I totally agree that it's not a solution. I'm wondering, though, if you think that events like this that draw public attention to the markets in a way that potentially draws people in might actually play some role in the long run in shifting policymakers in the direction of baby bonds or other mechanisms to attempt to broaden the capacities of ordinary people to participate in the rise of capital. Yes, And I would even sort of add to that pitch of yours to say, you know, some people like this volatility, some people don't. But if you don't like this volatility and you don't like rank speculation, like a good way to do that is just to make sure everybody isn't so desperate for ways to pay their rent or choosing between food and medicine. Which to say that I think that people who are are trading on robin hood, I don't think that they are, but I think some people who are will right because they just it looks like a way to get rich quick and That's what I worry about, is people investing money that they can't afford to lose losing it. I think the problem here is we have, you know, decades of systemic racism and discrimination that have led to unequal outcomes of wealth in this country. And the way to fix that is not to democratize the casino. The way to fix that is to make it so that the house doesn't always win. And unfortunately, historically, right like Wall Street is a driver of speculation. In two thousand and eight, many of the banks went into black and brown neighborhoods and tried to convince you know, black homeowners who own their homes out right to take out you know, cash out refinances, you know, And they exploited the fact that wages have been stagnant for a really long time and people needed money. Right The Department of Justice found that Wells Fargo, you know, you know, gave black borrowers with the same credit scores and the same incomes prime loans when they gave white borrowers with the same credit and income scores better loans and better terms. I think we need to be thinking about, like who has power here and how are they wielding that power, and historically financial forces have been trying as best they can, basically to rent seek and to get as much money as they can, especially out of people who can least afford to get rid of it. I'm highly sympathetic to the answer you give at the broadest level, and in fact, this year one of the themes of our podcast is to think seriously about power and how it's allocated and where it lives. And for sure, economic power does not live in the poorest people or the dispossessed people, and in the United States, those people are disproportionately black and Latino, and so totally in agreement with you, I do think that when we're talking about something like the symbolic meaning of what's just been happening, though, it's hard to avoid the realization that the reason that a lot of these investors online think that the hedge funds are the bad guys is that they are not investors in hedge funds, and it cannot be investors in hedge funds. That's part of this David and Goliath narrative. And it might be that some degree of regulatory shift would have the effect of changing that aspect of the narrative. I agree though with you that in some sense that's a side show when you compare it to the more underlying questions of economic or inequality in the United States. Let me turn to a second question, which is about consequences for the market as a whole. So one of the reactions that some commentators have made just in the few days that this has been going on is to raise the question of whether the markets generally might be made vulnerable by the volatility introduced by things like the game stop or the AMC short squeezes. I've heard other people who are sophisticating the markets say, look, there's nothing to worry about here, It's a small blip. It will all be fine. Where do you come down on that question? Because with respect to the people who our ordinary investors, who are not trying to do stock picking and whose modest life savings are in the market, we do have an interest in managing the volatility and especially in managing long term decline. So I am concerned about future of volatility in the market, but I am not concerned about it because of this game stop situation. I think game stop is a symptom, not a cause. And if you were to ask me for a cause. I would point you back to last spring, when you know, in the midst of the pandemic, the bond market started to seize up and credit spreads started to rise because people were very concerned about corporate defaults, and the you know, the Federal Reserve, which is the largest central bank in the world, did something it never did before, which is it said that it was now going to buy the debt, the corporate debt of companies, including what are called fallen angels, which are companies that were previously rated as investment grade, which are seen as safe, but had fallen into junk grade. And so if they had fallen to junk grade after a certain period in March, the FED was still able to purchase their debt and Wall Street I think the reaction was the FED will just backstop us, and if they need to, they will not only buy corporate debt and junk bonds, they will buy equities. And so I think that, combined with the fact that investing in the fixed income markets and buy fixed income I mean things like bonds was no longer as profitable as it used to be, it drove a lot of large institutional players into the equities markets and it overheated the equities markets. Now, somebody asked Chairman Powell, Drome Powell, the Federal Reserve chair, about this last week, and he said, no, no, no no, I don't think that that's what's happening. I don't think that the Fed caused any kind of overheating. I disagree, and I think that it also exacerbated inequality because again, to go back to this conversation about hedge funds, the people that are the predominant investors in corporate debt, especially junk bonds, are hedge funds. And there's an even added wrinkle. If people remember, the price of oil went negative. The oil futures went negative last year because there was such low demand, and oil futures are traded with what's called physical delivery. You have to actually physically receive barrels and barrels of oil. If you happen to have a futures contract on oil that expires and then you know it's profitable, you have to receive the oil. And so there was just sort of crunch where they had run out of space and no one had any space to store the oil, and so people were just so desperate to get rid of their oil futures contracts that they gave them away. Why do I bring that up Because the Federal Reserve bought over a billion dollars to date in fossil fuel in fossil fuel firms, corporate bonds, utility companies, or energy companies, and so I think that the FENS has a role here in making the market overheated, and I think in making equity asset valuations go perhaps higher than they should have, again, because you had large investors who were doing what is called seeking alpha or yield and trying to find profits where there were no longer profits to be had in the fixed income markets. And I worry about a bubble, not because of Game Stop, which I think is quite obviously a bubble, but a larger equity bubble overall that might have been aggravated by public policy. And that's the kind of thing that I worry about. I should just say for listeners who are truly faithful listeners, they may remember that very shortly after that happened in March, the credit market and version that you're describing, we actually had on a very well known credit traitor, BoA's Weinstein, who was raising alarm about that before it had become a big national story, so the most faithful listeners will remember our discussion of that. Let me ask you a follow up question, though, alexis I mean you began by saying, yes, you're worried about volatility. Then you pointed to a series of actions taking by the FED, all of which were designed to manage volatility. And then you said, if I understood you correctly, that you're concerned that those actions taken by the FED to manage volatility may be creating overheated equities prices such that maybe the stock market itself is a bit of a bubble. So if I understood you correctly, you know what's the fix there. So my solution is actually in the Cares Act, but was not used by the FED. Congress suggested that the FED create a series of facilities, including a mid sized lending facility that the Fed Reserve Act has, you know this section called thirteen three. It's their emergency lending facility. They're allowed to create broad based support programs. So they did not happen to use the new authority that Congress gave it. They just sort of did something they could do without Congress. In the Cares Act, there was a series of conditions that Congress was suggesting that the FED take that included things like prohibiting stock buybacks and prohibiting dividends and ensuring that workers were not laid off or workers who were laid off were rehired, and the FED neglected to include any of these conditions in their corporate debt buying. And I think you cannot just rescue the bond market without any conditions on the companies to ensure that workers are protected and to ensure that the companies themselves do not overheat the equity markets. The FED did not use the authority in cares. I think that you could have done a blended approach. You could have rescued the bond market, but you could have added these conditions to ensure that you aren't also overheating the equity market. And some of those conditions would have been, Look, don't spend your money on buying back your stock later in the future, spend it on your workers, rehire people, and make sure that you aren't doing the same old, unfortunate financialization trend that we've been doing for so very long, where you know, CEOs at the top of companies have real incentives to drive up the price of their own stock. Right, This is part of the narrative. I think that's right. Right. The Reddit folks and the robin Hood folks have discovered that while Street does try to drive up the price of stocks, it just usually happens at an individual company level. Right. A CEO gets paid often based on the performance of the company and the performance of the stock, and so they have a real incentive to see their stock price go up. And one way you can do that is buying back your own stock. So I think that the answer is it would have been to use some of those conditions that Congress suggested that the Fed use that they didn't use to make sure that you didn't just go from rescuing the bond market to then juicing the equities market. Coming back to the narrative of David and Goliath in the question of where the power lies, it's an irony if what you're saying is right, it's an irony that the so called David's or the self described David's in the GameStop situation, we're doing exactly what the CEO of game Stop would presentally be very happy to see them doing, namely, increasing the value of the stock right. I mean, everyone who's in the market wants it to stay up. And it may be that the broadening of ownership of stock through people's retirement accounts has created a shift in the political economy of the country. And this is just a very general hypothesis, but a shift in the political economy of the country where the politician's favoritism and the Fed's favoritism to the markets isn't just driven by let's help rich people. It's also driven by a concern or a worry for ordinary people who own stocks. And then we get into situation where it's where the political process is basically captured by the interests of the markets, not necessarily because it's captured by the very rich, but because it's captured by the interests of everybody who holds stocks. And that's not only the rich. And in that sense, all of the Davids are aligned with the goliaths in wanting not all the Davids, but many of the Davids are aligned with the goliaths in wanting the stock market to stay high. And then we get various governmental policies that effectively protect the market. And if that's the case, I guess my question for you, is is that a very bad thing from the standpoint of the distribution of political economic power, that is, of the relationship between the people who own the stocks, which excludes some percentage of Americans but includes a large percentage of others, and the other people who are running our politics. I think yes. The short answer is yes. And then we have to step back and say why is that? And the answer that that is true is because we have had financialization where the only way that you can invest right now is with Wall Street. You don't have a public option for investing unless you are a very wealthy person who can buy municipal bonds. This wasn't always the case, right, and it doesn't have to be this way, and we don't have to just you know, finance our own wealth through private financial intermediaries. This was a public policy choice, right. This was the move away from pensions towards things like iras and private investment accounts, which again Wall Street gets to take a little fee every time you use those. This was a policy decision. If you go back to the New Deal, there was an entity called the Reconstruction Finance Corporation that was larger than all of the Wall Street banks put together at the time, and they directed huge amounts to public investment to projects large and small. And there's a very interesting paper where if anybody wants to think about, like what might be an alternative vision for how this would work by an academic named sale Omarova who is out of Princeton, called the National Investment Authority, and the idea is to sort of invert the private public partnership. So instead of public goods being sold to private entities like happened in Chicago, right they sold off their parking meters to private interests like happens on toll roads. We solicit private investment into a new kind of security that would be backed by the full faith and credit of the government, but we direct our investments into public goods, and then you would essentially have not only a way to finance projects that Wall Street will never fund because Wall Street wants things that they can profit off of in this lifetime. Right, They're never going to finance something that you can't profit off of in a single lifetime, let alone, usually something you can't profit off of in a year. We need to find ways to use the instrument of government to fund public projects, and this could be a financing mechanism for things like the Green New Deal. So like, yes, do I think that you are right? Do I think that all of the incentives are aligned so that we all in a way if we do participate in the stock market, which again, to repeat myself, forty seven percent of people absolutely do not. Yes, we all sort of have this collective interest in the stock market staying up. But I don't think that's a good thing. And I think we have to ask the question about how we got there and why that is, because AA doesn't have to be that way, and be there was a series of policy decisions to push it such that it was that way, so that if you wanted to save for your future, there was no way for you to do it without going through Wall Street again, unless you're rich enough to pursue these kinds of municipal bonds or other investments. And I think that that's a mistake and that's the wrong way to structure a society, and we don't have to do it that way, and I think we should seriously ask ourselves, like, how do we remake our society so we don't rely on Wall Street just to fund our own retirement. A last question about takeaways and popular impulse. And this is something that you mentioned you're the top of the interview, and I'm just going to come back to it very briefly now at the end, and that is that a lot of creativity seems to be going into the idea of not having to rely entirely on Wall Street. But that creativity seems typically not to go to the kinds of long term public investment that you're talking about, but rather to the world of crypto where one of the animating you will call it an ideal if you're a crypto activist, or you'll call it a fantasy if you're a crypto skeptic, is to get outside of governmental structures and to offer opportunities for investment for individuals that in the long run can gain in value and provide assurance without falling into, as it were, the arms of the big Wall Street investors, especially in connection with what's sometimes called the gamification of trading. And I think people mean two things by that. They mean that trading is more like a video game than it used to be on a place like robin Hood or on coin base. They also mean that trading as a form of gambling in the sense of gaming is as gambling. So I think the original white paper for bitcoin was very interesting and had a very noble goal. I think the blockchain technology that drives a lot of cryptocurrencies is very highly applicable for a lot of interesting solutions, and I think the intention behind cryptocurrency was quite good, right, and it can be used for lots of various things, including let's say you live in a government that is oppressive for some reason and is trying to limit your ability to send money to your family in a different country or something like that. Right, Like, there's a lot of potential for public good with cryptocurrencies, but unfortunately, I think what has happened with cryptocurrencies is what happens to a lot of things, which is that you know, because Wall Street has this large concentration of power and ability to move things, and I by Wall Street. I would even broaden it out to say fintech and venture capital firms, you know, they've commodified it like anything else. And I think we cannot look, you know, look think about this and ask about this without thinking. So you mentioned coinbase. The former a former executive of Coinbase was just the acting director of the office, a controller of the currency one of the most important banking regulators in the United States under the Trump administration and proceeded to do all of this deregulation and allow banks to participate in cryptocurrencies in ways that they were not allowed to before. Right, Like we it's sort of like you can't escape you here, somebody created a thing precisely to escape the sort of finance system, and the finance system has found a way to profit off of it through all of these different you know, various apps and companies, and then you had all this deregulations under Trump, and that has sort of like brought in cryptocurrency into the banking sector, you know. And do I think that hedge funds are betting on crypto? Absolutely, they're betting on crypto, right like, I'm sure they are. They would be silly probably at this point not to But I just think that it's one of those things that I don't know that I'm in favor or against. I just think we need to think closely about how it needs to be regulated, because it is, at the end of the day, a currency, and it is something that we shouldn't allow to operate in regulatory blind spots. And that's the same way that I feel about hedge funds, and the same way I feel about a lot of things, is like all of this takes robust oversight and regulation, and in the wake of the Trump administration, we absolutely do not have that. We have the opposite of that right now. Alexis, thank you for your fascinating analysis and for talking to me about power and how it's distributed and the world of finance. The old line goes that you can't beat city hall. It's a lot harder to beat Wall Street than it is to beat city hall. But for that we need to begin with a clearide account of who has the power and what that power's relationship is to politics and to finance itself. So thank you for helping us on that path. Well, thank you for having me. Listening to Alexis Goldstein brings home what seemed to me some truths and some possibilities with respect to how we think about markets and power. I am very compelled by her observation that although this may feel in certain respects like a David and Goliath story, in fact the Goliaths are doing just fine. Some David's may have made some money, a lot of other David's will probably end up losing money. It is, after all, a zero sum game, and the goliaths will live to fight another day. Put another way, Goliath isn't dead, in which case it's not that much of a David and Goliath story after all. Yet at the same time, Alexis points out that at a moment where a narrative of populism is powerful in the markets, we might want to think seriously about where power is in fact allocated. It's great that so many Americans participate in the markets if it makes them better off, but she points out forty seven percent of the population has no skin in the game, has no stake in what the markets do, and therefore does not benefit from policies designed at the national level, including in the Federal Reserve, to keep the markets steady. What's more, their unintended consequences of policies designed to keep the markets from being too volatile, including the possibility that effectively the government using taxpayer dollars ends up ensuring big risk taking investors against downside risk, thereby artificially inflating the markets and potentially creating the possibility of greater losses going forward, indeed, of facilitating bubbles at the level of power analysis. My biggest takeaway from talking to Alexis is that this isn't really a story about a single stock. It's really a story about the aspirations of many ordinary Americans to feel as though they are not shut out of the possibility of building wealth, in this instance building wealth by speculation, but in any case doing the building in some way or another. On that account, it's not just greed that drives Wall Street or greed that drives the people who want to be like Wall Street. It's a deeper question of where the power genuinely lies, and the rhetoric that drives people to make investments like the investments that lead to the game Stop Short Squeeze, may go beyond the mere desire to make money and stand at a symbolic level for the desire to be involved in the game and to be in the action where money is being made. That is a story that we will continue to watch throughout this year as we look at the question of power, and it's a question that will remain salient in our minds as we discuss going forward the way Corporation's work and the way they interact with Wall Street in our economy. When I come back to you next week, we will be in the heart of an impeachment trial, and I promise to talk to you about that. Until then, be careful, be safe, and be well. Deep Background is brought to you by Pushkin Industries. Our producer is Mo laboord, our engineer is Martin Gonzalez, and our shorerunner is Sophie Crane mckibbon. Editorial support from noahm Osband. Theme music by Luis Guerra at Pushkin. Thanks to Mia Lobell, Julia Barton, Lydia, Jean Coott, Heather Faine, Carl Vigliori, Maggie Taylor, Eric Sander, and Jacob Weisberg. You can find me on Twitter at Noah R. Feldman. I also write a column for Bloomberg Opinion, which you can find at Bloomberg dot com slash Feldman. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot com slash Podcasts, and if you liked what you heard today, please write a review or Ello frad. This is Deep Background.