Sunday, January 31, 2021

GME And Our Rigged Economic System

Everyone and their brother is weighing in on the Gamestop thing so I might as well too. Having 20 years in financial services under my belt, being a registered representative and all that might give me a stronger basis to offer an opinion but my concern isn't really about what happened specifically. Sure I might ask some questions like:

Why are you allowed to sell something you don't own with the promise of replacing what you didn't own in the first place later on? How does that serve the economy and general good of the investing public?

However I know better than to ask questions like that. The system is rigged and not in favor of regular investors.

Having an equity position in a company, aka owning stock, is a perfectly legitimate means for investors to seek a profit on their investment and for businesses to attract capital. Moving from borrowing from banks to offering shares of stock to raise capital is a significant step for many businesses. It is a sign of a stable and growing economy when businesses can raise capital via equity offerings versus borrowing money and paying interest.

That isn't what was going on with Gamestop and it isn't where the real money is on Wall Street. Rather the idea of short selling is just one of a myriad of means of financial chicanery that I can barely begin to understand even after spending many years working in financial services.

There is a entire industry that is engaged in nothing other than finding ways to manipulate complex financial instruments that the average investors doesn't even know about, much less have access to, an industry that adds nothing to our society and exists only to make the already filthy rich even more filthy rich. It is a closed system that requires access and enormous capital to enter. Many people don't understand that there is a cabal of people who have access to that capital and the right social circles to get into the "business" of financial manipulation. That is the real benefit of attending an Ivy League or other elite school like Stanford. It is not the quality of education or the superior student body, instead it is found in the connections you make. If you go to the University of Iowa, you are unlikely to meet many people from the elite strata of society but if you go to Yale or Princeton? You will rub elbows with the children of privilege in America, the sons and daughters of politicians, business magnates, heirs to generational fortunes. Kids who went to the elite prep schools and who are destined for great wealth whether or not they are possessed of great talent or drive (see: Biden, Hunter). 

While your children and my children enter the world with minor advantages depending on whether you read to them as a kid or if you invested extra time in teaching them a trade, they are not going to enter the world inhabited by the hedge fund managers. There are distinct and intentionally separate paths for people from mid-sized cities in the south and Midwest versus those who grow up in elite neighborhoods. Our kids might grow up to be successful, doctors and engineers and business owners, but their wealth will be hard earned and measured in the hundreds of thousands of dollars, not millions or billions. 

As an example, check out this guy: Marc Mezvinsky


You probably don't recognize his name but you should. 

Marc is a Jewish financial schemer, the son of two former Jewish Democratic members of the House of Representatives. He started a hedge fund, worked at a few other financial manipulators and is now a managing partner for TPG Capital. 

Well so what? 

Here is the so what, this is Marc Mezvinsky with his wife:


You might recognize that horrifying visage as belonging to Chelsea Clinton, the alleged daughter of former President Bill Clinton and his harpy/wife who will never be President Hillary Clinton. These two homely humans met as teens at some political powwow at Hilton Head in 1993. Remember Marc's parents were players in the Democratic party and this was during Bill Clinton's first term. They were later married in 2010 and began spawning politically useful offspring in time for Hillary's Presidential run. 

Marc was born in 1977 and as a 16 year old he met Chelsea at a political event thanks to having two influential Democrat politicians as his parents. His mom, Marjorie Margolies, is "best remembered for casting the deciding vote in favor of President Bill Clinton’s 1993 budget proposal". His dad is best remembered for being a felon who served 5 years after falling for the Nigerian email scam and embezzling money from his clients to send to Africa. Anyway, as a teen this guy was rubbing elbows with some of the most powerful and wealthy people in the world. He went on to college at Stanford, one of the most elite schools outside of the Ivy League, where he obtained a "BA in religious studies and philosophy", the obvious academic foundation for a future financial wizard. Later he received an "undergraduate MA in Politics, Philosophy and Economics" from Pembroke College, part of Oxford. 

Sure he had no background in financial services but upon graduation what he did have is something you can't get from most college classrooms: he had connections. In spite of having no formal education in finance, this is how his career unfolded according to Wikipedia:

After graduation, he worked at Goldman Sachs as an emerging markets foreign exchange strategist, and later went on to join the global macro proprietary trading desk. He served as senior partner at 3G Capital before leaving to start his own hedge fund, Eaglevale Partners, a traditional multi-strategy investment fund, focused on currencies, commodities and bonds. Eaglevale Partners closed in 2016. Mezvinsky joined Social Capital as Vice Chairman in 2017 where he helped the firm manage its business development and growing portfolio of companies. He left Social Capital in the spring of 2018.

In 2019, Mezvinsky joined TPG Capital as a managing director and business-unit partner.

How exactly does someone with a B.A. in religious studies and philosophy and an M.A. in "Politics, Philosophy and Economics" jump into a position as an emerging markets foreign exchange strategist? 

Connections. 

Marc went on to one high flying job in financial services after another, including starting his own hedge fund, Eaglevale Partners, along with a couple of his buddies from Goldman Sachs. This was in 2011 when Mezvinsky was all of 34 years old. How does a 34 year old guy launch a hedge fund that ended up having hundreds of millions in assets under management, at least until these guys made an ill-fated investment in Greece that lost 90% of it's value?

Connections.


Chelsea Clinton’s husband used his connections to the Clinton family and their charitable foundation to raise money for his hedge fund, according to an allegation by a longtime Clinton aide made public Sunday in hacked documents released by WikiLeaks.

Marc Mezvinsky extended invitations to a Clinton Foundation poker event to rich Clinton supporters he was courting as investors in his hedge fund, and he also relied on a billionaire foundation donor to raise money for the fund, according to the WikiLeaks documents. They also assert that he had his wife Chelsea Clinton make calls to set up meetings with potential investors who support her family’s political and charitable endeavors.
---
The word among rich Clinton backers on Wall Street was that the family would look favorably on investments in Eaglevale, a major Manhattan investor told POLITICO.

Do you remember hearing about this? Of course not because the media mostly buried it because Marc and his wife have connections.

Remember that in 2011 Marc's mother-in-law was the United States Secretary of State and his father-in-law was former the former President of the United States. So if you want to buy some influence, you throw some of your vast fortune to the Clinton's son-in-law and if he loses it, so what? You got the influence you paid for. After running his own hedge fund into the ground, Marc Mezvinsky went on to a couple of jobs at venture capital and private equity firms, as well as serving on "non-profit" boards. At 43 he is insanely wealthy and more important he has the connections he needs to keep making tons of money without actually doing anything even vaguely useful.

Sure, your kid or one of my kids can start a hedge fund. Good luck getting tens of millions in initial investments unless you can offer access to the highest levels of America government if someone invests in your kid's hedge fund. Does your kid have a Rolodex with the names of the wealthiest people in America and does he or she have something to trade? Probably not so they aren't getting into the rarified air of high finance. Marc Mezvinsky wasn't selling investment products, he was selling influence. He has influence thanks to his family and his wife and you don't, and you can't obtain that influence. 

The top levels of American society are a closed ecosystem. 

That brings us back to Gamestop. 

Things were just ducky. The company stock is headed for Enron territory, so hedge funds were making big bets on what appeared to be a sure thing and I am sure they weren't colluding to push the price down because that would be illegal. Easy money. People like Marc Mezvinsky in high finance make a living from picking meat from the bones of dying companies. They don't give a shit about Gamestop or the people who will lose their jobs, they just see an opportunity to make some easy money and line their pockets a little more. These people are parasites of the business world, making and creating nothing but leeching value from the labor of others (see: The Parasite Class).

Suddenly little investors were threatening to upset the apple cart and boy did they. It turns out that when your business is based on manipulating the system, other people can do the same thing and suddenly the stock price of Gamestop was going way up instead of predictably going down. One hedge fund in particular, Melvin Capital run by Gabriel Plotkin (you don't need to check, yes he is), took an enormous hammering as they were forced to buy shares to replace their short positions at a huge premium instead of at a huge profit. Fortunately for Gabe, he has friends in the business who ponied up billions to keep his company afloat while the company that was facilitating the trades driving Gamestop's price through the roof, an app called Robin Hood, shut down trading of that stock. This caused a huge kerfuffle as the big players could still trade Gamestop. Melvin Capital took a huge hit but it survived because while you and I can't absorb a loss like that, when you have friends in high finance you certainly can. Do you have anyone in your contact list that can float you $3 billion? Friends like Point72 Asset Management run by Steven Cohen (again, yes) and Citadel Securities, who just so happens to have paid incoming Treasury Secretary Janet Yellen (again and again yes) speaking fees to the tune of $810,000. I am sure that Janet Yellen will be at the forefront of clamping down on speculation and market manipulation that lines the pockets of the people who paid her 7.2 million in speaking fees since 2019. As the author of that link ponders:

What’s the use of having a treasury secretary who has to be recused or excused from discussions of half the firms on Wall Street?

(As an aside, most of the imbeciles who voted for Biden think that the Democrats are the party of the little guy and the downtrodden and Republicans are the party of the rich. Bullshit. No one is happier that Biden "won" than the fat cats on Wall Street and the military-industrial complex. Former Vice-President Biden was the candidate that promised a return to the status quo where the rich get richer and the poor get crumbs. We are well on our way to that already as the Child-Sniffer-In-Chief works tirelessly in the few hours he is awake and mildly lucid to wreck the American economy. Back to the main point.).

This has been going on for decades. Another example, a small one but one I had a personal involvement in. Back in 2000, I was working for Fidelity Investments as an account manager in their 401(k) business, an industry where I spent a lot of my professional career doing nothing terribly useful. I worked as part of a team on several very large 401(k) clients with assets under management that ran into the billions of dollars. We were living in New Hampshire and I was working outside of Boston, and eventually the high cost of living and the long commute times convinced us it was time to move back to the Midwest. I interviewed with two main contenders for my services, Charles Schwab's 401(k) division and a company called Strong Capital Management in their relatively new 401(k). As background, I had worked with 401(k) plans as a phone representative for a couple of years but I had only worked in account management starting in 2000. Anyway they both flew me out to interview. Schwab was a pretty nice company, good people with solid experience but they offered me only a slight increase in pay. Strong on the other hand flew me out, and I interviewed with the owner of the company, a man named Richard Strong. To say the offices were lavish would be an understatement. The conference room was full of expensive Asian décor and the restrooms didn't have paper towels to dry your hands, but plush green cotton bath towels that you used and then tossed into a bin for cleaning. Strong provided a free lunch to everyone everyday and the break rooms had all of the pop and coffee you wanted for free. They offered me way more money than I was worth at the time and when I pushed they offered me more, along with an extravagant package to move my household, and temporary housing for a month while we settled in. Again, this was for someone with less than a year of direct experience for the position I was taking. It wasn't long after I got there that I saw issues. Things seemed sketchy as hell. Management was outright misleading clients and selling business based on bullshit, which is often the case but it was egregious at Strong. I got out of there and went back to Fidelity Investments after only five months in January of 2001. By 2004, Strong Funds was imploding as trading irregularities involving market manipulation and giving intentionally bad advice to clients. The company paid $80 million in restitution and Richard Strong personally ponied up another $60 million. Strong himself was barred from the securities industry for life, as were two other people at Strong. Strong gave off an image of a high powered, competent and successful firm while it was cheating their clients. Meanwhile, five years after the restitution was paid, none had been sent to the wrong investors. Apparently it was since been disbursed. Strong Funds was sold to Wells Fargo for a reported $500 million plus an additional $200 million (and Wells would later get into ethics trouble of their own) and guess who got most of that money? Tricky Dick Strong, a man I remembered mostly for walking around with a yellow legal pad shoved in the back of his suit pants. Sure he lost his company but he still walked away with hundreds of millions while his employees lost their jobs. Richard Strong was already insanely wealthy but he couldn't resist cheating to get just a little more wealthy because apparently he thought the rules didn't apply to him. It was an important lesson for me. I was dazzled by the flash and pizzazz of Strong and took a job that I shouldn't have. Fortunately I saw enough sketchy stuff early on to get out while I could.

The Gamestop fiasco is an example of the two economic systems we have in America. There is one for the privileged few and another for the rest of us. When we get into financial trouble, we have to turn to family or bankruptcy but when the power elites in this country get into trouble? They circle the wagons, start making phone calls and protect their own.


The whole system works fine as long as most people are blissfully unaware of what is going on and the people who have figured out how to game the system for themselves keep making money. We get to put a little money in our 401(k) and IRA and make a little return while they get to manipulate and often outright cheat the system and make a fortune. 

When it doesn't work like they think it should? There will be repercussions. Not today, not tomorrow, but you can be sure that the industry that has all of the lawmakers in America on speed dial won't take an insult and public embarrassment like Gamestop without retaliation. There will be quiet regulations put into place to make sure small investors don't overstep their boundaries, and perhaps even some restitution to Melvin Capital of some sort. It was hilarious but it won't be allowed to keep happening. Wall Street doesn't bankroll Senate Majority Leader Chuck Schumer so they can be made to look like fools.

The Boston-NYC-D.C. corridor takes care of their own.

America functions with a two tiered economic system. One is for most of us and has speed bumps and hard ceilings that keep us in place. The other runs on schemes and monetizing the economy and has barriers to entry that keep out all but the most well connected. Trump, the brash billionaire, somewhat ironically represented the first economy while "Lunch-pail Joe"/ Beijing Biden represents the second. Everything the paid cronies of the second economy focus on is designed for keeping people in the first economy in their place and where possible shoving them further down, mashing into one the lower and middle class. This is the impetus behind the Great Reset, eliminating upward mobility and pushing down on the working and middle class. It doesn't matter what the numbers on your paycheck say, what matters is what your buying power really is and the gap between you and the elites. That gap is growing every day and the growth in that gap is accelerating and will only increase in speed as former Vice-President Biden signs executive orders and laws that will harm the bulk of America to enrich the elite.

Maybe someday the dyed in the wool NormieCons and the commie wannabes in antifa will figure out that the system is rigged and now that Trump is gone almost no one is speaking out for them. The Powers That Be are relying on the majority of Americans to never figure this out until it is too late.

The system doesn't work for you.

The people who designed the system wanted it that way,

This will never change unless a populist revolt forces a change.

The banksters, D.C. mandarin class, technocrat oligarchs and assorted other elites have the money and the power of the state and every other institution on their side.

We have tens of millions of people and hundreds of millions of guns.

We are going to find out soon if that will be enough.

5 comments:

  1. Just this past Friday, I had a 'virtual consult' with a rep from the ginormous financial institution that holds the bulk of our vast fortune <\sarc>. This fellow was 'assigned' to us a dozen years ago by said institution, after our holdings, including two 401(k)s and no fewer than three rollover IRAs, surpassed some magic threshold or another. I never asked for assistance in deciding which index funds to blindly throw our pennies into. But apparently, over the course of a few decades, we'd quietly managed to amass enough of a nest egg for their algorithms to take notice.

    Anyhoo, this designated overseer of our woefully inexpert financial dealings holds the lofty title of "Vice President, Financial Consultant", and he kindly took 20 minutes out of his busy day spent consulting financially and being vice presidential to inform me that I am doing everything wrong. Specifically, oh shit! we've been dumping money for 8 years now into a Roth IRA in my wife's name that we were never entitled to contribute to, given our AGI.

    Perhaps, Arthur, as an ex-insider in the smarmy world of institutional finance, you are the best one to answer a question that has been rattling around in my brain for many years now. To wit: If this VP at one of the biggest money management entities on the planet knows how best to turn our modest contributions and decades of patience into untold riches, why is HE not laying on the beach in Bora Bora as his own staggering holdings multiply out of control? If he knows how to turn money into more money, why is he working for a paycheck at all, himself?

    The notion of an unmarried marriage counselor leaps irresistibly to mind. Or one of those shrill Internet click-bait ads, offering to share the 'secret' to making millions in your spare time. Hell, if I knew how to turn small sums into much larger ones, the LAST thing I would do is offer to tell anyone else. Or work 9-to-5 as a 'consultant'.

    So, is this guy just another wage slave, behind on his own mortgage, working because he has to? Or is it possible that I was talking to a multi-millionaire investor himself who just consults to pass the time until he is bored of condescending to the likes of us? I am genuinely curious.

    TBC

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    1. Very few people in the business possess the true wizardry to defeat the models. 50 years ago, before the internet? Maybe you could out research the system but not now. This is the secret of financial advisers, something I told the bankers who worked for me. You aren't selling products or investments, you are selling yourself. Selling yourself as someone who can be trusted, and more importantly paid, to manage investments when you yourself are not really making any investment decisions. He sells what he is told he may sell and nothing he is told he may not and what determines what he may sell you is almost entirely a function of the fee revenue that product can generate.

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    2. Wage slave, then. Got it. Thanks.

      TBC

      Delete
  2. Our economy?

    Memes. That's all it is.

    ReplyDelete