In Response to "New York," Re: GameStop

The Big Apple mag takes a shot at purveyors of “balefully misguided progressive discourse,” i.e. me and a few others who cheered the GameStop rally. A note in reply

Eleven years ago I did a story for Rolling Stone about a foreclosure court in Jacksonville, Florida. After the 2008 crash, banks were kicking people out of their homes at such a furious pace that states couldn’t keep up. In Florida, an old judge was pulled out of retirement to preside over a special high-speed “rocket docket” court. He sat at the head of a small conference table in a cramped room, and I watched as he rubber-stamped stacks of foreclosures, sending a queue of bewildered homeowners on the street — one every few minutes, on average.

The people lining up to surrender their homes were middle- and formerly middle-class Americans, who’d managed to scratch out enough to buy a home at one point, but were certainly not rich. One worked at a pool-cleaning company, another was a waitress, a third was a school administrator, and so on. They were white, African-American, Latino, Asian, and they expressed a range of emotions, from shock to shame to anger.

One woman was bewildered to learn that she couldn’t learn, for sure, the identity of the note-holder on her home. The hack lawyer filing for the banks that day — a bumbling character who entered court with two hands around a stack of foreclosure petitions that accordioned like Dagwood’s sandwich — claimed to be suing her on behalf of Wells Fargo. But the documents in her file claimed Wells had purchased her loan from Wachovia in May of 2010, two years after Wachovia went out of business, and three months after Wells originally sued her, a logical impossibility.

The woman seemed too confused to be angry. Mainly, she couldn’t believe what was happening. “The land has been in my family for four generations,” she said. “I don’t want to be the one to lose it.” She got a temporary reprieve that day, but a hundred others like her did not.

About a year after that, at Zuccotti Park in New York, it struck me that if Occupy Wall Street could attract the people from places like that Rocket Docket in Jacksonville, it might have overrun the country. At the time, the emerging criticism of Wall Street that was coming from younger, urban, college-educated activists had not yet lined up with the gigantic reservoir of rage that was out there among the millions who’d lost homes, jobs, pensions, etc.

Not only were many of those people who’d been foreclosed upon or laid off or forced to watch their 401Ks lose half their value still in emotional shock, but the underlying corruption was not exactly easy for them to see. Propaganda blasted out on every channel, to the effect that it was your own fault if you took on an adjustable-rate mortgage that went sideways, or bought too big of a house. People above all feel shame when they can’t pay their debts, and many took it to heart when pundits said the crash was caused by people buying houses they couldn’t afford.

Those criticisms often came out as racial politics, as conservative media figures hammered the theme of the “water drinkers” who crashed the economy at the expense of the “water carriers.” Listening to these takes, resentment in some neighborhoods grew toward the family down the street who’d been foreclosed upon, leaving a boarded-up eyesore on the block and collapsing property values for those left. The Tea Party movement, launched by a rant on CNBC against a proposed bailout for minority homeowners in particular, steered public anger away from Wall Street and toward the “bad behavior” of the “losers” down the street.

“How many of you people want to pay your neighbor’s mortgage, that has an extra bathroom, and can’t pay their bills?” screeched Santelli, to “America,” which was actually a group of booing traders on the Chicago Board of Exchange:

A decade later, it’s understood that while the subprime scam did disproportionally target minority homeowners — a typical victim was an elderly Black woman sold a refi by a door-to-door shark, who promised her a little extra spending money each month — the scale of the crash was so massive that everyone suffered. By 2021, people are not only unafraid to admit their lives were altered by the collapse of the housing bubble, they’re no longer blaming neighbors but bigger players, and the system protecting them.

This was one of the subtexts of the interview I did this week with “SP,” the GameStop investor whose post, “This is for you, Dad,” went viral during the GME frenzy. SP’s family was devastated by the 2008 crash. His uncle lost his house to foreclosure. “They were in an ARM and got adjusted right out of the house,” SP says (an “ARM” is an adjustable-rate mortgage). “We didn’t even know they’d been foreclosed on. We went over and the place was empty and the lights were off. There were a bunch of houses like that on the street.”

SP, whose father also was put out of his house and job at that time, recalls the messaging about the homeowners themselves being at fault. “There was the macro scapegoating of the financial crisis in 2008, when they said people should know better than to take out loans they can't afford,” he says. “I was like, ‘Okay, well, people should go and smoke. People should know not to speed. People should know not to drink and drive.’ But they have warning labels on those things, right? Police officers will pull you over, if you speed.

“However,” he goes on, “with the financial crisis, you had a system that was incentivized for bad behavior. And some didn't have to pay the price for that bad behavior.”

That last point is relevant to a recent article by Eric Levitz in New York magazine, “The GameStop Rally Exposed the Perils of ‘Meme Populism.’” The piece among other things takes a shot at me and a few other media figures, for driving what he called a “balefully misguided progressive discourse” through hype of the GameStop story. It seems people like me mistook “the cause of recreational investors for that of the proletariat,” and failed to understand that while “the showdown between WallStreetBets and Melvin Capital was not a class war, it did play one on CNBC.”

I was particularly at fault, apparently, for decrying the TARP, zero-interest-rate policy, Quantitative Easing, the CARES Act, and other “artificial stimulants” that have been keeping asset prices high, and the 30 percent of American companies that are functionally broke, alive. In doing so, Levitz said, I implied that “there is some ‘natural’ benchmark interest rate that exists outside of politics and policy, and that the Fed is corruptly flouting this natural market law” — in other words, a “libertarian argument for central banks to tolerate deeper recessions and higher unemployment.”

It was the betrayal of betrayals, he said, “the kind of thing one might expect to find in a column by Taibbi’s archnemesis, Thomas Friedman.”

As to the question of whether or not the people in wallstreetbets are genuinely the “proletariat” or “working-class,” I’ll defer to Levitz. He seems interested in litigating that issue, which I’m not. I’d only point to the interview with SP, and to the others on wallstreetbets who chimed in with stories about the aftermath of 2008, and say these tales make sense to me. I listened to similar stories for almost ten years: the Black prison guard in Boston with the cancer-stricken wife who lost his house because he was sold an ARM when he thought he was buying prime, the firefighter in Providence who lost his pension, the clerk of a California city that had to slash services after losing millions in the Lehman disaster, etc.

Is that the “cause of the proletariat?” I have no idea. I do know that I ran into a lot of pissed-off people over the years.

Why they were pissed off gets to the second question, about the bailouts, ZIRP, the TARP, even the CARES Act. While so many people went into personal tailspins from 2008 on, their nightmares were often compounded watching as the very people who caused the crash — including the banks and mortgage originators who knowingly pumped mountains of fraudulent subprime instruments into the economy — not only got saved but were further enriched, by bailouts and an array of extravagant Fed programs.

Some people got ripped off three times. First, they were personally sold dodgy exotic mortgages. Next, their retirement funds were sold the same kinds of dicey loans in the form of securities. Lastly, when it all blew up, they paid taxes to bail out the whole shooting match.

The issue with the “artificial stimulants” isn’t that some form of rescue wasn’t necessary, but rather that the rescues that were implemented were both executed poorly and inherently unfair in design. From the TARP through the CARES Act to the now interminable programs of Fed purchases, bailouts led directly to massive booms for banks and financial asset-holders, while everyone else saw personal wealth decline. Market forces exist for some, but not others.

Perhaps some form of rescue was necessary, but there’s something odd going on when a bank executive can be looking at closing up shop one day, as many were last March, only to go on to secure record profits and over $30 million in personal compensation, with nothing changing in between but a bailout. Meanwhile, at the bottom of the economic spectrum, there were no such reversals of fortune. You lost your job, you got foreclosed on, that was it. As Vice-Chairman of Berkshire Hathaway Charlie Munger said all the way back in 2010, addressing individual homeowners who might want bailouts, “Suck it in and cope.” One $2000 check doesn’t change the pattern.

The financial crisis among other things was worsened by a hyper-concentration of capital, and the systemic risk giant supermarket financial firms caused to the economy (which made them difficult to regulate). In rescuing the banking sector, the Fed and the Treasury not only didn’t address this problem, they worsened it, folding small problem banks into bigger ones in a series of mega-mergers, leaving us with a handful of giganto-banks even bigger and more systemically dangerous than before. The implied promise of bailouts also resulted in lower borrowing costs for big banks versus small ones, a subsidy one study calculated to be worth $34 billion a year.

And that was before we even got to the question of all the unpunished fraud and crime that was swept under the rug as an implied part of the various rescues, with the Fed creating special facilities to hoover the problem loans out of circulation (using the euphemism, “toxic assets”).

This sense of built-in unfairness is what animated at least some of the GameStop investors. Seeing the field isn’t level, they saw the GME trade as a rare chance to tilt tables in their direction, even if fleetingly. For people like SP, this was an explicit consideration. He says he was motivated to hold not just by his own family experiences after the dot-com crash and after 2008, but by looking at the landscape in pandemic America, which once again contrived policies to make smaller smaller, and bigger bigger. “Your favorite sandwich shop, closed. If you've got 200 of those sandwich shops, open,” is how he puts it.

One last note: when I first started covering this topic all those years ago, most of the flak that came my way (and toward other critics of Wall Street) came from the right, or from Ayn Rand acolytes like Megan McArdle. During Occupy Wall Street, criticism of finance sector antagonists came out as pure aristocratic sneering, i.e. these whiners need to stop listening to Phish, get a job, and take a shower:

Now, in response to exactly the same criticisms of the inequities of the financial system, including the use of public funds to once again massively enrich private companies (like the banks that just scored record profits underwriting the Covid-19 bailouts), the defense of these policies is more likely to be framed as coming from the left. If you think it’s not fair that a small business faces a different market risk than Morgan Stanley, if it seems wrong that a restaurant is allowed to fail but not a bank, you’re a libertarian. In the Trump era, every criticism of establishment politics apparently has to be framed as conservative grift.

GameStop is a complex story. There are big institutional players on all sides. It’s not necessarily a “good” thing that a struggling video game firm became worth more than international airlines overnight. Trading in the stock may indeed have been restricted because of laws requiring that brokers have the capital to cover trades, although Robinhood’s collateral calls dropping from $3 billion to $1.4 billion in few hours seems a bit odd (as does the fact that the Depository Trust Clearing Corporation has rarely been so finicky about compliance issues before, across a generation of naked short-selling and other practices).

For all that, there’s a reason this story resonated. There’s a lot of anger out there, and it will jump at chances to express itself, no matter how much those of us in the media argue over what to call it.