Your “this is fine” approach to predatory late-stage capitalism. The deregulation of the financial industry and deliberate crippling of tax policy has facilitated a massive transfer of wealth from the working class to the ultra-rich and produced a class of people who make billions of dollars hand over fist without actually doing anything that benefits anyone. It’s not sustainable and, as we’ve seen time and time again, there are massive consequences when these billions of dollars of newly created money disappear just as abruptly as they were wished into existence.
“Finance industry” is a pretty broad term that includes everyone from your humble teller at the corner bank to predatory vultures conducting leveraged buyouts and useless hedge fund managers and the like – you know, the Jordan Belfort types. Not all of them are useless or counterproductive.
In any case, “number of employees in an industry” is not a practical or moral argument for anything. How many people make their living in the business of predatory lending, from loan sharks to payday loan operators? Does that make it a good thing?
The US health insurance industry has over half a million employees, yet this is an entire industry whose sole purpose is to stand between patients and health care providers and micromanage the doctor-patient relationship in an effort to deny patients health care. The sheer counterproductive nature of the private health insurance industry is matched only by some of the worst and most mercenary aspects of the financial industry.
I don’t know if you were whooshed by the concept of “excluded middle” or are just pretending, but I’m obviously referring to the logical fallacy of trying to refute an argument by pretending that the only alternative is a proposition so extreme as to be ridiculous, ignoring the fact that there’s lots of middle ground in between.
As for the middle class, maybe you missed my immediately following statement, so I’ll repeat it:
The top 1% [of the US population] own 50% of all of America’s investment instruments – stocks, bonds, and mutual funds. They hold 31% of the total national wealth, while the bottom 50% holds 2.6%.
Frame it whatever way you want, but there’s no denying the fact that the US has the largest wealth disparity of any advanced democracy and it’s growing, because the rich are consistently getting richer by leaps and bounds while the middle class can barely keep up or is actually getting poorer, especially in the lower economic tiers.
Yes, it was pure speculation, but it was nothing like a lottery or buying a lottery ticket. Like thousands before him, this guy exploited a deeply institutionalized system that is an integral part of our financial infrastructure. A lottery is no more an example of capitalism than a card game. The stock market, OTOH, has been correctly described as the purest form of capitalism that there is.
I’m going to disagree with you on this one. Lotteries (at least the ones I’m familiar with) are run either by governments or sometimes by non-profits, and their sole purpose is to raise money for important charities. It may seem outrageous that some lucky individual winning the jackpot gets an obscenely huge windfall, but in well-managed lotteries something like 75% of the revenues are redistributed to the intended charities. You might be even more annoyed to learn that in Canada, the federal and provincial governments recognize the value of lotteries by making the winnings completely tax-free.
There is no real measurable cost to anyone (a $2 ticket isn’t really a “cost” when many of us lose more than that behind our couch cushions) except to the extent that it’s a tax on stupidity and victimizes a few lottery addicts, but that’s more or less unavoidable and is their own fault.
In theory, state lotteries in the US provide “extra” funding for education. In practice, it’s just a band-aid to replace lost tax revenue that should be coming from the 1%, who have manipulated the system to shift the burden of funding public services off of themselves and onto gambling addicts. At my job I see the kind of people who’ll drop $50 or more on lotto tickets in one go, then come back a few days later, collect their $3 in winnings, then drop $50 more over and over again. It’s a depressing sight.
And I’m not completely opposed to gambling. I enjoy a trip to Vegas every few years. When you’re getting into dollar amounts that no human being could ever realistically spend, though, I take issue.
Indeed. I know nothing about finance but I guarantee there is a clause in the fine print of his agreement with his financial institution that says something to the effect of “we accept no responsibility in cases where he who fucketh around findeth out.”
I agree with that, and I agree with most of what you said in that post. This kind of collateral damage to gambling addicts (of which lottery addicts are a subset) is why gambling was largely banned everywhere, but that viewpoint has come to be regarded as excessively Puritanical, exactly the same kind of pearl-clutching misguided moralizing that brought in Prohibition. People of the age of majority should be treated as the adults that they are, and if some of them are stupid adults, that’s on them.
Most people I know either never buy lottery tickets, or buy them once in a while just as a lark, and that probably is typical of the vast majority. Stupid people are not a reason to ban lotteries, just like they’re not a reasson to ban put and call options on the stock market. If they’re too stupid to understand the mathematical odds of winning, they should soon learn, and if they never learn, then bless 'em for being voluntary contributors to important causes, even if they don’t know they’re doing it.
There’s really no basis for taking issue except an abstract moral one, because even a seemingly huge jackpot (in a well-managed lottery) should be just a tiny fraction of the total amount redistributed to the intended causes. Those are the real winners, each and every time.
On the flip side, an enormous jackpot motivates occasional casual buyers so it helps lottery revenues. You see this in increased ticket sales whenever a jackpot becomes unusually large. It’s not that any reasonable person believes they’re actually going to win, but as someone once put it, $2 is a cheap price for a little bit of fantasy.
I’ve said it several times in this thread, and I’ll say it again. There is no way on God’s green earth that this guy wins this case, or even gets a single cent out of RBC. He’s also suing a firm that’s in the business of management consulting but also offers tax planning advice. I assume he ignored their advice, too, where they probably told him to reserve a big pot of money for tax obligations.
In fact, reading between the lines of the scant information we have, it sounds like his downfall was the quadruple-whammy of (1) call options becoming worthless, (2) being on the short side of puts requiring him to spend big money buying back stock well above market value, (3) margin calls constantly bleeding money away throughout 2022, and (4) huge unexpected tax obligations, which were only unexpected because he’s a dumbass.
Item (4) could be a real killer. Fortunately for him, if he files for bankruptcy he can discharge or mitigate his federal tax obligations, except where the Canada Revenue Agency has already put leins on any assets he may own, including his house. Considering the large amount that may be involved, they may well have acted quickly to do just that. Pure speculation on my part, though.
there was nothing “predatory” about what this guy did.
I wasn’t whooshed by it, but I did a very poor job of trying to explain my position! So thanks for pointing that out. Let me try again. My point was that the excluded middle here between someone gaming the financial markets to make $415 million and those living a subsistence existence whereby they only earn money with their manual labor IS represented by the middle class, who generally earn both a wage for their labors as well as interest or dividends on their saved or invested money. I presume Smapti isn’t critical of Joe Dentist getting paid dividends on the funds in his 401k account because he is getting paid those dividends “without actually providing a service or producing anything of value” to get them. That was the point I was trying to make.
You raise a good point, thank you. Does this type of activity destabilize the stock market is an important consideration. At first blush I would say no more than something like the coordinated short squeeze on Gamestop stock in 2021 by reddit users, but definitely something I need to think a little more about.
I’m not so sure it’s a bad thing.
If we go back to the beginning, the original story is of a 20-something with a few bucks making $415M (CAD) using the exact same system those evil billionaires use. The backstory to the entire Memestock phenomenon is that anyone with a smartphone has access to most of the tools and strategies, and given the results with the person in the article and the GME tale, you can’t even argue that you need to be crazy rich to get these results.
The issue isn’t that people can get rich without digging ditches and laying bricks or whatever someone arbitrarily decides is “worthy,” since anyone can do it; the issue is most don’t know it’s possible or, if they do, how to do it properly. This country has scandalously poor financial literacy and blaming capitalism won’t solve it; education will.
Blackjack Playing Man Turns $88 Into $415,000 in Vegas
Rich Man Takes Nap
Refreshed Man Loses $415,000 at Blackjack
Poor Man Enjoys Buffet Comped by Casino
It’s hard to interpret this sort of rah-rah cheerleading of idealistic laissez-faire capitalism as anything other than the idea that if only everyone knew how exploit the financial markets the way the super-rich do,* everyone could quit their jobs and just sit back and enjoy the economic boom as the wealth came rolling in (apparently from some hitherto unknown dimension of spacetime where no one ever has to be productive).
My whole argument of “excluded middle” here is that the rich are getting fantastically richer and everyone else is barely hanging on, and the issue extends beyond questions of basic social justice. It extends to fundamental issues of a stable and sustainable society.
* Not to mention that the super-rich have access to vast resources of highly profitable investments unavailable to the average middle-class schlub.
your general point is worth thinking about and discussing, but its not applicable to the present case. This guy was a carpenter starting with $88k! A nice sum, sure, but hardly an instance of the “super rich” exploiting markets in ways only the super-rich can.
Do you think this guy hit on a viable strategy for getting rich quick that everyone should follow, or was he just an incredibly lucky idiot until his luck ran out?
The evidence that the super-rich can exploit markets in ways that ordinary investors cannot is the fact that they obviously do; that fact that in general their wealth is growing much faster than anyone else’s (see any chart of wealth distribution over time, or Thomas Piketty, “Capital in the Twenty-First Century”, for a discussion).
Among many reasons for this is that the wealthy are well-connected and can seize opportunities that the rest of us know nothing about, like funding startups like Google and Amazon before the rest of us have ever heard of them and couldn’t do anything about it even if we did. Or by taking much bigger risks than an ordinary person could, which in fact makes this case a counter-example to your claim; a wealthy individual could play this kind of game with $100K and grow it into millions, but for an ordinary person that kind of risk would be insane. Or the wealthy could buy control of entire companies and gain access to resources that you or I would never have.
mostly the latter. There was some individual skill and judgment at work here (picking the correct stock to bet on for one), but what he did was incredibly risky and could not be sustained, and it eventually caught up with him. It is not a viable strategy to get rich any more than buying lottery tickets are. Yes, it can work out, but probably won’t.
As I alluded to earlier, the rest of your post is food for thought, and merits discussion. The basic question of how the super-rich exploit the market and how detrimental the effect of that is on the market is complicated and nuanced, and I certainly don’t have all the answers. Suffice it to say that I am concerned about it just as you are. But that is not what was happening in this particular instance.
then why don’t the super rich do it more often? It would be insane for them too, because the probability of pulling it off successfully is so remote. I hate to keep analogizing to the lottery, but wealthy individuals could also throw $100k into the super lotto in the hope that they win the $50 million grand prize. But they don’t (lower income households spend vastly more than higher income households on lottery tickets). Why? Well, because a) they have no need to take such risks (they already have plenty of money) and, b) they have much safer investments that return them a lower, but (almost) guaranteed return.
How do you know they don’t? How do you think they keep growing their obscenely large share of the national wealth?
Not if their buddy at the country club happens to be the chairman of the board of the company in question. Your supposition assumes everything else being equal, including inside knowledge of corporate prospects, but things are not equal. There are many different ways that wealth begets wealth. I already mentioned several of them in the previous post.
There’s also the government priority of protecting massive wealth instead of protecting the ability of people to accumulate wealth in the first place.
well, we’re getting into the realm of conjecture here, but the penalties for insider trading are VERY severe. Sure, people do it (just ask Jeff Skilling) but I think the threat of punishment deters some (maybe many?) of the most egregious actions in this vein.
On occasion, people also become super wealthy by founding companies that become wildly successful, like…I don’t know…Tesla.
If this carpenter just parked $88k in Tesla between 2019 and 2022 he would have just “gotten by” with around $10 million at the low point. If he just sat on it, it would probably be double once the stock went up again.
Who would that be?
Elon Musk was a class A investor, not an actual founder. He pulled shenanigans and managed to get an agreement signed with the actual founders to name himself a co-founder.
So, maybe not the best counter-example. The actual founders got wealthy but not “super wealthy”.
I don’t know where you get those numbers. As I said in the OP, eyeballing the stock chart it looks like if he had bought at a reasonably good time in 2019, the $88K would have been worth just over $2 million at the peak of the stock price in November 2021, before the long decline in 2022. Tesla had a very impressive climb over those two years. It doesn’t happen often.
Sometimes, yes. And I have no problem with that, although I also believe that tax law should have a role in curtailing the obscenely large wealth disparity that is unique to the US among advanced democracies, most of which can be characterized as some form of social democracy. Top income tax rates were drastically cut during the Reagan and Bush I administrations, causing executive compensation to skyrocket and exacerbating the wealth disparity further.
And Elon Musk didn’t “found” Tesla. He bought it. What he contributed to it, other than the engineers and designers he hired, is arguable. He bought it with money he had made in previous companies. Which he was able to start because his family was already wealthy.
that “other than” is doing some awfully heavy lifting in that sentence. Look, I don’t like Musk, I think he a self-serving weirdo. And you can argue the exact amount of credit he should get for Tesla’s rise, but in no universe was he not at least a fundamental reason for their success.