Google search “disruption exponents” and within less than a second — no hanging around with Google — you will get 2.63 million results. Around 20 years ago that kind of research would have taken years to accomplish. There can be no finer example of disruption than that.
The Harvard Business Review claims to have introduced the “theory of disruptive innovation” in 1995[1], but in fact disruptive innovation has been around at least since Stone Age peoples started using rocks to kill animals or to build shelters. Where does disruption come from? Probably not consumers. As Henry Ford supposedly said: “If I’d asked customers what they wanted, they would have said a faster horse.”
Except that in the past week consumers have shown that, if sufficient numbers of them think and act in the same way, disruption can happen in a profound and possibly disturbing way.
The disrupter disrupted
Robinhood is a broker, has only existed since 2013 and itself is a ‘disruptor’. It advertises itself as providing ‘commission-free investing’[2] and it makes its money by payments for order flow.[3] That’s a fairly common practice whereby a broker gets paid by parties through whom it directs orders for trade execution. Robinhood (the name is a giveaway) aims to “democratise finance” and traces its heritage to the ‘Occupy Wall Street’ movement of 2011.
Last week a pack of day-traders using a sub-group (called wallstreetbets or WSB) of the Reddit social media site coalesced and decided that they would take on ‘the Man’ (for example Wall Street hedge funds) and storm into a previously moribund stock called GameStop, an American video game, consumer electronics, and gaming merchandise retailer.
GameStop’s share price languished at sub-$5 a year ago; large investors, guided by hedge funds (some of which can invest billions of dollars), had decided that GameStop was dead in the water and ‘shorted’ the stock (i.e. sold shares they did not have, in anticipation that the price would go down further whereupon they could buy those cheaper shares to ‘close their book’ and thus make a profit).
The wave of money that swept from WSB followers into GameStop’s shares had several dramatic effects — not least that the price rose to more than $400, crushing some of the hedge fund ‘shorters’ in the process.
GameStop hasn’t been the only Reddit-fuelled target — the world’s biggest maker of rubber gloves, the Malaysian company Top Glove has been picked out by another Reddit sub-group, BursaBets, and seen its share price rise too. Silver too has been subjected to the attention of a retailer-investor hoard and in three days rose to an 8-year high of almost $30 an ounce. Ross Norman, a veteran precious metals’ trader, summed it up: “I am just not persuaded by this move…but I do remain impressed by this new dynamic in financial market[s]…it is compelling but also just a little unsettling.”[4]
Robinhood’s holier-than-thou mission became a little tainted when it ran into a regulatory rock — the Depositary Trust & Clearing Corporation (the DTCC) last week. The DTCC is part of the US Federal Reserve system and is a registered clearing agency with the US Securities and Exchange Commission (SEC). The DTCC is owned by its member financial institutions (including Robinhood) and it clears and settles most stock trading, essentially making sure that money and shares end up in the right hands at the end of the day. The DTCC also tries to insulate the market from extreme risks, by making sure that if a single entity goes broke there’s no contagion. It therefore requires that its members keep a cushion of cash (a margin) that can be used to stabilise the system if needed. In a flurry of trading, such as seen around GameStop, the DTCC notified members last Thursday morning that the $26 billion cushion needed to be raised within hours to $33.5 billion.
As most of the trading was by Robinhood customers, that broker was nabbed for a large amount of the extra cushion. This demand was not negotiable. A broker that cannot meet its margin call is out of business. For good.
Nihilistic capitalism
The Slovenian (and socialist) philosopher Slavoj Žižek has characterised[5] WSB behaviour as “nihilistic capitalism” in that one of its guiding slogans is YOLO (‘you only live once’) — and that a lot of WSB adherents seem indifferent as to whether their gambling makes or loses money; the thrill of challenging ‘the haves’ — the heart of capitalism — is gratification enough. One irony of all this (there are several) is that Robinhood has been forced to raise an extra $3.4 billion in capital to meet its obligations to the DTCC; and this emergency funding was raised from hugely wealthy venture capitalists already invested in the firm. Žižek concludes (perhaps hopefully) that an “explosive mixture is in the making”.
The original Russian nihilists did not “bow down before any authority… [and did] not take any principle on faith, whatever reverence that principle may be enshrined in,” according to Ivan Turgenev in chapter five of his novel Fathers and Sons. Today’s nihilists have a lot in common with their ancestors — not the least of which is despair.
The weight of student debt, the apparent impossibility of ever being able to save enough to buy a home, the lack of solid job prospects, the decline in the purchasing power of money, the widening gap between rich and poor, the collapse of trust in media sources, a spread of disinformation, an overall sense of impotence — all these bear down on young people today. The Covid-19 pandemic has only exacerbated their feelings of isolation and anomie, as well as wreaking havoc on part-time employment.
But what distinguishes today’s nihilists from their Russian forbears is that, while the latter demonstrated their rejection of established values by throwing bombs, today’s nihilists have technology at their service. The emergence of cryptocurrencies, the flash mob walloping of Wall Street, the formation of protest groups of all types, have all been facilitated by technology, social media, and instant communications. The disruption goes very deep indeed, on both sides of the Atlantic. The danger is that faith in democracy is today weak.
Source: University of Cambridge’s centre for the future of democracy[6]
Nihilism is no answer
Nihilistic protests against ‘the system’ when you apparently have little to lose are therefore no surprise, and we should ready ourselves for more of the same. How to keep your head when all about you seem to be losing theirs?
If — as seems likely — we are in for a period of socio-political turmoil, which inevitably will make itself felt in the wider economy — we need to protect ourselves against the looming shadows. Given that we are not nihilists — and even they had to eat, have shelter, and keep themselves warm — we have no choice but to participate in the financial system we have. That is precarious, with the only solutions being put forward by governments to the massive global debt to load on still more debt. But we have one advantage, as a disrupter ourselves. For the first time in centuries, with Glint we can buy, sell and use gold in our everyday life. We at Glint believe that gold, even though we are aware that its value can also decrease, represents a stable rock which is less pervious to the surrounding hurricane. No need for bombs or flash mobs onslaughts. We think that a more reliable and effective protest is at your fingertips.
