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
Matt Taibbi
Feb 6
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.