The big thing This week was whatever you wanted it to be. A rising up of the proletariat. A case of weaponized disinformation. A rally for regulation… or perhaps deregulation of financial markets. Choose your own adventure with the starting point being one flavor of chaos leading into a slightly more populist blend of chaos. At the end of it, a lot of long-time financiers are confused, a lot of internet users are using rent money to buy stock in Tootsie Roll, a lot of billionaires are finding how intoxicating adopting a “for-the-little-guy!” persona on Twitter can be, and here I am staring at the ceiling wondering if there’s any institution in the world trustworthy enough that the internet can’t turn it into a lie. This week, my little diddy is about meme stocks, but more about the idea that once you peel away the need to question why you actually trust something, it can become easier to just blindly place that faith in more untrustworthy places. All the better if those places are adjacent to areas where others place trust. The Dow Jones had its worst week since October because retail investors, organized in part on Reddit, turned America’s financial markets into the real front page of the internet. Boring, serious stocks like Facebook and Apple reported their earnings and the markets adjusted accordingly, but in addition to the serious bits of news, the Wall Street page was splashed with break neck gains from “meme stocks.” While junk stocks surging is nothing new, the idea that a stock can make outrageous gains based on nothing and then possibly hold that value based on a newly formed shared trust is newer and much more alarming. The most infamous of these stocks was GameStop. (If you’re curious about GameStop’s week, there are at least 5 million stories across the web to grab your attention, here’s one. Side note: collectively we seem to have longer attention spans post-Trump.) So, Americans already don’t have too much institutional faith. Looking through some long-standing Gallup research, compared to the turn of the century, faith in organized religion, the media, most wings of government, big business and banks has decreased quite a bit. The outliers in what Americans do seem to trust more than they did 20 or so years ago are small businesses and the military. This is all to say that it’s probably not stellar that people don’t trust anything, and me thinking that the internet could probably disrupt every trusted institution except the military probably only shows my lack of creative thinking when it comes to how the web could democratize the Defense Department. As you might guess from that statement, I think democratizing access to certain institutions can be bad. I say that with about a thousand asterisks leading to footnotes that you’ll never find. Democratizing financial systems sounds a lot better from a populist lift, until you realize that the guys users are competing against are playing a different game with other people’s money. Until this week, in my mind Robinhood was only reckless because it was exposing (or “democratizing access to” — their words) consumers to risk in a way that most of them probably weren’t equipped to handle. Now, I think that they’re reckless because they didn’t anticipate that OR how democratized access could lead to so many potential doomsday scenarios and bankrupt Robinhood. They quietly raised a $1 billion liquidity lifeline this week after they had to temporarily shut down meme stock trading, a move that essentially torched their brand and left them the web’s most hated institution. (Facebook had a quiet week) This kind of all feeds back into this idea I’ve been feeding that scale can be very dangerous. Platforms seem to need a certain amount of head count to handle global audiences, and almost all of them are insufficiently staffed. Facebook announced this week in its earnings call that it has nearly 60,000 employees. This is a company that now has its own Supreme Court; that’s too big. If your institution is going to be massive and centralized, chances are you need a ton of people to moderate it. That’s something at odds with most existing internet platforms. Realistically, the internet would probably be happier with fewer of these sweeping institutions and more intimate bubbles that are loosely connected. That’s something that the network effects of the past couple decades have made harder but regulation around data portability could assist with. Writing this newsletter, something I’m often reminded is that while it feels like everything is always changing, few things are wholly new. This great NYT profile from 2001 written by Michael Lewis is a great reminder of that, chronicling a 15-year-old who scammed the markets by using a web of dummy accounts and got hounded by the SEC but still walked away with $500k. Great read. In the end, things will likely quiet down at Robinhood. There’s also the distinct chance that they don’t and that those meme traders just ignited a revolution that’s going to bankrupt the company and torch the globals markets, but you know things will probably go back to normal. Until next week,
Lucas Matney | 
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