Remember “stonks”? Remember “hlod”? Remember “to the moon”? Remember a strange man with long hair, a red headband, and ironic cat T-shirts speaking into his webcam about the stock market to members of the House Financial Services Committee in Congress? If you are somehow nostalgic for the time in which these words and characters entered our national lexicon, then Dumb Money might be the movie for you. 

Dumb Money plays out during the depths of the COVID-19 pandemic, when many Americans were shut indoors and much of the world seemed to have simply emptied out. Instead of partaking in large communal gatherings, people interacted online, on Zoom, and social media—and when they did venture into populated places, they wore masks that made it exceptionally annoying and difficult to communicate with others. Dumb Money is at its best as a low-key pandemic period piece, capturing the quiet, lonely oddness and anxiety of this era. While it is not the film’s primary point, it works best as a story about one of the many collective manias that took hold during this period. 

Specifically, it tells the mostly true story of the collective furor around the Reddit forum WallStreetBets and a handful of stock picks, most notably the mall-based video game retailer GameStop, which became known as “meme stocks” thanks to its popularity with small-time retail investors who frequented crass, meme-heavy message boards. 

Much of this activity was driven by Keith Gill, a small-time investor with a penchant for cat imagery who went by the online alias Roaring Kitty. Thanks in part to Gill’s videos promoting the stock, GameStop’s share price rocketed upwards. As a result, Gill and others who bought in early quickly saw the value of their stocks increase massively—at least on paper. Moreover, as these small-time investors saw their holdings increase in value, large funds that had shorted GameStop—effectively betting that it would drop in value or fail—lost money. As losses mounted, one large fund, Melvin Capital, eventually had to shut down. 

Dumb Money tries to present this as a relatively straightforward David and Goliath story, an underdog tale about little-guy investors who stick it to moneyed institutional investors. A final title card argues that because of Gill and the GameStop stock drama, big Wall Street firms must now pay attention to “dumb money”—the derogatory term large investment firms use to dismiss small individual investors they see as less savvy. Like The Big Short before it, the oft-expository movie wades through the jargon and systematic complexity of the financial market: There are explainer-y bits on short squeezes and references to “payment for order flow,” a business model employed by Robinhood, the trading app that powered much of the GameStop frenzy. Yet as knotty as all these market mechanisms might seem, Dumb Money tells an essentially simplistic story about how the system is rigged to benefit the rich and powerful at the expense of the little guy. 

And the problem is that the real story is anything but simplistic. Fundamentally, the big-money short sellers the movie presents as villains were right about GameStop: It’s a troubled company on the decline. Not only was it hit hard by the pandemic, which decimated in-person, mall-based retail, but it’s been beset by management and leadership problems, and its business model is under external threat from the rise in digital video game downloads. The big firms shorting GameStop were obviously trying to make money. They were also providing meaningful market information about the company’s likely chances. 

Meanwhile, the movie’s hero, Keith Gill, pushed the stock onto less-savvy individual investors, many of whom ended up losing money in the end. Although we don’t know exactly what has happened to Gill since 2021 as he has receded from public life, when we last heard from him, the value of his GameStop stocks had risen to tens of millions of dollars. 

The point is not really that Gill is a villain—he was playing the markets just as everyone else was, and he appears to have come out as a winner. But many of the little guys who participated in what the movie casts as his revolution lost money in the process, betting on a company that remains on shaky ground.  

Dumb Money does not entirely shy away from showing those losses; along with Gill, the film follows a handful of fictionalized GameStop investors, including Jennifer, a nurse played by America Ferrara, who becomes obsessed with Gill and GameStop stock, buys in big, and ends up losing money after failing to sell at the top. But it indulges in an unconvincing heroes-and-villains triumphalism that reality simply doesn’t support.

Moreover, the film resolves in a strange showdown, in which the major players in the GameStop finance farce all have to testify before the House Financial Services committee. Here we see Democratic lawmakers portrayed as reformers fighting for the little guy. It’s worth recalling, however, that at the time, Sen. Elizabeth Warren, possibly the Democratic party’s most prominent policy entrepreneur, was calling for federal regulators to step in to shut down the meme-stock maniacs this movie lionizes. Meanwhile, as a title card notes, the Securities and Exchange Commission investigated the GameStop episode and took no action against the big firms involved. Nor is it obvious what sort of regulatory intervention would even theoretically be warranted. 

The real story of Dumb Money is not that the little guys toppled the big guys, or that the big guys tried to rig the system and heroic federal lawmakers took them down a peg. It’s that a bunch of stocks-obsessed weirdos on an internet forum found what amounts to an exploitable loophole in the financial system that would allow them to do something they saw as both epic and funny: wreck the balance sheet of a very large investment firm by buying a nostalgia stock associated with video games. Many of them did it for money, and a few lucky investors even won big. But many of them did it, well, for the lulz—for sheer chaotic amusement, because chaos is often funny, and because in the dreary depths of the pandemic, you had to do something to pass the time. Dumb Money is a nicely made, often human, and affecting movie, especially if you don’t know too much about the real-life events it’s based on.

But it largely misses the mischievous prankster’s sensibility that drove much of the GameStop frenzy, recasting it into something more noble. It’s not a bad movie, exactly, but it’s too earnest, too in thrall to a simplistic moral worldview. This is a story about stonks, vulgar memes, and bizarre cat videos as much as it’s one about financial system intricacies; frankly, it could have used a lot more lulz. 

The post <i>Dumb Money</i> Misses the Point About Its Meme-Stock Underdogs appeared first on Reason.com.

The Commodity Futures Trading Commission (CFTC) announced yesterday it had both filed and settled charges against three “decentralized finance” operations, Opyn Inc., ZeroEx Inc., and Deridex Inc. 

In the agency’s own language, the charges included “failing to register as a swap execution facility (SEF) or designated contract market (DCM), failing to register as a futures commission merchant (FCM), and failing to adopt a customer identification program as part of a Bank Secrecy Act compliance program” and “illegally offering leveraged and margined retail commodity transactions in digital assets.” 

The companies have to pay fines ranging from $100,000 to $250,000 and refrain from further such law violations. The full CFTC press release gives some of the technical details of the sort of decentralized “smart contract” operations the companies performed that the agency insists violated the law. Opyn, CFTC acknowledges, seemed aware it was legally questionable to offer its services to U.S. residents and tried to block them, but not hard enough in CFTC’s eyes.

The use of DeFi and smart contracts allows people to make sophisticated financial dealings involving buying, selling, trading, or swapping commodities, crypto, or derivatives more or less automatically without specific human entities having to make decisions and act. CFTC Director of Enforcement Ian McGinley says in the press release that, “somewhere along the way, DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts. They do not. The DeFi space may be novel, complex, and evolving, but the Division of Enforcement will continue to evolve with it and aggressively pursue those who operate unregistered platforms that allow U.S. persons to trade digital asset derivatives.”

In an intriguing Twitter thread yesterday, Delphi Labs general counsel Gabriel Shapiro, said this CFTC action ratifies what he’s long believed: DeFi is likely to be judged illegal in nearly all contexts interacting with U.S. citizens.

Shapiro advises that “if you run any kind of interface etc. for a DeFi credit protocol, block the U.S.,” adding, “I also always told you the CFTC would be an even worse regulator for crypto than the SEC.”

The underlying theory of this enforcement action, Shapiro says, is inherently anti-DeFi: “The purpose of DeFi is disintermediation. There is no way of making DeFi ‘comply’ with a mandatory intermediation regime—then it would not be DeFi, just intermediaries who use permissioned, KYC-gated etc. smart contracts as part of their tech stack.”

One CFTC commissioner, Summer K. Mersinger, filed a dissent to his agency’s actions. Among his complaints were that “we are asked [in this action] to find liability and impose sanctions based on a novel technology that was decentralized in conception and operation—an area that has not previously been the subject of a CFTC enforcement action.” Mersinger points out that “the Commission’s Orders in these cases give no indication that customer funds have been misappropriated or that any market participants have been victimized by the DeFi protocols on which the Commission has unleashed its enforcement powers.”

He thinks this represents a shift from a previous CFTC vow to use more “stakeholder engagement” and less out-of-the-blue enforcement actions in the DeFi space. “Yet, today’s actions do not promote responsible innovation—they shut it down, banishing innovation from U.S. shores.”

Mersinger points out that it would be often difficult or impossible for DeFi operations to legally register under CFTC rules as those rules “were written for centralized entities—are they fit for purpose if FCM activity can be performed in a decentralized manner?” He also asks, relevant to some of the specific charges at issue this week: “If a DeFi protocol is developed for lawful purposes but is used for purposes that violate the CEA [Commodities Exchange Act], should the developer be held liable?  Must the deployment and the illegal use be close in time, or is the developer of a DeFi protocol forever liable if its technology is used for illegal purposes by others?”

Overall Mersinger thinks these sort of enforcements “creates an impossible environment for those who want to comply with the law, forcing them to either shut down or shut out U.S. participants.”

As I wrote back in Reason‘s January issue, “DeFi’s ability to move value and make investment decisions via automatic, unregulated programming makes it harder for the government to rely on the old system whereby it drafts financial intermediators such as banks and brokers to spy on their customers.” The CFTC is acting on the eternal state imperative to crack down on anything that widens spaces where citizens can act without government knowledge and supervision.

The post The Federal Government Is Trying To Shut Down Decentralized Finance appeared first on Reason.com.

In this week’s The Reason Roundtable, editors Matt Welch, Katherine Mangu-Ward, Nick Gillespie, and Peter Suderman analyze the fallout from the historic failure of Silicon Valley Bank and deride a recent congressional hearing concerning the reporting of independent journalists Matt Taibbi and Michael Shellenberger on the Twitter Files.

0:52: Silicon Valley Bank collapse

26:30: President Joe Biden’s budget proposal

34:22: Weekly Listener Question

41:02: House Democrats vs. Twitter Files journalists

45:52: This week’s cultural recommendations

Mentioned in this podcast:

“How the Fed Broke Silicon Valley Bank,” by Joakim Book

“Everyone Is Learning the Wrong Lessons From the Silicon Valley Bank Collapse,” by Elizabeth Nolan Brown

“Biden’s Budget Will Raise Taxes Without Addressing the Federal Government’s Spending Problem,” by Eric Boehm

“Democrats Deride the Twitter Files Reporters as ‘So-Called Journalists’,” by Robby Soave

“Twitter Files: Employees Knew the Media’s Favorite Russian Bots List Was Fake,” by Robby Soave

“FTC Seeks Names of All Journalists With Whom Musk Shared Twitter Documents,” by Elizabeth Nolan Brown

“Oscar-Winning Everything Everywhere All At Once Celebrates Individualism, Free Will,” by Eric Boehm

Send your questions to roundtable@reason.com. Be sure to include your social media handle and the correct pronunciation of your name.

Today’s sponsor:

• Getting to know yourself can be a lifelong process, especially because we’re always growing and changing. Therapy is all about deepening your self-awareness and understanding. Because sometimes we don’t know what we want, or why we react the way we do, until we talk through things. BetterHelp connects you with a licensed therapist who can take you on that journey of self-discovery from wherever you are. If you’re thinking of starting therapy, give BetterHelp a try. It’s entirely online. Designed to be convenient, flexible, and suited to your schedule. Just fill out a brief questionnaire to get matched with a licensed therapist, and switch therapists any time for no additional charge. Discover your potential with BetterHelp. Visit BetterHelp.com/roundtable today to get 10 percent off your first month.

Audio production by Ian Keyser

Assistant production by Hunt Beaty

Music: “Angeline,” by The Brothers Steve

The post Yes, There Are Libertarians During Bank Runs appeared first on Reason.com.