Jadie, are we good? Okay, good.
I say we bring it.
What was it like when your savings account gave you 5% interest
as opposed to what I get which is a $15 fee for every time I bounce a check.
Yes.
It costs you money now to save your money.
You used to be able to save your money and make money.
I didn't even know that was an option.
Completely impossible.
The reason that your savings account interest rate is so low
is because they're literally trying to incentivize you to invest...
-Yes. -…by taking away the incentive to save.
It's like zero interest.
There's no other option in this world than stocks.
My bank's savings account interest rate looks like a blood-alcoholic level.
But it's not going to jail 'cause it's not that high.
Yeah.
So when you go into your bank, do they say, "Blow into this."
And whatever registers, that's what they give you.
Hello!
Why, I-- Hello!
No! I'm delighted!
Good evening!
Good morning! I don't know when you're watching this.
My name is Jon Stewart.
Welcome to an episode of what the kids are calling "Not Ted Lasso."
It's Apple.
Tonight we're gonna be talking about the stock market, as--
Really?
A "whoo" for the stock market.
Millions of Americans talk about the stock market every day,
from the ballrooms of the richest Connecticut country clubs
to the ballrooms of some of the poorer Connecticut country clubs.
No matter what's happening in the world, all eyes are always on the market.
We stock-watch while waiting to find out who's going to be president.
We stock-watch while globally warming.
And neither Santa nor a global pandemic
can distract us from our minute-to-minute check-in.
All happening just below Larry Kudlow's nipples. Oh, look at him.
But our national obsession came from quite humble roots.
The stock market began with a very simple premise.
Let's have people invest their money in companies that they believe in.
If the company does well, the people will do well.
But you couldn't just drive to the company,
give them your money.
It'd be super weird.
You needed a place, a building made of, let's say, marble.
But you couldn't just go into that building made of marble
and buy your stock.
That'd be too much like a store.
You'd need a broker, someone… better than you.
So from the beginning, it was elitist.
To buy a stock, you had to pay a heavy commission
to whichever college lacrosse benchwarmer turned broker you could find.
And the only folks more elite than the brokers
were those who vouched for the brokers on television.
My name is J. Paul Getty.
The brokerage house of EF Hutton & Company is a firm with which I have had
close and pleasant relationships for four decades.
They have been helpful, and their service has been good.
It's too late for me now…
for I am more couch than man.
More pillow than human.
Given that the investor class was made up of literal Monopoly men,
the stock market was wildly unequal.
When the Federal Reserve started analyzing stock ownership in 1989,
it found that the top 10% of households owned
78% of the stock market.
But the revolution was coming.
Hark!
Sorry.
That "hark" even scared me.
Hark!
Its clarion call is upon us!
The e-brokers have arrived!
Eight dollars, my man.
Eight? My broker charges me $200 for this trade.
You're riding the wave of the future, my man.
Ameritrade. Believe in yourself.
But is a meth-head and his father in the market…
still too high a bar?
You know, I conceal this bad boy underneath my blanket
just so I can get on E-Trade.
Click.
I just bought stock.
If I can do it, you can do--
A fucking baby.
If you want to get in the market, you just need to be a fucking baby with $6.
A $6 fucking baby.
By the way, someone needs to do a "Where are they now?" on that baby.
Pretty sure he's hosting a podcast
where he's just asking questions about ivermectin.
"I'm just asking questions!"
And calling women "females." "They're females!"
Discount e-brokers democratized the stock market.
And inequality went...
up? Fuck, are you serious?
They democratized the stock market, and inequality went up!
Are you kidding me?
Turns out, to really democratize this market,
we were gonna need something that completely breaks down all barriers.
Someone had to take away fees completely.
We'd need a hero.
Or not a hero.
More like an app. We'd need some kind of an app.
There we go.
Robin Hood.
The OG sexy socialist.
The bow-and-arrow Bernie Sanders, leveling the playing field,
stealing from the rich and giving--
Who is he giving it to?
Robinhood has made it extremely easy for me
to take the income I make from my commissioned paintings
and invest it into stocks.
Robinhood showed me that my money can work for me.
My name's Azim, and I'm a Robinhood user.
-I'm an investor. -I'm an investor.
We are Robinhooders.
Cozy-sweatered lesbians?
In the stock market? Well, I never!
By the way, in the '90s, they were referred to as "just friends."
Pray tell, how has Robinhood managed to breach the palace walls
and throw down the drawbridge for these sweatered Lilith Fair maidens?
Robinhood CEO, tell us.
I think the combination of zero commissions,
no account minimums, fractional shares
helped level the playing field for people to participate in the markets.
Thank you, haunted Victorian boy.
Zero commissions!
And the markets were flooded with new customers.
And not only that, on top of this no-commission model,
the Federal Reserve's new low interest rates
made savings accounts pretty much worthless.
So even more stock buyers and money flowed into the stock market.
In 2021, more money flowed into the stock market
than in the previous 20 years combined.
It was a golden age of wealth generation.
The unwashed masses finally have their moment to get into the stock market,
and it went up? Inequality went up?
Are you fucking kidding me?
And thus…
"The Problem With the Stock Market."
The grand pooh-bahs of the stock market keep creating easier access
to this wealth machine
yet somehow always still manage to be the greatest beneficiaries of that wealth.
Perhaps if we examine exactly what happens when you buy a stock through Robinhood,
we can understand the system a bit better.
I'd pick up my phone, and I'd hit the old Robinhood "buy" button, and boom.
My order doesn't go to the stock exchange
because of something called "payment for order flow."
My order somehow goes to this other company no one's heard of called Citadel.
They're a middleman known as a market maker.
They match buyers to sellers.
And they have paid Robinhood hundreds of millions of dollars
for the privilege of processing the order.
And then Citadel or any market maker
still doesn't have to take that order to the stock exchange.
They just match it to other orders they've also already paid for.
Or they slip the order into what are called dark pools.
And dark pools are private exchanges
where the big boys trade stocks in the dark.
Yes, the actual name of that is dark pools.
They named it dark pools.
How fucking invincible do you have to feel
to name the place where you conduct your least transparent business dealings
"dark pools"?
"Thank you for your order.
I'll just take it down to my chamber of schemes."
So now we know why Robinhood is free to use.
They're being paid hundreds of millions of dollars
by middlemen for the privilege of processing stock orders.
So we know who their real boss is.
But why the fuck would these guys pay hundreds of millions of dollars
for that privilege?
Let's ask Citadel CEO Ken Griffin.
Payment for order flow is a cost to me.
Well, yes. It costs you hundreds of millions of dollars.
Why would you do it?
We want to hold on to this democratization of finance that's taken place.
If payment for order flow helps to maintain that as a reality,
I think that's good for everybody.
You're a really good person.
See, Ken Griffin, he's just a nice guy.
He's going broke to create this democratization of markets.
Obviously not that broke.
He does live in literally the most expensive house
in the history of the United States of America.
And also spends time at his other house here,
and this other one here,
and then there's this one here,
and, of course, any of these here.
You know what? Fuck this guy.
So what's really going on here?
How do these particular middlemen even make money?
Say, Jason, you want to buy a stock for $10,
and, Caroline, you're selling it for $9.99.
Well, they'll internalize that trade and they'll make a cent per share.
It doesn't sound like a lot,
but if you do it enough over and over again,
those pennies add up.
So for every trade, they're skimming pennies off the top.
How many fucking pennies puts you in all those houses?
Let's break this down.
First of all, the hundreds of millions that Citadel kicks back to Robinhood
should be going to the retail investors, or at least a cut of it.
And the pennies they're scooping on price differential
should also be going to the retail investors.
I mean, who came up with payment for order flow? Bernie Madoff?
Yes, it was actually Bernie Madoff.
It was literally Bernie Madoff who came up with payment for order flow.
It was Bernie Madoff.
Bernie Madoff came up with payment for--
Ber-- Let me--
Do you know the name Bernie Madoff?
Bernie Madoff came up with payment for order flow.
That's the business model that all these guys are working on.
Bernie Madoff. Bernie Madoff!
This should be illegal,
which, by the way, it is in many other countries.
Somebody should really tell the Securities and Exchange Commission about this.
And it turns out somebody did.
In 2004, a whistleblower wrote a letter to the SEC,
saying payment for order flow lacks transparency,
is anti-competitive,
and creates an obvious and substantial conflict of interest
between brokers and their customers, and should be banned altogether.
Pray tell, unmask the hero of our tale,
the brave whistleblower from the year 2004.
It is…
Citadel Investment Group!
It appears that these companies
don't so much want to democratize the stock market
as bring in chump money for their penny game.
So, what might happen, though,
if these new chumps bringing in all this new money got wise?
Small investors banding together to take on big firms
by running up the stock price of video game seller GameStop.
It's a stock worth just a few bucks a year ago
and closed at $347.
If you invested $5,000 into GameStop just two weeks ago,
you would have made more than 86,000 bucks.
The hedge funds that bet against it have lost billions.
A bunch of Reddit users harnessed years of advanced meme training…
to realize that the company GameStop was being massively shorted
by hedge funds.
Basically, hedge funds placed giant bets
that GameStop's price would go down.
The Reddit users thought, "Well, geez,
why don't we all just get together and short-squeeze them?"
Drive the price up, hold the stock,
make a little money and, as a consequence,
force those hedge funds into massive losses.
And it worked.
Really well.
Discount online brokerage Robinhood barred users without warning
from buying new shares of GameStop.
I opened up the app.
I saw that you could no longer press the "buy" button in Robinhood,
and I said, "Holy ****."
Don't be coy. Holy what?
Holy what? What'd you say?
Cock?
Did you say "cock"?
Why would Robinhood halt buying GameStop but not selling it?
They said it was because they received a call from their clearinghouse--
Let's--
From their bookie,
who said, "They're on their way! Get the fuck out of the house!
They're in a black Lincoln Continental!"
But other people were suspicious for a couple of reasons.
One being a hedge fund called Melvin Capital,
which racked up billions of dollars of losses in the GameStop frenzy,
received a bailout from none other than…
Citadel hedge fund,
the utterly unrelated hedge fund owned by the same people
who own Citadel Securities,
which is the payment for order flow company that handles Robinhood orders.
And if this sounds insane, it's because it's insane.
Which really has to make you wonder,
how dark are these fucking pools?
And here's the kicker.
This payment for order flow situation and GameStop mess
are the part of the American stock market
that is the most transparent, well-regulated, and straightforward part
of our entire market system.
There's a whole other back room of derivatives and swaps
and less transparent transactions with even more fuckery
subsidized by public union pension funds.
It's unsustainable.
One could compare it to the subprime mortgage market
that has capacity to blow up the world economy.
We will never understand all of it, and we're not supposed to.
It took a bunch of Redditors to figure out the GameStop shorting thing.
What the hell was CNBC doing?
Show me the money!
Look at all that green, baby.
Wealth creation right in front of our eyes.
Cha-ching.
Watch your money grow.
You're gonna make a lot of money.
Thank the market gods.
Because, baby, this stock is born to run.
Someone should question him publicly.
I'm sure that would have tremendous ramifications.
Take a look at this.
Our regularly scheduled programming will not be seen at this time
so we may bring you this CNBC special presentation.
-This is… -This is…
-CNBC. -CNBC.
CNBC.
Our business is…
-Lies. -Lies.
-Damn lies. -Everybody lies.
-We spread… -…propaganda.
We sort of spread it everywhere.
-It's all… -Nonsense and hooey.
Phony as baloney!
It's BS, if you will.
-Because we're… -…bought and paid for…
-…by… -…the system.
-We promise… -We promise…
-We… -…promise…
-…we will never… -Never.
…give you… honest… and… transparent… information.
So let's not forget that-- We make things up.
-We just make things up here. -Again, we're just making things up.
You bet we do.
CNBC.
Apes are amateur investors.
They came out of this Reddit group called WallStreetBets.
And they were just
exchanging stock ideas, like, finance ideas.
And then they decided to go into GameStop.
"All people equal."
That's what I read somewhere. Is that true?
-Yes. -They saw that there was a hedge fund
that was shorting the stock at a higher percentage
than there was of the stock.
They were like the Scooby-Doo kids in a van.
And the van was Reddit.
And the scooby snack…
…was still weed.
Welcome back. The stock market in this country is treated basically as
one of the vital signs of our economy.
We're always checking it.
But the stock market is not our economy.
It's more like a casino.
The only real difference between the stock market and a casino is
a casino is well-regulated.
And they kick out cheaters.
To discuss this more, and how it affects you at home,
we've got J. Brown, a self-taught retail investor
who identifies as a member of the online ape movement of investors.
Dave Lauer, a market structure consultant
and former quantitative analyst at Citadel.
He is currently the CEO of Urvin Finance.
Danny Moses. He's an investor and former Wall Street trader,
cohost of finance podcast On The Tape,
and was profiled in the movie The Big Short.
And Matt Kohrs, an investor and YouTube host
who has been called a leading voice in the ape movement.
Thank you, guys, very much for joining us.
So, you know, we talked about
all these different kind of complex financial instruments
that go on in the stock market and the complexities of it.
But it took the online movement,
Redditors and retail investors,
to uncover that GameStop was being shorted at 140% of its value
and that if you all got together--
How in God's name did this happen?
I guess the best way I can explain it
is that people had a chance to reset during the pandemic.
People had a chance to start thinking of different ways to make money,
different ways to survive.
And in moments of great struggle,
people usually band together to protect each other.
It gave rise to all these guys sharing this information.
Now, how did you learn to trust each other in this scenario?
I think it's one of those things where we were all in the exact same boat.
So there we were during the pandemic. A lot of us just downloaded Robinhood.
We're sitting on our couch, hearing about it.
Maybe we could make some money.
And a community was built around it.
And at first you're just talking about GameStop,
a company that sells video games,
something weird going on,
leading to this exact moment
when we're talking about some of the serious issues,
manipulation and the fragility of the overall system?
-Right. -It's absolutely wild.
I think it was amazing to see this self-organized movement
come together and uncover something
and push the market to the breaking point.
Because markets have become more fragile.
All of this complexity
between the derivatives and, you know, 15 stock exchanges
and 40 dark pools and all these internalizers
is an extremely complex system.
And the complexity leads to fragility.
And that's what these guys showed.
They came at it. They found the hole, and they came at it.
And they exposed that fragility, and the markets nearly fell apart.
It's insane to think
that a video game store almost broke the market.
A video game store that sells hard copies…
-Yes. -…of something that's d--
It'd be like if Blockbuster had come back,
and everybody's like, "This Blockbuster's going through the roof."
So how is it legal that they can hold a larger share
in shorting a stock, in betting that it will go down,
larger than the actual company is worth?
You really can't do it,
except market makers get an exemption
to provide "liquidity." That's what they're doing to short stocks.
You can have a situation where, for a period of time,
there can be more shares short than are outstanding, potentially,
or "overborrowing," as they say.
You have to make that right over time,
but there are periods, days, until a trade settles,
where you don't know the bar wasn't secure.
I don't want to go in too much detail. It's technical.
Here's why you shouldn't go into too much detail.
I stopped listening to you a minute ago.
Fair enough.
But isn't that part of this?
Isn't what's part of this is the complexity of it?
What it sounds like is they set up structures on the market,
and then the insiders exploit those systems.
Oh, yeah. The complexity is purposeful.
You know, they could have set up rules and regulations
that would have simplified markets dramatically.
But they specifically elected not to go down that path.
They built complexity on complexity on complexity.
And what happens with an extremely complex system is
that it leads naturally to this level of inequality
and this level of exploitation,
because a few firms who are big enough can take advantage of that complexity.
But it doesn't mean it makes any sense. That's part of the problem.
You can't explain to a rational person
how you can have more than the entire float of a company short.
And so I think the retail community saw this,
and they saw an opening to potentially attack the existing system,
and they were right.
Look, I don't understand the markets so well.
But I play craps.
So I understand what gambling is, you know?
And all this being talked about, when I talk to guys on it,
they roll their eyes at me like, "You just don't understand.
Shorting is important to hedge a bet and hedge risk and do all these things."
And I'm like, "No, no, no. You bet the pass line and then the come line.
And then you tried to offset your bet.
I get it. But it's gambling.
And don't try and tell me that Robinhood isn't fucking FanDuel, 'cause it is.
It has to be.
-Jon, if I could make a comment. -Yes, please.
Gamification of the markets, which I think you're referring to--
People are treating a Robinhood account, a Coinbase account, you know,
and a DraftKings account as the same.
They're betting on Seattle, taking that money and buying crypto and--
I think that's one of the problems here, the access to trade on Robinhood.
I think it sucked in a lot of people that think that way.
These stocks are not trading on fundamentals, AMC and GameStop.
But, Danny, what I would say to you is
it's not the retail investor that really takes advantage of the gamification.
It's the hedge fund investors.
It feels like the pushback is because the retail guys got wise
to what the game was in the back of the casino.
It's all about inducements and incentives.
And that's what we're seeing here, right?
Because Robinhood is not incentivized for its customers to do well.
It's incentivized for them to trade a lot. And--
You're saying volume and volatility makes them more money?
Exactly, and that's what makes Citadel and Virtu more money, and the wholesalers.
So it's not a free market. The only reason there's this much churn is
the Federal Reserve has hyperinflated the stock market
by making it impossible for people to have savings accounts.
-Yes. Inducements and incentives. -Oh, okay.
I-- You know what I just realized?
I should have known what inducements and incentives mean!
My wife will tell you I watch CNN, Fox Business.
I just watch all this stuff. I'm watching all of these things happen.
And I just started just absorbing it.
And then I found a community on Twitter.
And I'm like, "Hold up. These are a bunch of people that get it."
And it's not necessarily getting together to, you know, "collude" or anything.
We're just sharing, learning and connecting with each other.
To share information.
Is information the most valuable part of this new movement and this connection?
And has it really not democratized the stock market?
It's democratized information
that allows you to go to battle with these larger firms?
I definitely think it's the information,
and that's kind of one of the crazy things is there's a lack of it.
It's very difficult.
At first you look into the market,
and it's very much, "Is the stock going up or down?"
And then you dive into it a little bit more,
and you find additional things out.
Like, "Okay, how could short interest get that high? How is that possible?"
And it's purposely complex.
I don't think we're supposed to understand it,
and then you start to ask legitimate questions.
It's very much perceived that we're a monolith of people
who don't know what we're talking about
when I feel that we're asking very legitimate questions.
Jon, people in the professional investment community have been upset
about payment for order flow and these market makers for years.
And I'm glad you guys are starting to see what it really is in the underbelly.
But let me just say something.
Stocks trade on fundamentals in the long term.
They can do whatever they want in the short term.
-Right. -So, short sellers get vilified,
but short sellers can be a source of great information
the same way that retail and long buyers can be.
Right.
So I think, to get everyone in a room and talking about that is very constructive.
But I think fundamentals matter.
And I just think it's key to understand that.
That's one of the things when I say about the connection.
I want to bridge and try to help others. And Matt does it all the time too.
We all want to have these conversations,
but the thing about it is, we need to have answers to certain things.
I need to know why, in January, when this was running up,
the "buy" button was taken away in the midst of a run-up.
That's never happened. And because--
-And the "sell" button still worked. -Yeah, the regular people like me,
who finally have a chance, the waitress, the meter maid, whoever-- the janitor.
Tell me that answer,
and then we can have the larger conversation.
Because right now that's all we see
is that every time we get ready to get ahead,
you take it from us.
And once you take it, we're supposed to just take your word for it and accept it.
I've learned fundamentals. I've learned price discovery.
We can preach fundamentals all day.
Knowledge is wonderful,
but a Wharton business degree and a life living,
they collide in this movement.
People are learning where their money is going.
You spent all day cooking the Thanksgiving dinner.
You mean to tell me you want to watch everybody eat?
No. Damn that. I want to eat too.
-That's where we're at. -Do people normally want to hug you?
That was beautifully spoken.
We're gonna take a quick break, and then we're gonna straighten it out.
'Cause there's solutions that are on the table here that can be done,
and these guys will help figure it out.
Throughout my 30-year career,
I would tell myself, "It's okay. I'm going to be secure when I retire.
I will have this pension until the day I die."
And so, it's a kick in the teeth to have them go back on that.
I've already lost, since 2011, over 30,000.
Everybody, all retirees, lost that money.
I was stunned, and then I was angry, and then I just started worrying.
It's a mixture of anger, despair…
We've had over 30,000 teachers in Ohio…
that retired and have died
without receiving the benefits they were promised.
Wall Street doesn't care.
So if our pension fund goes belly-up, it doesn't matter.
They're good with that
because they got it all.
Benefits to workers that have been promised are being slashed
in order to pay Wall Street more.
Three percent cut from workers
to pay Wall Street 4% or 5% in additional fees.
We're talking about
the health of what many wrongfully consider the lifeblood of our economy,
the stock market.
We're gonna talk about what a healthier and simpler marketplace could look like.
But it brings up-- Here's this other sort of unforeseen circumstance.
All these public union pension funds with billions of dollars
have to hire hedge fund money managers.
And if it goes in the tank, they still walk away with those fees.
Again, transparency, fundamentals.
Why doesn't it apply to these hedge fund operators?
It's being nickel-and-dimed at every point in this very complex set of pipes--
And then at the end, when that underfunded pension plan has underperformed
and it's time for someone to collect their benefits,
there's not gonna be enough money.
And it's a huge problem.
And then the taxpayers are gonna have to step in.
So that's where market-structure issues and complexity intersect
with both shareholders and retirees and taxpayers.
And that's why everybody should care about these issues.
Who is on the side of the retail investor and those people?
You look at-- It's the regulators, the SEC,
but they're outgunned.
And if you could talk to the head of the SEC--
What would you say to him?
People might not realize that many of the regulatory structures in the market
are self-regulatory.
Okay? So you have--
Self-regulatory meaning, "You guys handle this"?
-Yes. -Like baseball arbitration.
Yes. So, the stock exchanges, for example, are for-profit, publicly traded companies
who set the rules for both their exchanges and the market overall,
and then they're the ones…
-What? -…charged with enforcing them.
There's no real accountability.
It's all self-regulation and access,
because the money that these companies make--
Man, if that guy's got a $150 million house in London,
I think, "How much money is he spending in Washington?"
Yeah.
-Do you know what I mean? -Yeah. We call it the Acela economy.
We used to say "the merger of Wall Street and K Street."
So much goes on behind the scenes between Washington and New York City.
That's where they used to run and write the rules on the lobbyists
and even the Wall Street rules that exist.
It's not politically viable anymore not to hyperinflate the stock market.
If that's the thing that everybody sees on their screen at night on the news,
if that thing goes down, it puts lawmakers in political peril.
And so they won't take any steps
that may bring it more into a fundamentals market.
Listen. It's been this moral hazard for a long time on Wall Street.
No one went to jail, really, after the Big Short, after the financial crisis.
Couple people here and there,
but everybody just paid their fines and moved on. It's the culture of it.
The fines are paid by the shareholders of the company themselves,
and no one's held accountable for it.
It's really become an upsetting part of Wall Street.
We live in a system where it's easier to paint retail as the bad people
opposed to people stepping up and addressing politicians insider trading.
We have Federal Reserve members insider trading.
Self-regulation.
When, in reality, we're trying to address very serious things.
I want to get a take on where you guys would go
that would make this function in a way that made a little bit more sense.
-I got three. -Okay. Let's hear 'em.
Number one, all politicians make minimum wage.
Yeah, write that down.
Boy, would that get raised quickly.
Yeah. Yeah.
No super PACs and no donations
because what it is, is that we don't have the ability as regular people
to have someone go and speak for us
-unless we have the type of power… -Access.
…as a community.
Secondly, the transparency that they talk about.
How is it that a particular ticker can trade at 67% in the dark pool
and we not know what's going on,
as I know myself and others are actually buying that stock in droves,
and we don't see the buying pressure?
So more transparency is definitely needed.
And the third one, and the most important one,
is that we allow ourselves to connect to all voices involved
so that we don't just scream at the wall and nobody hears us.
We have to organically connect
to understand that every decision we make affects everybody,
including the person that gives you an extra pack of ketchup at McDonald's.
Right.
Final word on the things you'd like to see.
Yeah. Overall, the highest-level thing is market transparency and fairness.
I think it very much starts with the extreme amount of off-exchange trading.
I think we're bringing up very serious things
that should not be swept under the rug,
because I think our market was at a serious risk,
and it needs to be fixed so it doesn't happen in the future.
The biggest things that I would do is I would get rid of unnecessary complexity,
and I would get rid of these incentives and inducements.
Who would get rid of that though?
-You need the regulator to step up. -The SEC would have to this.
The SEC has to step in, and Congress would have to support it.
But right now, the SEC could step in,
and it could peel away these layers of regulation
and simplify markets.
I think we'd have a much better outcome.
Danny, do you have anything solutionary that you would like to throw out there?
Retail investors, people can do a lot in that regard,
these changes that you want to invoke.
They can go to a company and say,
"We're not gonna buy your shares if you trade on that exchange,"
or, "We're not gonna do so-and-so." You can invoke change.
It'll be hard. It'll take time. But there's been movement--
-Grassroots power. -Grassroots power going on.
So maybe you can invoke some change.
I think this movement is a differentiator.
You know, we've been having this market structure conversation for years,
and the involvement of the retail investor and people caring,
millions of people caring,
is something that has never happened before
in this, like, extremely detailed part of politics and regulation.
And I think that that can make a big difference.
And so I hope that it will show regulators
that this is something they need to address.
Well, it's terrific. I can't thank you guys enough.
Thank you for being here.
To my distinguished panel.
J., Dave, Danny, Matt.
We'll be right back.
You are the commissioner, the head commissioner, the chair.
The SEC began as a way to get investors
to have confidence in the stock market.
That markets won't necessarily self-regulate.
This idea of a free and fair marketplace
can be exploited by those where greed might be more of a motivating factor.
Look, it comes down to this.
We want to achieve things as society.
To make it fair, and also to lower the cost.
So the SEC has three parts in our mission.
Investor protection, facilitating capital formation, raising money.
And then, that which is in the middle,
the markets, we call it fair, orderly and efficient markets.
-Right. -So it's those three.
And if we do the middle right, if we make them fair.
And efficient, meaning lower cost in the middle.
Investors do better and companies raising money better.
-And that also lowers the cost… -How are we doing with all that?
…to the companies raising money.
It does raise the question.
Are we creating confidence in the markets to really protect investors
or to make sure that we do not interrupt capital formation
to these businesses?
Because if you look at the equality of that equation.
Yeah. Which way-- Where we leaning more into. Is what--
Well, I think we know.
84% of the equities market is owned by 10% of the people.
No-- No-- Think of it as this.
We're not gonna-- We're not gonna-- Nobody bats 1,000.
But we're going to, every day,
be thinking about those working families, those retirees,
those early investors in the markets.
But the retail investor… they're at a real disadvantage.
And you're the sheriff.
And you're outgunned.
I walked into your coffee room today.
There's a little sign that says "Coffee donations welcome."
We're at the SEC.
-Yeah. -Holy shit.
Now we could use some more resources. That is for sure.
There's 4,500 people that are full-time here.
I wish it was more.
We shrank in the prior administration 5%.
-Right. -And this is in the time when
markets were growing dramatically.
And we should have, frankly, I believe,
grown during the last five years instead of shrunk.
How outmanned are you?
Are you an abacus in a calculator world?
Are you analog in a digital world?
-Because-- -It's hard.
-Yeah. -We spend--
We have about a two billion dollar-a-year budget here.
We spend about 350 to 400 million a year on technology.
Which is probably what one of the top five or six banks spend in a few weeks.
-Right. -You know, on technology.
I feel like the SEC is put in an impossible position.
And that if we don't change the way that the SEC does business,
investors are going to continue to receive the ass-kicking
that they're getting right now from institutional investors
who are generating overwhelming returns.
And the agility of the markets to exploit things
that are even foundational, has so far surpassed
the ability of the police to come in and stop it.
The challenge for an agency like ours,
and Congress gives us a lot of authorities,
to use them in policy and market oversight
and, of course, enforcement.
-Right. -A matter of setting priorities,
a matter of moving a policy agenda with a five-member commission.
-Yes. -Doing the economic analysis.
Staying within the chalk lines of the law.
And so, I mean--
Laws that are oftentimes written by the very people you're trying to regulate.
No, they're written by Congress.
Written by the very people you're trying to regulate.
Because who do you think writes the laws for Congress on financial instruments?
Realistically.
-Congress-- -Knowing what you know.
Congress and remarkable staff at congress. I've worked with a lot of them.
So you've been in there a long time.
You're telling me that financial institutions,
large financial institutions,
don't lobby Congress on the writing of those regulations.
-Jon, they absolutely-- -So who--
-Well, that's what I'm asking you. -They lobby, they have…
Of course.
…an ability to get meetings-- Oh, absolutely.
So the laws that Congress writes are manipulated and coerced--
Those are your words.
How are you gonna be-- I'm, like, talking to a sheriff, and I'm like,
"The drug dealers are out there." And you're like,
"Drug dealers? Now? Come on now. Let's not be unfair to them."
-Jon, I-- -You're the cop.
I understand that. I understand that.
But you also want somebody in my role to be successful at being a cop.
Oh, my Lord.
So Congress writes the laws. We implement those laws.
Yes. Congress, lobbied by financial institutions, writes the laws.
I guess, ultimately, what it comes down to is this.
Is the SEC the best system to do this?
I think the American public kind of gets it.
That the system is not fully working for them.
-That's right. Okay. All right? -Oh, yes. I believe that's true.
The apes exposed something really interesting.
They crowdsourced a way of rooting out corruption.
They found things in the system that didn't seem right.
Like the information that they were getting was two weeks old.
That they weren't being told
that these 140% shorts totaled that 140%.
They knew there was a short, but they didn't get that information until later,
and they didn't get the information to the extent of it.
And doesn't that show
that disclosure and transparency are not functioning
to the protection of investors?
I'm not saying this is without its challenges.
There are real challenges. There are real challenges.
-Complexity helps them-- -Give me a better system.
Give me a better system to do this than the one we have in place.
'Cause the one we have is getting its butt kicked.
I believe in this system.
I believe in our American democracy. You're not gonna get me to say--
I'm not saying give me a different system than American democracy.
Wait, listen--
Purely based on the financial system we have and the stock market,
is there a better system than the SEC--
Is there something in this crowdsourcing
that the apes brought to bear that can be useful--
Can there be a partnership between the SEC and a more crowdsourced--
Jon, I live within the system I'm in--
Dream, man. Dream!
Yeah, I'll dream, but I also want to get things done.
I want to get things done on behalf of the investing public.
Have you thought about, outside of the bureaucracy,
is there something that could help you be more agile?
So I would say, and the compliment goes to Senator Grassley from Iowa.
-He-- No-- Senator Grassley fought hard… -All right. Here we go.
…on a decentralization point you're talking about.
It's called the whistleblower law.
So in the aftermath of the '08 crisis and that big reform law, Dodd-Frank,
Senator Grassley fought hard that this agency and some other agencies
stood up and put in place a whistleblower program.
And over the ten or so years that this has stood up,
we've given awards.
-That's a crowdsourcing, decentralized-- -Right. Right.
What do we need to do, and is the SEC not enough? You know?
If you look at the past ten years, right?
Or the past 20 years.
The SEC very rarely will send something
and recommend it to the DOJ for prosecution.
-The 2008 financial crisis-- -That's not true.
We bring about 700 enforcement--
750 enforcement cases a year, and I could give you the exact figures,
but a whole chunk of those are also joint criminal investigations.
You know, with all the financial shenanigans
that have gone on over the years,
the only person we've really brought to heel is Martha Stewart.
And that's got to tell you something about just how tilted this thing is.
You've forgotten a little bit about Bernie Madoff, but…
Well, speaking of Bernie Madoff, who came up with payment for order flow?
-Yeah, yeah. No, I understand. -Right.
But he did serve his time in jail and everything.
One guy and one woman.
Generally, it seems like people don't go to jail for financial crimes.
They pay fines.
I think that's a fair statement.
-That's fair. -Generally--
The Department of Justice has the criminal authorities…
-Understood. -…we have the civil.
That's right. And on the civil side,
more than 50% of the fines levied from SEC judgments are not collected.
There are less financial judgments that are levied now
than there were 15 years ago.
It doesn't seem like the SEC has the ability to keep up.
Is there anything that you would think could bring more teeth to the SEC,
in terms of accountability,
that would be more of a stick?
I think what we can do is bring important cases
that are sort of high-profile cases that show people, "No. You're over the line."
It could be accounting fraud. It could be insider trading.
But is there something that would be more of a deterrent--
More of a deterrent is bars, where individual accountability--
There's nothing like individual accountability
to send a deterrent across the whole market.
If somebody's held accountable.
We only have civil law enforcement, but that means barring them from the industry…
-Trading. Right. -…or trading, or appearing before us.
Willing to litigate--
This agency has to be willing to go into court
and, you know, take some losses from time to time.
-But go into court. -Right.
I think all of those things.
But it's trying to use high-profile cases
to bring folks back on the right side of the line.
And also, I would say a focus on gatekeepers.
Gatekeepers. The accountants, the lawyers, the underwriters and so forth.
That sends a signal across a market too.
Take out the little guys.
No, no, no, no, no.
The gatekeepers. The gatekeepers, Jon.
Coming back in a year, we're gonna see how this all worked out.
Give us a little bit more time. But, yeah, I got it.
By then it'll be a whole different financial market.
-All right. Thank you. -Appreciate it. Fascinating.
-Thank you. -Thank you.
A message from a Robin Hood to Robinhood.
The whole thing about Robin Hood is...
he steals from the rich and gives to the poor.
That's it. Steals from the rich, gives to the poor.
Robin Hood steals from the rich, gives to the poor.
Again, from the rich, to the poor.
Takes from the rich and gives to the poor.
From the rich. To the poor.
To the poor!
You can't be a Robin Hood and not do that.
It's not rocket science.
You're a worse Robin Hood than Errol Flynn,
and he was drunk the whole shoot.
Thank you, Robin Hood.
Thank you.
I've been gone a long time, but I still got it.
Thanks for tuning in to what has to be, I think,
one of the best pass-fail financial seminars we've ever given here.
I feel like I'm at the New School.
Please check out these resources.
And while you're on the Web, you can also listen to our podcast.
It's ad-free, so you don't have to listen to me pretend to be excited
about a better way to buy stamps.
I won't.
Although, if you are interested in-- No, I won't do it.
We also have a website, theproblem.com.
It's almost as good as YouTube, but it's not as good as YouTube.
Which is also why we're on YouTube.
Thank you so much for tuning in to the program.
We will see you next time. Bye-bye.
The rich and powerful employ an army of lobbyists.
And the only thing that can fight back against that
is an army of investors, like the apes.
And this army needs to get organized and it needs to come together.
And they need to engage
with the Securities and Exchange Commission, the SEC.
You can write comment letters. You can even meet with SEC commissioners or staff.
By doing so, you can make sure
that the rules and regulations that are being considered and passed
are more favorable to individual retail investors
as opposed to this conglomerate of Citadel and Robinhood.