As the apex predators of capitalism, hedge funds are accustomed to raking in billions by driving companies into the ground and feasting on the carcasses. So there was widespread satisfaction last week when members of an online discussion group called WallStreetBets started beating the Wall Street bully boys at their own game. Ringleaders of the group noticed that hedge funds had taken a short position in the videogame retailer GameStop that far exceeded the number of shares available to trade. Motivated as much by revenge as by profit, these influencers in the group encouraged the 2.7 million members (since risen to around 8 million) to purchase the stock in order to drive the price higher and create a massive short squeeze. This quickly became a movement with a cause similar to that of Occupy Wall Street, except much more effective because it hit the intended target where they would feel it the most, in the wallet. “The only way to beat a rigged game,” one WallStreetBets leader said, “is to rig it even harder.”
GameStop stock, which closed at $17.69 a share on Jan. 8, shot up to $347.51 by the close last Wednesday. With combined losses of almost $20 billion, hedge funds were on the ropes and close to bleeding out, selling their longs in an increasingly futile effort to cover their shorts. One fund, Melvin Capital, lost over half its value and had to be bailed out by hedge fund sugar daddies Ken Griffin (Citadel) and Steve Cohen (Point 72). Another fund, Citron, was teetering on the brink of collapse. All this outsider army needed to win was the continued ability to communicate with each other online, and their collective ability to keep piling into the “Buy” side of the trade. Within hours, they would be hobbled on the first front and crippled on the second.
The Empire Strikes Back
First, the digital distribution platform Discord banned the WallStreetBets account after the close Wednesday for “hate speech, glorifying violence, and spreading misinformation.” (For a moment, it looked like Reddit had also banned the group, but they resisted pressure to do so.) If the quoted justification sounds familiar, it’s nearly identical to the one given by Google, Apple, and Amazon for deplatforming Parler just three weeks earlier. Echoing Amazon, Discord said it had sent the group repeated warnings about objectionable content before deciding, on that day of all days, to shut them down.
Meanwhile, WallStreetBets investors were locked out of their trading accounts by online brokers such as Robinhood on Thursday morning. Based on new collateral requirements that it says were imposed by an industry consortium, Robinhood forbade its users from buying GameStop and other stocks that WallStreetBets had identified as short squeeze opportunities. Users were allowed only to “close their positions”—in other words, to sell to the shorts desperate to buy. When angry users registered their disapproval by leaving over 100,000 one-star reviews of the Robinhood app in the Google Play Store, Google deleted them.
Normal trading was allowed to resume Friday, but the hedge funds used their 24-hour sole ownership of the battlefield to fortify their positions, covering the most vulnerable shorts. Wall Street then sent in reinforcements, as new short positions were taken at these high price levels, virtually guaranteed to pay out when, inevitably, the air leaks out of the balloon. Faced with a game that, for once, they couldn’t rig in their favor, it appeared that the insiders tipped the board over and started a new game. As a massively decentralized online group of scrappy outsiders, the only tools at WallStreetBets’ disposal were online trading and social networking. Both were frozen at the crucial moment, and the hedge fund insiders were let off the hook. The weaponization of censorship is a big part of the reason why.
Down the Slippery Slope
Some of us warned of a slippery slope when Parler was taken down and a sitting president was systematically ghosted from every online speech platform. But we could not have foreseen how slippery the slope would be, or how fast we would slide down it. We were told that the curbs on speech of President Trump and his supporters were necessary to prevent further “insurrection” and protect the peaceful transition of power. However, much like the troops and barricades that still ring the Capitol, these speech restrictions remain in place well after the transition of power has occurred. The censorship power is always justified in response to a genuine outrage or crisis, but it is rarely relinquished once the threat passes. Rather it gets weaponized to protect powerful, connected insiders, as the GameStop fiasco illustrates.
How do we suppose Discord chose that moment to enforce its “Community Guidelines” against WallStreetBets? Almost certainly, one of the hedge funds whose ox was being gored combed through their message boards looking for anything that might violate the terms of service. And surely they found it, as these boards contain the same raunchy language you would hear if you visited any trading floor or boiler room on Wall Street. They presumably reported the content to Discord, which took the group down.
Did Discord warn WallStreetBets of content violations before last Wednesday? I’m sure they did. Amazon sent such a warning letter to Parler as well. Frankly, such a letter could be, and likely is, sent to every large message board on the web. The founder of a user-generated content site described it to me as “the One Percent Problem.” Every user-generated content site will have a small percentage of offensive material that gets through, no matter how many content moderators are hired. For example, Facebook, Twitter, and YouTube allowed far more content advocating for and planning the Capitol riot than Parler. But instead of acknowledging this, they were eager to blame the upstart, which had recently taken over the top spot in the social networking category in the app store. Scapegoating Parler served the dual purpose of deflecting blame and squashing a competitor.
Critics of social networks insist that these sites simply need to double down on censorship in order to finally rid us of problematic speech. But that ignores how social media moderation actually works. Algorithms set to recognize keywords capture only a small fraction of problematic posts, leaving millions of posts for humans to review. The work is so voluminous that it’s outsourced to far-flung locales where English may not even be the first language. Low-level employees must decipher complicated guidelines while navigating our increasingly Byzantine world of political and cultural hot-buttons. Mistakes are inevitable, and the harder a company tightens the standards to get the One Percent Problem down to 0.1 or 0.01 percent, the more undeserving accounts—from Ron Paul to the Socialist Equality Party—will be swept up in the dragnet. With the Town Square now digitized, centralized, and privatized in the hands of a cartel of Big Tech companies, the protections of the First Amendment no longer apply.
Insiders Vs. Outsiders
Censorship is about who has the power to censor, and what checks are placed upon that power. Right now, tech companies have all the power, and they exercise it as a like-minded cartel. When we see Alexandria Ocasio-Cortez and Ted Cruz voice similar concerns over what happened to WallStreetBets last week, we should realize that the politics of this issue in the post-Trump era will no longer divide along an axis of Left and Right, but of insider and outsider.
Elizabeth Warren, when she started landing blows against Wall Street after the 2008 financial crisis, met with President Obama’s economics adviser, the former treasury secretary and Harvard president Larry Summers. He presented her with a choice: “I could be an insider or I could be an outsider,” she recalled in her 2014 memoir, A Fighting Chance. “Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People—powerful people—listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders.”
It’s precisely this insider-protection scheme that the internet and social media have most disrupted. Insiders are massively powerful but few in number. Outsiders have always been numerous but unorganized. Social networking and online organizing have given the outsiders real power to effect change, and finally register their disgust at the way incompetent elites protect each other. The elites of Big Business, Big Media, Wall Street, and Washington are terrified of this, and will leverage any censorship power to keep the outsiders at bay.
The Real “Big Lie”
After the storming of the Capitol building on Jan. 6, we heard a lot about the “Big Lie” perpetrated by Trump and his allies that the election was “stolen.” In reality, this narrative never got far. It was rejected by the media (including Fox News), thrown out by the courts, labeled by social networks as “disputed,” and dismissed by politicians, including Trump’s own vice president. Yes, some far-right groups like the Proud Boys and Oath Keepers came to Washington to commit acts of violence, but they were roundly denounced. For a Big Lie to be successful, it has to have buy-in from the people in power, moneyed interests, the narrative-framers in the media generally, all of whom have to benefit from the lie and therefore repeat it.
But what issue could possibly unite all of these constituencies? For several years, elites in the media, government, and now finance have denounced social media as a tool for propaganda, disinformation and hate. Social media was to blame for the Russian disinformation that supposedly elected Trump in 2016. Social media was fingered as the main culprit in an “insurrection” that attempted to overthrow an election. And now, WallStreetBets is accused without evidence of spreading hate and misinformation. We’ve even been told that social media is worse than cigarettes.
What all of our elites have in common is a reason to fear social media. Legacy media hates social media for disrupting their business models and competing with them for influence. Wall Street has just learned that organized social networks can threaten their control of the Monopoly board. The party in power benefits from increased censorship and repression of political dissent by labeling it “hate speech” and “disinformation.” Ironically, the tech oligarchs benefit the least from the censorship they impose, but the threat of break-up keeps them in line.
If there is a Big Lie in American politics right now, it is the idea that censorship of social media is necessary to save democracy. In his book The Square and the Tower, the historian Niall Ferguson describes the age-old tension between hierarchies and networks—between the rulers in the Tower and the people in the Square. The last thing that the rulers want to see when they look down is a teeming throng in the Square. And nobody benefits more than the rulers from malleable censorship rules that are easily weaponized to restrict, disrupt, or disband the Square. What the insiders fear is not the end of democracy, but the end of their control over it, and the loss of the benefits they extract from it. Ultimately, the battle over speech is just one aspect of a broader war for power amid a growing political realignment that is not Left versus Right, but rather insider versus outsider. Thanks to social media, the outsiders are threatening to replace who’s in the Tower, and the insiders have never been more scared.
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David Sacks, founding chief operating officer of PayPal and founder of Yammer, is founder and general partner at the venture capital firm Craft Ventures. He writes the Bottom Up newsletter and appears on The All In Pod.