Sunday, September 30, 2018

Ponzinomics

"Tolerable parasites are those that have minimum pain and cost to the host."


DONALD TRUMP, PRESIDENT OF THE UNITED STATES, AT THE UN GENERAL ASSEMBLY: In less than two years, my administration has accomplished more than almost any administration in the history of our country. America is so thrilled.

(LAUGHTER)

I did not expect that reaction, but that’s OK.

(APPLAUSE)

America’s economy is booming like never before. Since my election, we have added $10 trillion in wealth.
Back when horse and dog race results were sent to betting parlors by telegraphy, bookies realized that for a small cut, a telegraph operator could be enlisted to delay racing results long enough for confederates to place sure bets. As the ruse became overused and bettors complained, local bunko squads made busts and grifters moved on. In its next iteration, long con artists created merely the illusion they could delay results, setting up fully staffed, but fake, betting parlors. A “roper”  lured the mark in with promises of guaranteed wins.

Today the grifters are licensed stockbrokers, specifically high frequency traders, and the roper is a popular software platform called Robinhood offering unlimited free trades. The marks are millennials, 4 million users lured by the creed of “information should be free” into trading billions on the platform. So how does the service pay itself? Simple — by selling its data to a handful of HF traders, at a premium. With a small investment in the right hardware, the HF traders can get a millisecond-or-more jump on the millennials’ trades (the platform may even have an admin knob that can turn up or down trading speeds) and the HF traders can opt to enter the other side of the trade just before the price rises to reflect the new buy. Millennials pay a few pennies more and the HF traders make their gains on volume.
We’ve designed Robinhood from the ground up for the next generation of newcomers and experts alike.
It’s fast, dead simple and just works.
Where are the bunko squads? There is no need for them in an economy booming like never before, adding $10 trillion in wealth.

While it will likely be some time before it makes it first nickel of profit, Fortune reports Robinhood’s valuation as $5.6 billion, following a Series-D investment round. It is now the second most valuable private fintech startup in the U.S. after Stripe, the online payments company. Its user-base is doubling every 12 months. Its founders say that before long it will be bigger than Bank of America.

In the wire game, the mark may be allowed to place, and win, smaller bets before placing a significantly larger one that he will, of course, lose, generally when a small planned miscommunication leads him to make the wrong bet. In this updated version, the only thing millennials have to lose is their data. Maybe they believe information wants to be free, but whenever anything on the internet is free, the commodity is them. Their small trades are making someone somewhere very, very rich.

The entomologist E. O. Wilson said, “Parasites, in a phrase, are predators that eat prey in units of less than one. Tolerable parasites are those that have evolved to ensure their own survival and reproduction but at the same time with minimum pain and cost to the host.”

Maybe Robinhood is a tolerable parasite, or maybe it is a saprophyte, living on the decay of a dying Empire. It was on the assumption underpinning that second scenario that the audience at the United Nations laughed.
 

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