In 2018, former New York Times columnist Frank Rich took to New York magazine with a declaration gauche as it was grand. Lamenting the state of America in the wake of the Great Recession, Rich proclaimed that “in 2008, America stopped believing in the American Dream.” For those who have long been disabused of such a thing, it’s easy to see how Rich––a dependable barometer of establishment liberal discourse––reveals in this essay less about the American people than he does about himself. That is, on top of being white and well-educated, Rich is a product of the postwar economic boom, when middle- and upper-class prosperity gave way to a rising tide of American exceptionalism. But for many millennials and Gen Zers, 2008 arrived before they could hardly conceive of what it meant to be an American, thus marking the year not as the end of a dream but the beginning of a nightmare.
Promised homes, jobs, and health care, many millennials witnessed their parents robbed of these things by forces then too abstract to rage against. Saddled with a mountain of post-collegiate debt, the newest generation of young adults embarked upon the begrudging mission of securing employment in a cratered labor market. To add insult to injury, when their lesser savings begot lesser spending, millennials were summarily blamed by Corporate America for “killing” various industries that the economy had already rendered half-dead by 2009.
You would have found approximately zero Occupy demonstrators condemning commission fees as one of Wall Street’s most depraved indulgences.
It’s no surprise, then, that whatever meager trust American millennials had in finance was quickly subsumed by the world of Big Tech. The years 2007 to 2009 alone brought us Airbnb, Uber, Groupon, Dropbox, Glassdoor, WhatsApp, Fitbit, Indiegogo, and Netflix streaming, all forged from the ashes of the Great Recession. But eventually the snake ate its own tail. In about five years’ time, finance made an auspicious comeback when “fintech” apps began sprouting from the fertile soil of Silicon Valley, a portmanteau used to define a new category of startups bridging the gap between finance and technology. Apps like Acorns, Digit, Stash, and a smattering of other one-word names rolled out colorful, user-friendly interfaces that proffered “non-bank” services to help young people save and invest, swiftly rebranding such practices as low-stakes rituals that could be easy and fun. Perhaps the poster child of this transition arrived in 2015, when the mint-colored, feather-adorned investment app Robinhood was trotted out to the mobile marketplace like a prized pony, after having raised $13 million and acquired a waitlist of nearly one million people. Interestingly, Robinhood claimed to have a distinctly ideological mission: to “democratize finance.” But like the eponymous Medieval hero, its mission was no more than a myth.
At first blush, Robinhood’s benevolence seemed plausible. The app boasted zero transaction fees, no minimum balance, and awarded new Robinhood users with free stock as a perk of signing up. The startup’s thirty-four-year-old co-founder, Vlad Tenev, a Stanford graduate from Bulgaria whose Soviet-era roots lent him a decidedly romantic notion of laissez-faire capitalism, has spoken ad nauseam about Robinhood’s potential for pro-social disruption. “For Robinhood,” he said in a 2017 interview with Thrive Global, “the end goal isn’t about becoming another brokerage, but about creating a world where everyone can take advantage of the most lucrative form of wealth creation.” In a CNBC op-ed from this year, Tenev dared (or deigned) to redefine the American Dream. “Becoming an investor is the new American dream,” Tenev’s headline read, “just like home ownership was before.” He explained the moral impetus for Robinhood’s origin:
While the market is theoretically open to everyone equally, some people have had better access, better tools, and a clearer invitation to participate. Others have been held back. Just 10 percent of US households hold 87 percent of the total value of stocks, and barely half of U.S. households participate in the stock market at all.
We conceived Robinhood in the wake of the Occupy Wall Street movement to level that playing field. We pioneered commission-free trading, enabling millions of underserved people to get more involved in the economy and to make choices to shape their own financial futures.
Tenev’s attribution of Occupy as Robinhood’s moral inspiration reveals the flimsiness of the company’s mythology: it offers a cosmetic solution to a structural problem. This is to say that you would have found approximately zero Occupy demonstrators condemning commission fees as one of Wall Street’s most depraved indulgences. If there is one thing to be gleaned from Occupy, in all its strategic discombobulation, it’s that wealth inequality is a structural issue whose redressal requires structural solutions. Demands to “democratize” finance were not on the table, since the financial mechanisms of economic inequality were deemed undemocratic by their very nature.
While Occupy never proffered an official list of demands, the ones commonly cited included some form of a wage guarantee, debt cancellation, full employment, and universal paid sick leave. Such things, of course, require federal action. What Robinhood offers falls into the category of what we might call “market-based solutions”––that is, non-structural solutions, much-ballyhooed by the billionaire class, that are not only myopic but often self-serving. Charter schools, for example, have been touted by the Bill and Melinda Gates and the Walton Foundation as the privatized panaceas of education inequity. However, ten years later, it’s become clear that they’ve perpetuated, if not exacerbated, inequality by drawing funding and resources from public schools.
Market-based solutions also obfuscate the roots of systemic inequality. Robinhood suggests to its users, for example, that wealth is quite literally at their fingertips––that it’s not primarily a function of class, but rather one’s degree of access to the tools of wealth management. This misapprehension makes for a subtle play on the oft-employed bootstraps narrative: If you put in enough work, you can invest your way out of poverty! Tenev acknowledges that there is an asymmetric distribution of stock ownership in America, perhaps alluding to how those at the highest strata of wealth can accumulate appalling levels of capital at the expense of others. But this asymmetry is, again, less a comment on America’s access to wealth management than, say, income inequality. After all, 78 percent of America lives paycheck to paycheck and 71 percent lives in debt, according to a 2017 survey. When the vast majority of the working American public does not have income to save, the idea that zero commission fees will “democratize” finance obscures the true barriers to market participation.
More than this, Robinhood posits that market participation is necessarily desirable for a more egalitarian society. But, as Jacob Silverman noted in The New Republic, “people should recognize that finance capitalism is largely at odds with small-d democratic movements, much less the kind of mutual aid and egalitarianism that this period of interlocking crises demands. We shouldn’t spread the impunity of hedge funds around to more people or try to game the market: We should break it.” On principle, market participation is largely undemocratic because it allows third parties to arrogate capital that should logically belong to workers, whose time and labor has been spent building or maintaining that very capital. While many workers do own shares of the companies for which they work—it was estimated in 2014, for instance, that just under twenty percent of private sector workers fall into this category—when singular shareholders own disproportionate amounts of stock in a particular company, that company is disinclined to serve all of their shareholders equally. Workers’ interests are subordinate to profit.
It’s also not apparent that the kind of market participation Robinhood enables does much good either. It is a well-known fact, for instance, that the vast majority of day traders lose money. Opening the floodgates, then, for everyone to fashion themselves into armchair speculators would widen pre-existing wealth gaps and add more animal spirits to an innately precarious financial system. Robinhood’s vision evokes a sort of Wild West-style playing field, where people can make big gains and even bigger losses. But true financial democracy should, if anything, call for the best possible insulation against such losses.
Aside from its origins, recent events surrounding Robinhood have brought into sharp relief just how spurious the company’s vision really is. In December of last year, Massachusetts regulators filed a complaint against Robinhood for its “gamification” of investing, alleging that the app shirks its fiduciary responsibility to inexperienced investors by enticing them to trade without informing them of the risks. Many experts on gambling and addiction have noted that Robinhood’s sleek platform––which offers “scratch-off” rewards, displays big “Buy” and “Sell” buttons, and literally spews digital confetti across the screen to celebrate transactions––should be investigated for its potential to prey on inexperienced users. In an interview with Insider, Robinhood’s other cofounder Baiju Bhatt dismissed the idea that young people should be wary of investing even in the face of financial precarity:
A lot more people are working paycheck to paycheck. We think that is a more important problem to solve. . . . So we say to them, there are a lot of parts of investing that may be confusing to you. We say, the best thing we can say to those people is “just do it.”
The company’s fine print says it offers services to “self-directed” customers and does not provide investment advice. It’s unsurprising, then, that in the first three months of last year, Robinhood customers bought and sold options contracts at eighty-eight times the rate of those at Charles Schwab, requiring virtually no credentials whatsoever. Some younger traders have ruined their financial livelihoods on the app; one even died by suicide after his account showed a negative balance of $730,000, due in part to incomplete trades. According to a New York Times report from July of last year, Robinhood’s platform had crashed forty-seven times in the four previous months. In March, it went down three times in a single week as stock prices surged and then sank.
Last year, Robinhood settled for $65 million after SEC regulators charged the company with concealing the nature of its revenue model. While the company pulls in the vast majority of its revenue using a complicated procedure known as “payment for order flow”––in which Robinhood effectively gets paid by market makers for every trade they execute––this was not clearly advertised on their website. In fact, from 2015 to 2018, the company did not mention payment for order flow at all in the answer to “How does Robinhood make money?” on their online FAQs.
Robinhood’s vision evokes a sort of Wild West-style playing field, where people can make big gains and even bigger losses.
Most recently, Tenev was called before the House Committee on Financial Services last month to apologize for the trading freeze it put on GameStop after a brigade of Robinhood users coordinated a retaliatory short squeeze against Wall Street bigwigs. In the hearing, Tenev claimed that “the Robinhood Securities team had to work with [its] relevant clearinghouses to adjust the risk profile of the trading day in order to meet [its] collateral requirement.” However, just several weeks prior, Tenev had said in a CBNC interview that “there was no liquidity problem” and that the trading halt was put in place “preemptively,” contradicting the notion that the company could not meet its collateral requirements.
While Robinhood purports to advocate for its customers by “democratizing” the tools of wealth creation, its affinity for controversy paints quite a different picture. It has displayed a pattern of secrecy over transparency and negligence over attentiveness, likely because it is beholden to institutional sharks over retail minnows. But such are the results produced market-based solutions, whose vested interest lies in preserving the status quo.
For all the “innovations” that have sprung from the land of fintech, promising ease of use and low barriers to entry, little has changed with regard to economic inequality since the catastrophic effects of 2008. The gap between top earners and the working class has only widened. While fintech apps like Robinhood may have grown the wealth of a lucky few, catapulting them to levels of security and success they could never have imagined, such anecdotes do not take away from the fact that the stock market always lifts the biggest boats the highest. There will be no rising tide, then, so long as apps like Robinhood are entrusted to deliver equality.