I’m Dr Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. To build something – to make something better – you need to understand how it works. Sometimes that means taking it to pieces, and that’s exactly what we’ll be doing in this podcast, stripping down finance to reveal it as you have never thought of it before. I’ll be asking: What makes financial markets work? What is in a price, and why does it matter? How did finance become so important? And who invented unicorns? We will see that stock markets have places, and histories and politics, and come to understand just how influential stock-markets are in our everyday lives. Can we fashion a finance that's fit for purpose and can contribute to a world worth living in? Let's find out together.
Episode 18. How to build a stock exchange (at last)
In this, the podcast’s last episode, I finally, absolutely, and almost completely definitively, tell you how to build a stock exchange (and who invented unicorns).
‘It had been a bad trip … fast and wild in some moments, slow and dirty in others, but on balance it looked like a bummer. On my way back to San Francisco, I tried to compose a fitting epitaph. I wanted something original, but there was no escaping the echo of Mistah Kurtz’ final words from the Heart of Darkness: ‘The horror! The horror! … Exterminate all the brutes!’
That’s Hunter S Thompson finishing up the tale of his long encounter with the San Francisco Hells Angels. In this classic bit of gonzo ethnography Thompson has been in the thick of it, drinking hard and hitting the drugs, riding loud bikes too quickly, and generally being a nuisance – although as he is quick enough to point out, the real nuisance came not from the bikers but from more refined figures who dropped in on the party. The unnamed poet who threw a bin under the wheels of a passing bus, for example.
Social theorist Eve Chiapello tells us that capitalism feeds off critique, and the ill-behaved gonzo has been absorbed into the rhetoric of business. Christopher Locke, the author of the 2001 hit business book ‘Gonzo Marketing’ is, like all good marketers, a master of the un-ironic pastiche: ‘wandering barefoot on the Lower East side of New York, over $1000 cash in my pocket, looking to score… Also in my pocket, the tarot …I went into The Eatery on Second Avenue and my waitress saw the cards…I had just dropped another tab and had little time left…but she sat with me…‘You have two Magicians,’ she said’. As Martin Hirst, from whom I’ve borrowed this choice quotation, points out, Locke’s prose is Thompson with Easton Ellis namedropping thrown in. Still, the book sold and the strapline, ‘winning through worst practices’ epitomises everything that’s wrong with contemporary business: the acceptance of winner-takes-all competition and the seductive notion that it somehow could be cool to get ahead by means that dance around the edge of acceptable. Finance is not immune from this aesthetic: the cinematic portrayal of finance as lubricated by booze, cocaine and trips to brothels marked down as expenses, in the quasi-autobiography of Jordan Belfort’s Wolf of Wall Street or the post-crash analysis of Inside Job.
What is gonzo anyway? Something with a bit more integrity than barefoot and stoned in Manhattan, and the drugs seem to be peripheral. Rather, it’s an intimate, first person take that emphasises spontaneity and raw authenticity over form and polish, where ‘deliberate derangement of the senses… de-familiarises reality, opening the door to paradoxically clearer perceptions, a twisted perspective..’ So says literary scholar Jason Mosser. What’s more, the spontaneity turns out to be artifice: Thompson’s prose is a result of a strange collaborative production involving his own demented writing and inability to meet a deadline, tearing pages out of the notebook and faxing them in; the transcribing typist making whatever sense she could out of what she received; editors and copywriters doing their best. Sociologist Jesse Wozniak calls for ‘gonzo sociology’, an ‘immersive, reflexive methodology which eschews rigidity and formulaic design in favour of innovative and imaginative research on places and peoples ignored by the academy’. Gonzo academic is never going to be that gonzo: it’s rather a reaction against the ‘staid practices of the field’ (in Wozniak’s words). We can permit ourselves a certain licence – an element of reflection, of the personal, a struggle to find a voice that speaks more widely than the dry prose of the academic journal. So I have told you of breakfast in the Cadogan Hotel wi...
Episode 17. White markets, black markets
This episode examines the racialized structures of finance. It sets off from the infamous Zong massacre and legal case of 1781 to explore the patterns of exploitation that underpin finance, and to show that contemporary finance is built on structures and practices established by eighteenth century slavery. It finds modern parallels in the speculative credit of the financial crisis and its legacy of austerity. There’s a personal narrative, as well, a family genealogy that circles the slave trade, winding up in the sometimes contradictory figure of the critical management academic.
A picture, a poem, a legal text. Three representations of the same unspeakable truth.
The picture: Turner’s greatest masterpiece – at least in the eyes of the art critic John Ruskin – the Slave Ship, or ‘Slavers throwing overboard the dead and dying, typhoon coming on’. A swirling mass of violence, colour, and anger, held together by a lowering sun, red, ochre, orange; the sea smashing in from the left, foaming, boiling, the whole picture askance. In the background the stricken ship, sails secured, ploughing through the spume. But the foreground, oh, the foreground: a severed black leg, manacle attached; hands reaching, the ironwork of that abhorrent trade somehow floating; hideous fishes descending ravenous, gulls circling, the water carmine to match the sunset. It’s hard to look at. I’ve never seen it in the flesh, this painting, but by all accounts its physical presence is even more unsettling. Ruskin, its first owner, could never find a place to put it, and the image haunted Mark Twain’s writings for years.
The picture, first exhibited in the Royal Academy in 1840, thirty seven years after the abolition of slavery in Britain and its colonies, evoked the sum of brutality and horror that the slave trade embodied. Yet it referenced one event in particular: the Zong massacre of 1781, an event that came to be emblematic of the horror of slaving and did much to galvanise the public to the abolitionist cause. The Zong was a slave ship and its captain, Luke Collingwood, ordered the drowning of 133 of his captives.
Let’s not rehearse the details here. Let’s go instead to the poem. A cycle, in fact, called Zong! (with an exclamation mark) by M. NourbeSe Philip. You can find her reading from the cycle online; it is a tone poem of seemingly random words, forcing the listener to recognise the need to make sense of a happening that never can be understood. This, she writes, ‘is the closest we will ever get, some 200 years later, to what it must have been like for those Africans aboard the Zong’.
The words are not entirely random.
The Zong massacre came to prominence through the efforts of leading abolitionist Granville Sharp. Sharp heard of the event from freed slave and campaigner Equiano, and recognising its rhetorical and political possibilities, compiled a weighty dossier which now rests in the archives of the National Maritime Museum. The massacre has, in this way and that, been expropriated ever since: as a symbol not of tyranny, but of salvation, of the abolitionist narrative that allows Britain to take credit for abolishing a practice that it had done so much to establish. A recreated Zong even sailed into the Thames for a 2007 celebration of the vote that abolished slavery.
There is another source, however, a prosaic account of the legal hearing that followed. It was not, you might be surprised to hear, a murder trial but a civil case, Gregson v Gilbert. For the massacre was not just an atrocity but the basis of an insurance claim, and when the underwriters refused to pay the slavers took them to court. Philip’s poem draws on this document. An early version of her poem, available online, begins as follows: ‘Captain slave ship Hispaniola Jamaica voyage water slaves want water overboard.
Markets at the speed of light
This episode explores the technological transformations that have led to markets at the speed of light: algorithmic traders and flash crashes. Yet for all the images of terrifying AI we discover that stock markets in the cloud are more rooted in material than ever before, pushing against the laws of physics in the pursuit of speed and profit. We see a culture war between hoodie and suit, techie and yuppie, but find – no surprise here – that whatever the uniform, the elites win out in the end.
The Frankenstein story – the monster that bursts out of the laboratory and pursues its creator – is firmly embedded in our collective imagination. The novelist Robert Harris gives it a spin in the Fear Index, published in 2011. But the monster is not a thing of flesh and blood. It is an artificially intelligent trading algorithm launched by a Geneva-based hedge fund. It is fantastically, malevolently intelligent: able to penetrate secret files and to discover the worst imaginings of its creator, to conduct a reign of terror through purchase orders and sub-contracts. As its creator attempts to burn down the servers that house it, the algorithm uploads itself into the digital netherworld where it roams free, doing as its code instructs: feeding off fear for financial profit.
Harris has a keen ear for details in the news, and the financial cataclysm sparked off by this machine actually took place, just over ten years ago, in the afternoon of 6 May 2010. A wobble in the US markets, and then a spectacular collapse: the Dow Jones losing 998.5 points in 36 minutes, a trillion dollars of capital evaporating in five. Circuit-breakers – automatic cut outs designed to stop the market self-destructing – halted trading. When the market opened again, prices climbed quickly back to the morning’s levels. Although individual traders may have made or lost fortunes (we don’t know – and Harris deftly weaves fiction into the gap) very few ripples spread into the economy as a whole. This was the ‘Flash Crash’.
There may have been fear but there was no panic, no shrieking or shouting. The whole affair was conducted algorithmically, as high-speed trading machines did the electronic equivalent of yelling ‘sell, sell’, unloading stock to each other at ever-falling prices, and creating a self-fulfilling cyber-crash. Algorithms don’t panic, but they do form expectations, and they do so in thousandths of a second.
An initial investigation found that a large sell order had triggered the flash. There was a veiled reference to a problem with the timing of data feeds, a technical, structural problem. If you follow the news in the UK, though, you might have heard of the Hound of Hounslow, Navinder Singh Sarao, a solitary London trader with unusual personality traits who built an engine to ‘spoof’ the Chicago algorithms and made millions trading from his bedroom. American regulators became convinced that his activities had sparked off the crash, though this seems a lot less plausible than the fiction of malevolent artificial intelligence. Sarao may have made $70 million but most of his money seems to have ended up in the hands of fraudsters and questionable entrepreneurs. The only thing he purchased was a second-hand VW which he was too nervous to drive. He was extradited to the United States to face justice. The judge, expecting a criminal mastermind, saw instead a 41-year old man with autism who still lived with his parents and laid down a lenient sentence of a year of house arrest, even if Sarao had threatened to cut off the thumbs of a market administrator.
Hounslow, for those who don’t know London, is an unremarkable borough to the west of the city: suburbs, offices, few tourist attractions. Though the pun on Wolf of Wall Street may have been too tempting to avoid, it tells us something. In the place of the cham
Episode 15. Opportunity lost
This episode explores how the forces of globalisation reshaped London’s small company stock markets. We discover how a commodities boom led to a gold rush in financing resource firms, and tumble into the pitfalls of exploration financing. We see the old hierarchies of politics and capital reproduced in this new sector and witness the eventual downfall of OFEX, the market we have followed since its inception. Along the way we meet promoters, anacondas, and of course, diamonds. With strong language and heavy dudes.
One morning in March 2000 I received a telephone call from a colleague, an older journalist now mostly retired but very well connected. We both were interested in the mining exploration sector, then starting to bloom on the London markets. He had some information and wondered whether I would like to follow it up. It concerned a South African mining outfit called Petra diamonds Ltd, then traded on the London Stock Exchange’s junior market AIM. He had got wind of a big deal heading towards Petra, but didn’t know what it was; he suspected that the chief executive, one Adonis Pouroulis, was seeking to take the company private against stockholders’ wishes. This certainly wasn’t the case – ironically, a quick Google reveals that just yesterday, 31 March 2020, Mr Pouroulis stepped down from the firm he founded 23 years previously. Back in 2000, in the overheated offices of Shares Magazine I spent two days telephoning everyone whose number I could get hold of and eventually reached Mr Pouroulis himself. He listened to my questions, thought for a moment and said, ‘you’d better come for breakfast.’
Breakfast was at the Cadogan Hotel in Chelsea. I’d never heard of it, despite its fame as the place where Oscar Wilde was arrested in 1895 on charges of gross indecency, and the fact that John Betjeman wrote a poem about just this. As one might expect from the place that Wilde chose to hang out with his louche pals, it was impossibly elegant. When I got to the breakfast table there were several men gathered, all suited: Mr Pouroulis, his deputy, Mr White, and a lawyer called David Price. My memory is a bit hazy, 20 years later, but I think that was his name. There was also the firm’s head of security – strange – and even more strangely a man who appeared to be connected to the Zimbabwean army. I’m convinced there were two others present who didn’t do much talking or breakfasting either. Pouroulis explained the proposed deal. Petra Diamonds was to become the vehicle for a reverse takeover – a kind of merger where the incoming company swallows up the host, keeping its name and, crucially, stock exchange listing. The incomer was called Oryx Diamonds, a firm registered in the Cayman Islands and run from Oman. Oryx’s business was operating a diamond concession in the Democratic Republic of Congo. As even I knew, the DRC was a spectacularly troubled country, with a history of destructive civil war, repressive government and a reputation for diamonds mined in the most oppressive circumstances and used to fund conflict: blood diamonds as they are known.
I don’t remember what I ate, if anything. I do remember, like a trauma memory, Pouroulis stirring honey into his coffee as he set out the specifics. The concession was worth $1 billion. $1 billion of diamonds waiting to be taken from one of the poorest, most violent, and most corrupt countries on earth. 40% of profits would go to Oryx (or Petra). 40% would go to Osleg, a company linked to the Zimbabwean army, which was charged with providing security on this immense mining operation. The Zimbabwean army was already in the area; Robert Mugabe had sent 11,000 troops to DRC to support Laurence Kabila’s government. The remaining 20% went to Comiex-Congo-Operation Sovereign Legitimacy, a company that David Price (the lawyer) vigorously deni
Episode 14. Seeing and doing in the market
What better week to tackle fear and greed in the stock market? Under the shadow of global financial meltdown, this episode explores the nature of cognition in the markets: how market actors see, choose and act. Moving from the model of homo oeconomicus in the efficient market to the irrational animal spirits of behavioural economics, I find neither satisfactory, and explore an alternative, sociological concept of decision: that it is distributed across social and technical networks. We revisit the non-professional investor, and find that a distributed model of decision making can help us understand their sometimes idiosyncratic actions. *Updated with postscript!*
Well, it’s been quite a week in the markets, hasn’t it. The old saying has it that when Wall Street sneezes, the world catches a cold. It is probably in bad taste to observe that it is not Wall Street doing the sneezing, not yet at least, and that the rest of the world is doing its very best to avoid colds and much worse. Unless you have been living on Mars you will have noticed that there is a global pandemic on the way and that, as well as shutting down everyday life for an increasing chunk of the world’s population, it is playing havoc with industrial production in China, and, thanks to global supply chains, business everywhere else. Amazingly it took until the middle of last week for Goldman Sachs to point out that the wildfire spread of COVID-19 across the globe might damage US earnings – important to stick to consequences that matter – and already nervous stock markets collapsed. As did Flybe, the UK regional airline, already once rescued by the government, with other travel firms sure to follow. The Federal Reserve’s move to cut interest rates had little effect, the screens are bathed in red; money managers are working long nights and shoppers are hoarding loo rolls. What better week to discuss greed and fear – what Keynes famously called ‘animal spirits’ – in the stock market?
But are we so irrational after all? And is that even the right question?
Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe and I am a sociologist interested in the world of finance. I teach and research at the University of St Andrews in Scotland, though I’m on strike quite a lot of the time at the moment, squeezing these episodes out in the odd day back at the desk. Anyway, to business: I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. If you’ve been following this podcast – and if so thank you – you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. As well as these, I’ve been looking at the stories we tell about the stock market. You might be surprised how much power stories have had on the shape and influence of financial markets, from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story. Start-ups are stories, narratives of future possibility; shares and bonds are promises based on narratives of stability and growth. Even money is a story, circulating relations of trust written into banknotes, credit cards and accounts. Stories set the tone, make the rules, determine what counts and what does not. A good stock market needs a good story, so if we’re serious about rebuilding financial institutions then we need to take control of those stories.
This episode is about how people see and do in the market: how they think and how t
Episode 13. Other people’s money
This episode returns to 1999, the year of dotcom mania to explore how rivers of cash from private investors – other people’s money – changed the shape of finance forever. OPM paid for new infrastructure, made finance mainstream in the media, and helped establish a stock exchange for small company stocks. Fortunes were made – even the Queen got involved – but not by these everyman punters. We start thinking about why these ‘other people’ invest at all, especially as they are so bad at it.
The summer of 1999 found me, aged 25, an inexperienced young reporter at the newly founded Shares Magazine. We occupied a scruffy, overheated office in Southwark, just opposite where the heroes hung out in Guy Richie’s classic film, Lock Stock, just round the corner form where Colin Firth and Hugh Grant crashed through a restaurant window, battling over Bridget Jones. Borough Market, around the other corner, still sold fruit and vegetables to London’s cooks and costermongers. Yes, it was a very long time ago.
We lived then – as now – in interesting times. In 1999 the world really started to get excited about the internet. Stock markets, booming since the mid-1990s, lost all semblance of control. We looked forward to the internet freeing us all and at the same time making us all rich. Ha! See how that one turned out. But the money pouring into these internet stocks changed the way the world of finance worked for good, and that’s the subject of this episode. For anyone that looked, there were also plenty of signs that we would never manage to democratize the profits of the internet and use it to rebuild our institutions. We were, as always, just too mean and greedy. Too quick to dine out on other people’s money, or OPM as the spivvier boys called it. Of course, I never looked. I had parachuted straight into this world of paid-for lunches and the world jostling for my attention or hanging on my every pronouncement. A fellow scribe had landed the precious small companies correspondent job at a prestigious news outlet. In this, his first job after university, he would find himself speaking to one chief executive on one line, with a stream of callers trying to get him on another, his mobile ringing, thrown in a drawer. On one occasion he tipped a small firm and saw the shares rise 50%, adding £11m to its market cap. ‘At the age of 24’, he said, ‘that was a big deal’. Imposter syndrome? We were so far off the pace that we didn’t even know we were.
Once or twice, I did begin to feel that everything was not quite as it should have been. On one occasion I received a telephone call from a television investment channel, asking me to go to the studio and offer some share tips. I didn’t think that any of the shares on my beat were worth tipping that week, so I picked up the magazine and looked up the house recommendations, took them down to the studio and sang their virtues on air.
That should have been that, but a couple of days later, working late, the phone on my desk rang. The caller carefully explained that he had lost £10,000 on one of the stocks I had tipped. He wondered whether I knew of anything that had gone wrong with the stock, anything that might have moved the market so rapidly against him. I didn’t, and the newswires showed nothing. Had there been, the caller wondered, any heavy selling that I was aware of? There was none, as far as I knew, I replied. But, he said, someone must have been selling or the price would not have moved. A weighty silence, and the caller rang off. I told myself that anyone who staked ten grand, or rather, staked enough to lose ten grand on the recommendations of someone so obviously green behind the ears as me, got what was coming to them. Still a sense of disquiet, and perhaps even a gnawing sense of responsibility, persisted. I checked out a few more of the