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PAINFUL TRUTH: Finance has become very weird

Financial engineering is where the money’s at, even if it doesn’t make sense
Traders work on the floor at the New York Stock Exchange as the Federal Reserve makes an announcement regarding interest rates in New York, Wednesday, Nov. 2, 2022. THE CANADIAN PRESS/AP-Seth Wenig

Bed Bath & Beyond stores in Canada are shutting down as the chain’s parent company in the U.S. deals with a near-fatal case of running out of money.

However, the American chain has been saved from going through a catastrophic bankruptcy by a bizarre piece of financial engineering. (I have read several accounts of what the company did, but it is so arcane that it is difficult to summarize.) It has left the parent company with a new infusion of cash – about US$225 million now – to survive for a while longer.

This was not, in any way, a scam. It feels like it falls in a fun new category that lies between “scam” and “normal finances that make sense.”

The financial engineering seems to be predicated on the idea that the stock in Bed Bath and Beyond fluctuates a lot, because BB&B was for the last several years a “meme stock.”

Which means that a lot of people online got very excited about making a concerted effort to buy the stock, driving its value higher. For a while last year, the stock was worth more than $20 a share!

It’s now around $1.50 as I write this. (The whole thing may not actually work out that well for the new investors.)

Meme stocks have been driven by a combination of irony, greed, mob mentality, and nostalgia. The other famous meme stocks of the last couple years include GameStop, a brick-and-mortar video game retailer, and AMC Theatres, a movie chain.

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The thing that’s bothering me more and more about BB&B’s troubles, and meme stocks, and the general financial news lately, is that all of it seems to be one of three things – it’s all either financial engineering, it’s scams, or it’s just plain weird, like the meme stock craze, or NFTs, or play-to-earn video games.

The financial system has been a locus of scams and frauds and irrational exuberance forever (go look up the South Sea Company bubble, or the Dutch tulip craze).

But we allow it to exist, because it did a few useful things, like providing financing for new businesses and innovations, and loaning people money for houses and higher education.

Money and bonds and stocks and mortgages are all abstractions, but at least they’re useful abstractions.

But over the last 30 or 40 years, the system has been going through repeated cycles in which these abstractions have further abstractions built upon them, and so on and so on, until it’s hard to tell what’s down there at the bottom. It’s just games with numbers and math, games that happen to pay out very well for a few people who know how to manipulate the rules, or to write their own.

But it doesn’t help anyone buy a house or get a student loan, start a small business. It won’t keep anyone at BB&B Canada from losing their job.

Maybe financial engineering will help BB&B get back on its feet in the U.S., but I doubt it’s done more than buy time. But someone along the way will have pocketed some nice fees for thinking up the whole scheme.

That’s who gets rich, these days.

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Matthew Claxton

About the Author: Matthew Claxton

Raised in Langley, as a journalist today I focus on local politics, crime and homelessness.
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