Sometimes very few words can raise a massive brainstorm. Consider this simple post from the formidable Barry Ritholtz on the question of socialism, American v. European. This sort of comparison probably boils the blood of innumerable trader/libertarian/gun-toting/free-marketeer types, and though it may make me unpopular with said types to say so, he’s very right and deserves to be heard objectively. There is a lot of confusion in the U.S. over just how free our markets are, and just how much our government “interferes”, and while I’m not interested in political hair-splitting here, it is undeniable that government sponsorship of any idea is anti-free-market, and our tendency to hand out tax breaks to corporations is socialist, albeit corporate socialism. We choose to believe that stimulus spending on corporations (which is what it actually is, after all, and constitutes a sustained pattern that makes current anti-recession efforts look like an afternoon of Monopoly) has a meaningful ripple effect; Europe chooses to believe the same thing about stimulus spending on people. Merely two sides of the same coin, resulting in vastly different corporations (many of ours apparently find their home-grown tax breaks insufficiently generous), and vastly different individual lives, on either side of the divide.

This tension could spawn all kinds of posts, but for now I want to talk about one small corner of it, obscure at first so bear with me, as I give you the intersection first: the financial meltdown, the internet, and the average investor.

The northwest corner: how we melted down

I’m not going to go into too much detail on this, and I expect you might well disagree with my point of view. So be it. Here’s my stance: more than any other philosophical failure, the U.S. part of this meltdown was driven by free-market level failures, real or perceived. Parts of our national structure are free-market, while other parts are government-driven (federally, or at the state or county or municipal level), but the chief failures here were in the free-market layer. Financial services killed the socialist evil of regulation, to the extent that malfeasance was no longer illegal; they built baseless and undercapitalized derivative products because the market (as long as it was growing) would bear them (and indeed, gobble them up); and overeager borrowers at every level killed basic tenets of credit and debt (hardcore abetted by said deregulation) as an equal exercise in free-marketeering, knowing they could buy a house or run up a credit card debt because tomorrow would always pay for today. It was all aspirational, and it mistook outdated notions of anti-gravity in global free markets for the next real deal.

Free-marketeers say the markets manage risk effectively in the present, which is pretty silly, considering that risk is the unknown and unknowable future. If the first decade of the century is clear proof of anything, it’s proof that we don’t have a fucking clue what lies ahead. What companies have the biggest risk-management divisions? Investment banks, hedge funds, insurance companies, the same companies that spent a generation creating systemic risk instead of protecting us from it, and made so much damn money off it to boot. (If you think they have stopped in the face of so much failure, by the way, you underestimate their “resourcefulness”.)

I ramble but do not digress. Contemporary manifest destiny is rooted in this kind of risk-blind aspiration, and goes a long way to explaining how we opened the door to the current disaster. One simple example, from a 2000 Time Magazine poll (citation here), indicates that 19% of Americans believe themselves to be in the richest 1% of the U.S., and another 20% believe they will be in their lifetime. No wonder we are falling behind in math and science. I would say there is a direct link between this kind of aspiration and complacency. Hope is fat and lazy, and our belief that Everyone Can Get Ahead–a notion very similar to the supposed free-market standard of endless expanding growth–has built a corporate structure that is causing us to fall behind, and an increasingly rigid class system that would depend on perpetuating that structure to avert further chaos.

The southwest corner: the internet

Fortunately, there are other forces at work these days, and none of them is bigger than technology, which I will now conveniently reduce to a very generalized view of the internet. Am I gonna attempt to characterize this massive virtual-amorphous blob in a few sentences here? Yep.

As it enters its second or third popular (read: non-geek, average-joe) iteration, the internet has introduced a new kind of aspiration, one that shows many signs of abandoning traditional tenets of capitalism and corporatism in favor of a kind of socialist subscription model. You pay into the delivery/bandwidth collective (work) and maybe look at a few ads, in return for which you get–and, I would argue, have come to expect–virtually all your content gratis (reward). You can even add your own content–for work or for leisure, it makes no difference–for a similarly low/zero price, and indeed, the model wants you to participate. A few companies have found ways to make traditional kinds of money (the perpetual-growth kind) in this model, but they are by far the exception, and pale in comparison to the number of traditional companies getting pantsed by the no-/low-cost web as we speak, from box retail to print journalism to television. The perpetual growth of the web belongs to no simple entity like a corporation, and defies the simple laws of supply and demand of a free market, because its trends and centers of interest can move much more rapidly than any one business can control or even effectively monitor.

Not that web innovators don’t have ideas for how to capitalize on the medium. The point is, as it surpasses mere medium status, rapidly becoming a parallel way of life, the internet is unravelling the old aspirational model at the seams. The young, educated American (or Chinese, or French, or Chilean, or Russian, or Nigerian) is likely to be both a person, and a node on a network, via online lap/desktop, online cell/smartphone, and up-to-the-minute online personae galore. Usage of all increasing, for work and for pleasure, and still for the price of what is essentially a utility bill or two, plus a couple very sexy toasters. FiberOptikKomputerVorker Maken Kontent Frei. It’s a kind of utility, like your electric or gas or water bill. You do not pay for light or heat for the utilities themselves, but because they allow you to keep yourself warm and read books and bake pizza and stuff. What you now push  and pull at the cost of an ISP and maybe a smartphone subscription is exponentially larger, though–the size of the entire human world, ever more virtualized, ever less like a traditional market.

So these two kinds of aspiration are now in conflict, the old-school style still creeping along, promising to rebuild itself just like it was in the good old days, while the new-school style spreads like a droughtland wildfire. The shift is profound: the internet is in many ways the sum total of its grassroots-level efforts, from its application builders to its content providers to its content pundits to its end users. It is a multiplicity of tiny aspirations, all within reach but much less vertical–a massive breadth of opportunities and options, with few moguls and no monopolies. As much as the traditional corporations want to defeat this, they have yet to find a way.

The traffic: the average investor

Blah blah blah blah blah. Is there a damn point? Yeah, there is. I swear I’m getting there. It’s complex, and you’re only spending your time (and mine), so please bear with me.

Though the landscape is shifting, a lot of the core aspirational services ministering to everyday life–health care and banking being the most noticeable–have yet to make the real leap to a technology-driven second life, controlled as they are by the old guard. One of the most obvious opportunities I see here is in investment banking. As we all know, the average investor has been fried like bacon by the current meltdown, and I personally believe that the cooktime has not fully elapsed, nor has the deserved retaliation roasting of the culprits (which I also believe will happen, after further pain) really begun. One way or the other, average investors have lost somewhere between a little of their savings and everything, and as Robert Rodriguez points out, the average investor has a long memory. They want a way to retire, and I doubt they will want it from the same institutions–who, in an impressive display of complacency, resist any effort to change their evil ways–that screwed them this time around.

So, yes, the simple aspirations. People tend to work for a while, then not work. We have called this phenomenon by various names through history–from “seasonal employment” to “death”–but in the last few generations, we call it “retirement”. But to retire at your chosen standard, you need non-work income, and the structures that once provided these are no longer reliable. Since companies increasingly treat their employees like migrant workers, hiring them from sowing to harvest and dropping them at the first sign of winter, the employer-sponsored pension is dead or dying. Managed investment has pretty much imploded. And then there’s social security, but it’s not much, and not reliable going forward. Retirement is increasingly up to the would-be retiree to manage alone. We need new tools for saving.

Forget the justice there would be in abandoning Wall Street completely. Forget the problems of moral hazard and systemic risk and too big to fail. The next investment innovation will clearly not come from Wall Street, because their model is outdated, and they are too arrogant to see it, preferring to dedicate their brainpower in this technological boomtime to inventing new fee- and bonus-boosting products rather than investigating and innovating against their clients’ exposure to risk. The old aspirational retirement-saving model is broken. Enter the internets.

Did you say there was a point in here? SOMEWHERE? Jesus.

Yeah I know. Who has an attention span left? Me neither. But I really am getting at something, and here it is.

Retail investing is already on the rise, as is retail trading, via the many self-managed discount brokerage services out there. Technology has annihilated the costs and time once required to open an account, execute a trade, or fund an IRA. As for retail trading, the masterly business model of Stocktwits got this just in time; they are not only poised at the juncture, they revealed the juncture, finding an actual purpose for twitter (there will be many, ultimately, and none of them will involve you telling me you’re currently walking your dog) and are growing like a weed. Apparently a lot of average joes want to trade, and technology and abnegation of responsibility by the financial industry (and the resulting market volatility), are just stoking that fire.

There is great value on stocktwits, from real-time trade ideas to some very smart traders and thinkers, to ticker-based linkfests. But it’s all about trading, a difficult art that requires enormous amounts of time and energy to master. To average investors, those who would prefer to focus on everything else in life, or who just plain have to because of financial obligation, stocktwits must seem a geeked-out curiosity, not all that different from your average hobbyist forum or fansite or online MPRG community.

Whatever the grassroots power of new technology, these people are not going to learn the markets, micromanage their savings, or execute smart trades. Nevertheless, these investors, big and small, deserve a new model, and I think that having been badly burned by Wall Street while in many cases devoting ever more of their leisure time to the internet, they are ready for an alternative vehicle. One built on cheap, smart trade execution, just-in-time, that trusts the infinite horizontal power of the web and the minds of its best financial users and drivers.

More importantly (and, I would argue, fortunately–we don’t need a nation of daytraders), they vastly outnumber the 75,000 or so aspiring traders who have found their way to stocktwits. And they need decades of service. Brokers know this, and have in the long run abused their virtual monopoly on the dedicated-customer privilege, expensively and with zero sense of corporate responsibility, right down to the ground, leaving a massive void. It’s not about buy-and-hold or any other strategy; it’s about risk management for the client before the firm, and smart value.

The intersection of financial fuck-up, internet strength, and average investing is not far off, I predict. It’s time for the amazon.com–the internet-aspiration of the retail experience–of retail investing. It’s time for a new model, a good clean startup with demonstrated intelligence and transparently massive reserves of investing intelligence.

Further posts on this subject will get into more specifics of what this might look like, and why we may not be as close as it might seem (or as I would like). For now, I leave you with this thought: a wholly online investment bank run by a hive of geographically dispersed traders under a startup structure might seem like a regulatory and management nightmare, but so does political fundraising. You don’t have to look much further than that example to see how harnessing the new aspirationalism can trounce the old, and change an entire industry game in a very short time.