Redditors GameStop victory no match for Wall St.
The house always wins
In 2008, I was a 12-year-old kid with a love of Bill Watterson’s Calvin and Hobbes, a penchant for binging Fallout 3 or Call of Duty 4 for hours on end, and absolutely zero understanding of the stock market and Wall Street economics. Yet still, I remember with astounding clarity the level of gloom and doom on every news broadcast and publication during the Great Crash of the global housing market. I recall my dad standing in front of the TV shaking his head, arms crossed, with an expression between disbelief and disappointment on his face as reporters detailed millions losing their jobs and the collapse of several major banks. As he attempted to explain to me what was happening, I can imagine how frustrated he was having to watch everyday people suffer as those responsible escaped justice while pocketing billions in tax payer bail-outs. Thirteen years later, though, a relatively small group of amateur traders managed to enact a powerful, albeit brief, act of revenge from the unlikeliest place on Earth, Reddit.
In late 2020, users on the subreddit r/wallstreetbets, a chaotic sub dedicated to amateur stock trading, finance memes, and losing copious amounts of money (yes, really), adopted Wall Street’s own investing strategy and used it against them, causing some in the one per cent to lose billions in potential revenue. For a couple weeks, the subreddit became the primary focus of news networks while billionaires and hedge fund managers cried foul through gold-plated dentures without the slightest hint of irony. Many like myself who had no idea what was going on laughed as the richest of the rich finally got a taste of their own medicine while GameStop’s stock prices rose for seemingly no reason. This tiny bit of happiness, however, was not to last. After a collaborative effort by some of Wall Street’s largest institutions, many buyers were spooked into selling their stock through what can only be described as a pile of market manipulating-bullshit, and for now, the status quo has unfortunately returned.
Alright, so how exactly did a bunch of meme-lords and neckbeards cause billions in loses for the one per cent? Well, let’s start with some amateur dictionary definitions. For those who aren’t in business school or haven’t seen The Big Short yet, a short is when a trader, often a hedge fund, essentially bets that a stock will decrease in value, which, if it does, then nets the trader by however much value the stock has lost or vice versa. Shorting is a fairly common and standard practice in the stock trade, however, mass short-selling often leads an already struggling company to fall deeper into a cataclysmic downward spiral. So, when shorts are sold on a large scale by major hedge funds, this correlation becomes an intended side effect that allows the biggest players on Wall Street to effectively cheat the system and manipulate the market to their benefit. Basically, it’s as if a black jack dealer gave themselves an ace any time you flip a ten.
Unfortunately, these sorts of border-line illegal tactics are nothing new to the feudal hellscape of Wall Street. While the rest of the economy tanked in early 2020 due to the pandemic, hedge funds have made literal trillions off the shrinking profits from dozens of companies and businesses since March. Despite the fact that millions lost their jobs and the global GDP has sunk significantly, the ever-opportunistic one per cent lined their pockets by shorting the economy only to then use their profits to lobby governments for further tax cuts. It was 2008 all over again, only this time people were dying, money was even tighter, and the public’s hatred for Wall Street shot to record heights. After the third financial quarter of 2020 passed, several Wall Street hedge funds, namely Melvin Capital and Citron, turned their greedy mitts towards the retail market yet again and began shorting major retailers en masse, especially mid-level companies such as GameStop (listed as GME on the stock market).
For whatever reason, targeting GameStop turned out to be the final straw for some, and beginning in early January, r/wallstreetbets decided to turn the tables. Users from the sub began buying GME stock in droves through commission-free trading apps such as Fidelity Investments and the now infamous Robinhood, and within days their investments caused shockwaves throughout Wall Street and garnered a snowball effect across the market. Reddit didn’t stop there, though. Using the profits from GME, many amateur traders began investing heavily in other failing companies such as the theatre conglomerate AMC, defunct tech giants like Blackberry and Nokia, and the crypto-currency Dogecoin, which was literally created as a joke.
Hell, even Blockbuster saw their stock price rise from $0.004 to 42.1 cents per share in less than a week.
These massive waves of investment, combined with buyers’ refusal to sell, caused a general short-squeeze (when traders are forced to sell their shorts back at a loss) across the board and ended up costing hedge funds billions of dollars. Around this point, billionaires, such as Leo Cooperman, and CEOs took to major news networks claiming victimhood and demanding that Washington step in to bail them out (so far, Washington has remained relatively quiet on the issue). By January 27, GME price hit an all-time high of $347.51, a mind-boggling increase from $19 per share on January 1. Melvin Capital and other mid-tier hedge funds were pushed to the brink of bankruptcy, and the internet celebrated another underdog victory.
Alas, this brief hit of collective schadenfreude was not to last. Beginning on the 28, trading apps began restricting users from buying GME or similar stock, including Robinhood which allegedly sold some users’ stock without their knowledge or consent. Alongside other illegal acts of financial rubber-banding, many amateur stockholders panicked and sold their shares, causing another snowball effect in a downward trend. GME sunk to $193 by the end of the 28, and while the stock price temporarily bounced back to $325 on Friday, the writing was on the wall. Since then, GME has continued to slide back to its pre-bubble price, sitting at around $90 at the time of writing. While that’s still almost five times more valuable than it was a month prior, it seems the fun is over, at least for now.
So, what exactly did all this tomfoolery accomplish? Short-term, a lot. Long-term, probably not much. Sure, Melvin Capital and several other hedge funds have lost billions so far, but without the introduction of substantial regulations and, God-forbid, the real possibility of another tax-payer bailout, the Wall Street’s corrupt power-structure will remain intact. For r/wallstreetbets, while some early investors managed to make an enormous profit from all the chaos, the rest have lost hundreds and even thousands of dollars to simply make a short-lived, albeit justified, statement. Lastly, the public was reminded yet again of Wall Street’s true nature: a bunch of rich assholes who’ve rigged the entire financial system to benefit of themselves and only themselves.
In short (haha), the stock market is still a giant casino with even worse odds and without the slightest bit of logic. If the last 1000 words haven’t convinced you of that yet, here’s an interesting anecdote; Raven Thorogood III, one of the top 100 investors of the last twenty years, was a literal chimpanzee that chose investments by throwing darts at a random list of stock picks while blindfolded.