When Wall Street Failed to Make the Reddit GameStop
Posted on January 29, 2021
On September 15, 2019, in an article titled “The Apple Has Gone Rotten With iOS 13.1” I touched on overvalued equities and the incredulity of the Dow Jones then sitting at around 27,000 points. On March 27, 2020, in “The Economy or Lives—The Choices of Fighting Covid-19” I predicted that those seeking a policy of herd immunity without a vaccine for Covid-19 were merely trying to push up a then flailing Dow to 30,000 points.
It seems I was right on both counts, for this week we’ve witnessed Wall Street at its artificial best.
After hitting a record high of 31,188 points on January 21, 2021, the Dow Jones sank to 30,303 a couple of days ago. It was a market battle of sorts fought in the hedge fund management world, a place that historian Sebastian Mallaby described as having, “More money than God.”
You see, a social media chat space called Reddit this week tore up the playbook that had helped generate billions of dollars in revenue for a select club of businesspeople known as hedge fund managers and investment bankers. This time they lost billions of dollars instead.
Its impact is such that it could tip markets into a long-overdue correction—a heavy fall in overpriced equities. And it will likely put an end to an obscene race between a car maker and an online bookseller who’ve only recently turned their company’s first profits to see who might become the world’s first trillionaire.
I’ve said for over a year now, that true value for the Dow Jones, given the Covid-19 pandemic is closer to 18,000 points. That’s an outsider’s perception. I’ve felt it because something artificial has been inflating both the Dow and Nasdaq indices at a time when global unemployment is through the roof, complete industries are shuttered, and US national debt has ballooned to a staggering $26.7 trillion—up nearly $7 trillion dollars over the course of the Trump presidency alone. Nothing makes sense.
And this week we caught a glimpse of what it was. Corruption.
GameStopgate in a nutshell
If you’ve invested in the video game store chain GameStop these past weeks and made ten-times your money back without knowing a thing about the stock market, congratulations. Wall Street is just a casino and you’ve played it well.
Indeed, one guy took his life’s savings of $50,000 in August and turned it into $5,000,000 then upped his bet and transformed that into $50,000,000 on that brick and mortar game store whose scrip was next to worthless given that computer gaming today, lives online.
He took this risk having gotten together with a bunch of fed-up former bankers and regular folks on social media’s Reddit who shared a passion. They didn’t like that a billionaire hedge fund manager had been teasing about short selling GameStop’s stock for a quick mega-million return that he’d boasted was a done thing.
Short selling is where you borrow stock for a fee from a broker and sell it hoping its price will fall by a certain date when you need to buy it back and return it. On that day, if right, you pocket the difference. If you were wrong and the stock has gone up—you lose the difference: you still have to buy that stock back as it was never yours.
In the case of GameStop (and a few other stocks), social media users bought its shares en masse legitimately, ensuring its price skyrocketed. And on settlement day that billionaire and some other geniuses each lost billions.
This angered Wall Street. Only smart people (the uber-wealthy) get to play at its tables, not your everyday social media-crusading ilk.
Then came the reply.
Today, certain brokers tried to ban that ilk from buying more of those stocks—while allowing hedge funds to re-establish their short positions. It was a daylight mugging in other words: blatant fraud. And now these brokers are being sued.
The missing piece of the puzzle you’re not hearing
While old-time financial market influencers like CNBC try to fathom what’s going on, the savvy among us realise that what this Reddit Financial Revolution has wrought is nothing new in our online times.
We’ve had the Arab Spring whether spontaneous or surreptitiously fuelled; the vigilantes of Anonymous, the Ultra-Right’s Stormfront, the furore of Gamergate, the Trump trolls of Russia, the sleuths of “Don’t F**k with Cats” thanks to Netflix, Brexit’s Cambridge Analytica, and most recently the culmination of twenty years of conspiracy mills in a movement called “QAnon” that now lives in the halls of the US Congress in the final throes of Trumpism. And we can’t forget the crescendo of violence that was the US Capitol Insurrection itself.
All moments brought to bear via social media. Given that context, Reddit’s Wall Street online activism shouldn’t surprise anyone. The internet is egalitarian after all. If it can do evil, it can likewise do good.
Indeed, GameStop is the first stock market jolt not precipitated by Wall Street itself. This time it’s an extension of free of speech, middle finger thrust upward.
The danger of course, is that calls may now reach a crescendo to curtail the internet’s utility—to wage a dictatorship in the Free World over internet access: a call sparked by Twitter’s decision to ban Donald Trump for spreading lies after his presidential election loss.
Such a battle is already being fought in the once confident democracy of Australia, as media organisations put at risk an entire nation’s access to the world’s largest search engine and infrastructure in a fight over unpaid news aggregation by Google.
But there are other consequences too.
The activities of online brokers who yesterday stymied Main Street’s access to GameStop’s stock could face charges of conspiracy to defraud. Not only were hedge funds able to renew their short positions against this deliberate curtailment of investor demand and price manipulation, hard hit funds were rescued by white knight competitors fearing their own short-selling vulnerabilities.
Even the Biden administration, only weeks into its term, has been insinuated. Its newly appointed Treasury Secretary Janet Yellen has historical ties to one of those white knight funds.
It’s a mess.
Just days after an attack on America’s democracy, Main Street will not acquiesce to the choking off of internet freedoms on the basis that once again, Wall Street is “too big to fail”.
“Show us something bigger than the loss of voting freedoms, or a pandemic approaching half a million US dead,” they’ll say. Wall Street’s last victims are still calling for the heads of the banking CEOs responsible for what became the Global Financial Crisis.
People have long memories. Even if the only fallout from this entire fiasco will be banning the short sell, it’s one less attraction in the greatest casino on earth.
You see, the ultimate question is: for whom should Wall Street’s mantra of laissez faire apply?
If not everyone equally: whether the amateur investor, the social media masses, or those who’ve unionised their wealth under hedge fund management then Capitalism is dead.
All that remains are cartels.
And these are the hallmarks of a former Soviet bloc economy; the marked card decks at a dirty Blackjack table.
© 2021 Adam Parker.
Main picture credit: © 2021 Adam Parker.
Links to articles mentioned: