Alexis Ohanian, co-founder of Reddit
THEY WEREN'T THINKING REVOLUTION. But that hardly matters. The possibility of revolution is a whole lot easier to believe in now because of what they did. The "little people" rose up. They used Wall Street rules to beat Wall Street. They did it with spontaneous, self-directed, collective action. Exactly as revolutionaries would.
What the "little people" rose up to do was protect GameStop, a company they liked and had long depended on, from being destroyed by the pernicious Wall Street practice of "short selling."
Short sellers bet on failure
Sort-sellers make money by the perverse practice of betting against the stocks they buy. Except they don't really buy them. They borrow them, for a fee, and then sell them, even though they don't actually own them.
Their bet is that the stocks they never actually owned will go down in value by the time they have to return them. That way they can go out and buy the stocks they need to return at a much lower price than what they sold them for, and then pocket the usually large difference.
Even more pernicious, is the reality that prime brokers don’t always really own the shares they lend out. What they lend out instead are “locates”—often more than than they should—thus putting more shares in circulation than actually exist—as in the GameStop case. The rally to save GameStop exposes this systematic plundering of firms using phantom shares and locates.
Small time buyers take action
The collective action to save GameStop heated up in early January when the two million day-trading followers on a Reddit forum called “wallstreetbets” spontaneously decided to aggressively defy Wall Street and buy more and more GameStop stock to keep short-sellers from laying waste to the brick-and-mortar retail video game company.
Worth just $6 in October, the Reddit forum buyers drove GameStop stock up to an incredible $347.51 on January 27—55 times the October price.
One user on the Reddit platform posted screen shots showing how he had turned $50,000 worth of GameStop call options into nearly $23 million this year. Others have posted similar gains, with users of the platform urging others to keep taking out options to buy the stock.
The GameStop rally delivered crushing losses to short-selling hedge funds like Melvin Capital, which was forced to close out its position at a cost of nearly $3 billion.
Everyday people had used their collective power to do to hotshot finance professionals what those market pros routinely do to everyone else. It was a Heart of Darkness moment for all of Wall Street. Like Kurtz in the Conrad novel they kept repeating: "The horror. The horror."
Big money moves to protect big money
There were immediate calls to regulate Reddit. Online trading platforms like Robinhood and TD Ameritrade curbed trading in GameStop and several other companies, including Nokia and AMC Entertainment holdings.
Expert after somber expert marched on TV to tell Reddit traders that markets are complicated, this isn’t a game, and they wouldn’t be doing this, if they really understood how things work.
Columnist/podcaster Matt Taibbi says there is nothing complicated about it. "The entire tale, in a nutshell, goes like this. One group of gamblers announced, 'Fuck you!' Another group announced back: 'No, fuck YOU!'
"There's a real touch of the class struggle of the French Revolution in all this."
"This is a way to actually occupy Wall Street," says David Dayen, executive editor, of the American Prospect magazine.
Revenge is sweet
What started out as a great way to make some money, became something else. It became a great way to give high finance the finger and make them feel the pain they regularly dole out to others.
Many posts on the subreddit tout the strength of the “little guy” besting the financial market behemoth. These younger investors revel in their disruption of a system that explicitly serves “Boomers” and exploits young adults.
"The same rich people that caused the market crash in 2007/08 are still in power and continue to manipulate the market to get even richer, we are just taking back our fair share," one user wrote on Reddit.
"hey mom i can't come up for dinner," another user wrote. "i'm bankrupting a 10 figure hedge fund with the boys."
“There’s no insider trading, because they’re not insiders, which is kind of the joy of it. And right now there is this anarchic feeling of like, ‘oh, man, we’re gonna do it,’” Ryan Broderick, author of Garbage Day, a newsletter based around web culture, told Time magazine.
“It could be the GameStop rebellion isn’t the end of this," says Broderick. "I was at Zuccotti Park, I remember Occupy Wall Street. That same thrill was there."
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