Max Fawcett: Occupy Wall Street 2.0 is using Reddit to settle some old scores
Many of the posts referenced the 2008 financial crisis, both in terms of the suffering for their families and the absence of it for the insiders.
For nearly a decade now we’ve been waiting for a proper follow-up to the Occupy Wall Street protests that began in September of 2011, when thousands of disaffected Americans gathered in New York’s Zuccotti Park. And while the movement that emerged out of those protests shifted the public conversation about income and wealth inequality and propelled politicians like Bernie Sanders and Elizabeth Warren to presidential proximity, it never again managed to capture the public’s imagination in quite the same way. At least, that is until recent weeks, when the unlikely combination of a Reddit community and a dying video game retail company stoked the embers that Occupy Wall Street left behind in a way nobody could have predicted. This time, it seemed, they were taking the fight inside the stock exchanges they had camped out near a decade ago.
The story of GameStop’s wild ride began as a fairly mundane finance story, one of a badly-wounded company being circled by a pack of short-selling Wall Street vultures who planned to pick the corporate corpse for whatever scraps of protein were left on it. They do this by borrowing the GameStop shares from a broker and selling them, planning to rebuy and return them to the broker at a later date and for a lower price. The so-called “short-seller” can pocket the difference, but is also exposed to the risk that the price will actually go up, forcing them to buy the share they owe the broker at a higher price than what they paid, at their loss. This can even cause a feedback loop that drives the price higher, forcing yet more short-sellers to buy at an ever-higher price, driving prices higher still — the so-called “short squeeze.”
Short squeezes have happened before, most famously in the case of a company called Herbalife where one Wall Street billionaire named Bill Ackman tried to short its shares and another named Carl Icahn successfully squeezed him and his clients for as much as a billion dollars. But that was Wall Street fighting Wall Street. In the case of GameStop (and, as it turned out, other garbage stocks like AMC, BlackBerry, and even the corporate corpse of Blockbuster Video), it was Main Street leading the charge. And what began as an investment idea on “WallStreetBets,” a subreddit online forum that specializes in all-or-nothing gambles, suddenly blossomed into an act of shared cultural rebellion, a giant middle-finger directed squarely at the Wall Street hedge funds and insiders that had been running their game on so-called “retail” investors. Anthony Scaramucci, who spent years on Wall Street before becoming synonymous with a brief measure of time, said that “we are witnessing the French revolution of finance.”
By the end of January, GameStock’s share price had closed at an almost unfathomable $328, with the hedge funds who were short having lost $12.5 billion on their trade. But the revolution ended as quickly as it began, and by the end of the next week it had tumbled all the way down to $63 and change, with the other so-called “meme stocks” taking a similarly savage beating. As Ian McGugan noted in the Globe and Mail last week, most of the people who got their heads handed to them in this “revolution” were the ones that unwittingly stuck their own necks on the chopping block. “Who are the suffering shareholders? A significant number are likely to be naive investors lured into the game by the Redditors’ fiery rhetoric and extravagant stories. They won’t likely wind up thinking of the Redditors as heroes. Neither should you.”
But for some of those so-called “bagholders,” making money wasn’t the point of buying those GameStop shares — not all of it, anyways. It was also about striking back at the kinds of people that had hit them so hard in the past. Many of their Reddit posts referenced the fallout from the 2008 financial crisis, both in terms of the suffering it caused for their families and the conspicuous absence of it for those who represented the Wall Street culture that nearly caused the entire system to crash. As one Redditor wrote, “This is all the money I have and I'd rather lose it all than give them what they need to destroy me. Taking money from me won't hurt me, because I don't value it at all. I'll burn it all down just to spite them. This is for you, Dad.”
They were never going to succeed in burning it all down here, of course. But Wall Street should tread very carefully, because while it appears to have won yet another battle, it may be on the verge of losing a much bigger war. Right now, the top five per cent of Americans own 71 per cent of overall equities, and 85 per cent of directly held stock. The bottom 80 per cent, by comparison, hold just seven per cent of overall equities and three per cent of directly held stock. The numbers are less skewed in Canada but the general shape of the distribution remains the same. At some point, the overwhelming majority of the population is going to wake up and realize that what’s good for the market isn’t good for them.
Case in point: when the online trading platform RobinHood restricted the ability of customers to buy more shares of GameStop (more a result of mundane market mechanics than some elaborate conspiracy by Wall Street insiders), it earned the unlikely combined rebuke of both Alexandria Ocasio-Cortez and Ted Cruz. It’s not just elected officials who are aware of the growing disconnect between what’s good for Wall Street and what’s good for everyone else. “The system doesn’t work for most of the people, and so it needs to be re-engineered,” says Ray Dalio, the founder of Bridgewater Associates, one of the biggest hedge funds in the world. “Otherwise we’re going to have a civil war.”
In an interview with Axios, Dalio said that any Congressional investigation into the market mechanics around GameStop’s unexpected rise (and much more expected fall) will miss the forest for the trees. “Is this a big thing? It doesn’t come close to these other big things: how should wealth be distributed? Why doesn’t capitalism achieve the goal of being good for most people, and how do you engineer it that way while increasing productivity and its efficiency? That kind of engineering is the big thing, and I don’t think they’re paying enough attention to that.”
For their part, if those young investors really want to stick it to Wall (and Bay) Street, they ought to put their money into a boring index fund and focus their energies on electing politicians who will address the real issue here: income inequality. They represent a growing share of the electorate, and their voices will determine just how seriously our elected officials take the issue. What we really need to be talking about isn’t how to ban naked short selling or other market mechanics but how to ensure that the spoils of capitalism and free markets are shared more evenly. Maybe that means implementing a wealth tax. Maybe that means increasing access to affordable childcare and post-secondary education. And maybe that means reining in excessive executive compensation at large corporations.
What it doesn’t mean is giving up, or giving in. Done properly — and that doesn’t include buying risky options on speculative stocks like GameStop — investing in the stock market is as close to a sure thing as you’ll find, and the very opposite of the glorified casino that some like to pretend it is. "The longer you play in a casino, the greater the odds you’ll walk away a loser because the house wins based on pure probability,” author and finance podcaster Ben Carlson argued in a recent blog post. “It’s just the opposite in the stock market.”
But that’s a lesson that may be hard to stomach for some of those who have been burned by GameStop. And if history has taught us anything, it’s that revolutions don’t tend to end quietly. Wall Street can either get behind the young investors that underwrote the GameStop rebellion, or it can get run over by them. The only question is how long that will take — and how many headless bodies it has to leave in its wake to get there.
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