Towards the end of last month, news from the usually secretive financial sector started to filter through to the mainstream media. Ripples, originating from the prominent Reddit forum r/WallStreetBets, spread until they came together to form a tsunami headed straight for Wall Street. The subreddit's members exchange information and track the stock market, and at the start of January they came together as one to cause chaos in the offices of career investors everywhere.
The retail traders decided to throw their support behind GameStop, a failing American gaming company, which was to become the first ever 'meme stock' - a term which now strikes fear into the hearts of investment executives everywhere. GameStop's stock price skyrocketed 600% through January, and others soon followed - AMC Entertainment, then tech veteran BlackBerry. But why would Wall Street care about a few day traders buying shares in failing companies? Because they were the very ones betting against those companies.
You see, investment banks and hedge funds held huge quantities of short options against these companies, betting that they would decline and the share price would drop, making them money. So when the Redditors forced the price up, these funds lost big.
How big, you ask? Take Melvin Capital, a hedge fund who held many of these short options in GameStop. When the stock price went up from under $20 to over $350 in the space of a month, the fund lost over half its value. In total, the big guys lost some £19.75 billion over GameStop before many were forced to cut their losses and close their positions.
As you can imagine, Wall Street wasn't too happy about having their tailored pockets picked by a bunch of online hacks. Some complained of market manipulation - somewhat ironic since this has been a favourite tactic on Wall Street ever since the markets were deregulated in the '80s. The rest, instead of begrudgingly admitting that they'd been played at their own game, retaliated.
On the 29th of January, they deployed that tactic. Robinhood, a platform which many of the Reddit traders used to buy shares, shut down trading on GameStop and other 'meme stocks', citing 'market volatility' and 'customer protection'. In the ensuing panic, GameStop's share price plummeted as traders were allowed to sell their stock, but not buy any more, rescuing some of the big guys who held on to their positions from the depths of shit they were in.
Coincidentally, Robinhood receives a significant proportion of its profits from a company called Citadel Securities, who recently bought a large share of...you guessed it, Melvin Capital. The 'invisible hand' of the free market isn't so invisible now, is it?
That's the thing about capitalism - anyone can win, as long as the big guys don't lose.
The shutdown sparked criticism across the political spectrum - from AOC to Ted Cruz, no less. On Thursday, Congress grilled Robinhood boss Vlad Tenev, who apologised for his company's behaviour, describing it as "unacceptable". And yet, I would be amazed if any legislation is passed regulating the stock markets, despite it currently being perfectly legal to possess more short options than the value of the company you're betting against.
This moment of chaos, as unprecedented as it was, will soon be little more than a blip in the distance to the relentless train that it capitalist growth. Lest we forget, it was only 13 years ago when that very train ran the whole world into the worst financial crisis in a century, despite knowing full well the risks of what they were doing, and the catastrophe it would cause when the bubble inevitably burst. Regulators did nothing then to stop it from happening again, of course, as they were more concerned with bailing out the very people who had caused the crisis in the first place. They didn't do anything then, and they won't do anything now.
In the aftermath of the chaos, Redditors seem determined to double down and hold the line against Wall Street domination, backing new meme stocks like DogeCoin. Maybe this will be the catalyst for a shift in power, as people start to see that together they really can have an impact on the system.
Let this be a warning to you, Wall Street. Do not mistake our passivity for acceptance of the system which is so obviously stacked in your favour. We know your friends in the White House, Downing Street, and every other establishment in the developed world won't stop you. And we know you are too blinded by greed and self-interest to stop yourselves. That leaves us, the public. Therein lies the greatest question of them all - can we stop you? Maybe if DogeCoin reaches the moon...
Made the mistake of investing in Nokia 😩