When people imagine a revolution, the first thing that likely comes to mind is the romantic image of people storming the palaces of the rich and powerful with benevolent and righteous fervour. But given that we’re living in 2021, the latest movement to make the rich pay is instead driven by millions of people behind their computer screens, pressing buttons to make ones and zeros move from one server to another. However, the shockwaves this new type of insurrection has sent through Wall Street rivals most movements before it.
In July 2020, trader Keith Gill noticed that the American video game retailer GameStop was one of the most shorted stocks on Wall Street. Hedge funds were ‘borrowing’ GameStop stock and selling it with the hope that they could buy it back at a lower price, pocketing the difference on returning the stock to its original owner. Of course, if the price increased, the hedge funds would lose money on these short positions. Gill thought that the excessive shorting made GameStop, a company with reasonable prospects, very undervalued.
Soon this was picked up by the ‘r/wallstreetbets’ community on Reddit. Its followers realised there could be a GameStop ‘short squeeze’, which happens when the rising stock price results in a panic and people rush to buy the stock back to cover their short positions. This would only further increase the price, resulting in even more panic. At around $4, GameStop could make anyone with some money and patience an overnight millionaire if enough people bought the stock and got the ball rolling on the short squeeze.
These big dreams of making millions were certainly a motivation for these Redditors. But what started as a typical high-risk bet to get rich turned into a path people could use to express their frustrations with the system. The system that was, in their eyes, made by the elites, for the elites. From the short-sellers, who were characterised as leeches who benefited from companies failing, to the mainstream media, who were seen as a mouthpiece for Wall Street, to the financial regulators, who were claimed to be caught up in conflicts of interest, this was a revolt against all those who were seen as running the system.
Even though discontent with corporate America was nothing new, the way people showed their discontent was. For the first time, they weren’t outside the large skyscrapers chanting slogans, but going in with sledgehammers and destroying the entrenched structures of power they had grown to resent. The days of Wall Street condescendingly judging ordinary people from their ivory towers were over. As the price increased day by day, hedge funds were suffering. All these Redditors had to do was to hold their shares. By doing this, the Wall Street hedge funds that betted against an icon of their childhood would continue bleeding cash until they went bankrupt.
The interest in GameStop was so large that as the price was reaching $400, several stockbrokers suspended the trading of shares. The reason for this move was highly technical and essentially boiled down to the fact that the stockbroking system was unsuited to handle so much demand from small retail traders in so little time. Unsurprisingly, this was unconvincing to the Redditors who went on to file scores of class-action lawsuits against stockbrokers who suspended trading. A particular focus of Redditors was Robinhood, one of the most popular trading apps in the world, established with the goal of making trading more accessible to everyone.
Talk of conflicts of interest ran abound on the day GameStop reached its peak price when some Redditors claimed that Citadel, a large financial services company, may have pressured Robinhood to restrict trading in GameStop. The theory went that because Citadel had invested billions in Melvin Capital, a hedge fund that lost 30% of its value due to losses related to GameStop, and Robinhood relies on Citadel for a large portion of its revenue, there was a conflict of interest and that Citadel pressured Robinhood to restrict trading to protect Melvin Capital. It’s important to note that both companies deny such accusations. However, it’s also true that the price immediately collapsed after Robinhood suspended trading, something short-sellers would have greatly welcomed.
Like most attempted revolutions, the GameStop insurrection was unsuccessful in bringing down the status quo. Almost everyone who participated in it knew it would never be successful in overthrowing the Wall Street establishment. But declaring it a failure altogether is missing the nuance of the power imbalance between the very rich and everyone else, and the frustrations that stem from that. Rather, GameStop showed the appetite for change in Wall Street from the meme generation. The generation that is defined by the internet and the erosion of barriers but also stagnating incomes and increasingly bleak futures. This growing brand of transparent populism should be worrying to Wall Street because what they do best is giving people they resent a taste of their own medicine.
Redditors have exposed the corruption of Wall Street like many generations before them. It seems the meme-driven revolution might just be crazy enough to succeed again in the future.
Image above was sourced from: Getty Images
