“Anyway, tax the rich,” concluded Congresswoman Alexandria Ocasio-Cortez in her brief Twitter assessment of the ongoing saga.
What’s important to know, wrote Left Business Observer editor Doug Henwood, is that the whole episode is “a lesson in the absurdity and uselessness of the stock market.”
Most crucially, explained journalist and author Jacob Silverman for The New Republic, is that what has transpired thus far “shows how casino capitalism is eating the world.”
Speaking of eating, one participant who—along with her husband—had already made an estimated $1,700 as of Wednesday by helping boost a stock which has sent the financial world into a tizzy this week said there was a “catharsis to actually making money” off the pain of Wall Street titans who have done the same to average Americans for decades and didn’t feel bad about it for a second. “Eat the rich,” she said in an interview with the New York Times.
The topic at hand, of course, is GameStop—the video game retail chain (also known by its stock ticker symbol GME) which is now at the center of an explosive fiasco on Wall Street in which major investment firms and hedge funds got taken to the cleaners by users of an online message board, namely the Reddit sub-page r/WallStreetBets, who mobilized collectively to drive up the company’s stock price at a moment when many large, institutional investors had placed large bets for it to go down.
“Wall Street and stock market are metaphors for a society rotting from self-indulgence, greed, widening inequality, and financial entrepreneurship that builds nothing, improves nothing, creates nothing, and solves nothing, but merely moves money from one set of pockets to another,” tweeted economist and former Labor Secretary Robert Reich in the early hours of Thursday morning.
As Silverman explained in his piece for TNR on Wednesday:
GME opened at $354.83 [Wednesday]—an increase of almost $200 over its previous close. In the last few days, hundreds of millions of shares have changed hands, snapped up by both Reddit day traders and big hedge funds who have been forced to buy more shares to cover their short positions. On Tuesday, it was the most traded stock in America.
While pundits search for explanations, large investors are scrambling to stem their losses. Being on the wrong side of a short position can lead to a vicious cycle in which one has to keep buying a rising stock at higher and higher prices. Melvin Capital, one of the hedge funds with the biggest bets against GME, received a bailout of nearly $3 billion from Point72, a fund owned by Steve Cohen, who also owns the New York Mets. Melvin later managed to extricate itself and close out its position but not without suffering what may have been several billions of dollars in losses.
A financial head-scratcher for many not familiar with terms like “short-selling” and “stock puts”—not to mention “subreddits” and popular day-trader apps like Robinhood, on which much of the amateur trading is taking place—progressive critics argue that what the whole “kerfuffle” represents is just how far detached the stock market is from the actual economy and, in an ironic twist, how the open manipulation of GameStop share prices reveals about what a farce the financial system has now become. As Henwood put it, “Who knew GameStop would itself become such a game?” But a game with serious implications.
“This drama, like the seemingly endless rise in stock prices since 2009, interrupted briefly by the COVID-19 scare last March,” he wrote in his piece for Jacobin, “is a sign of a financial system totally out of touch with economic reality.”
Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino
— Alexandria Ocasio-Cortez (@AOC) January 27, 2021
Along with a warning of how things will end, Henwood explained part of the dynamic this way:
Bubbles like this always end in a crash, and those Redditors who haven’t sold their shares will be left holding a very depleted bag. [...] In the meanwhile, it’s funny to see some Wall Streeters complain that there’s something unfair about this action, since these are the sorts of games they play with each other and the general public all the time. They talk up stocks or talk them down, depending on their interests, and plot against what they see as weak or vulnerable players all the time. It’s just that the speculators with names like DeepFuckingValue who are savaging them for now are the wrong kind of people. They don’t live in Greenwich in houses with twenty-car garages.
In a newsletter post Thursday morning, former Wall Street professional Alexis Goldstein said that while many have framed the story as a David vs. Goliath situation, in which the Reddit collective had outsmarted the institutional cretins of Wall Street, the dynamics are more complicated than that.
So if the question becomes, “Is this really Robinhood sticking it to Wall Street?” wrote Goldstein, “the answer is, no.” While her reason for that is somewhat complicated, it boils down to the way Wall Street operates. Given the amount of fire power that larger investors have over the amateur day-traders using apps like Robinhood—including massive information collection operations and the ability to utilize lightning-fast trading algorithms—she argues that while some financial titans might have lost their shirts, others were there to claim massive profits.
“This this isn’t hedge funds versus retail [traders],” Goldstein wrote. “It’s hedge funds versus other hedge funds.”
As journalist Jack Crosbie wrote at Discourse Blog on Wednesday:
the only rule of gambling though is that the house always wins. And the stock market is set up so that the hedge funds and the investment management companies and the big banks are always, always the house. What we’re seeing right now is a guy who rolled up with a pocket full of change hitting the jackpot on a penny-slot. The other thing, of course, is that watching a guy hit a jackpot is really only good for the casino, because everyone who sees him do it thinks they’re going to be the next one to hit.
Consider also this: BlackRock Inc, the world’s largest asset manager, owns about 13% of GameStop. During this entire thing, it’s made approximately $2.4 billion dollars, perhaps as much as $1.2 billion this month alone. That doesn’t mean that it’s a bad thing that some Reddit guys decided to own a guy who named his amoral investing company after his dead granddad Melvin into the sun, but it does mean that in the grand scheme of things, the house is doing just fine — and indeed, could blow the whole thing up at any moment.
Indeed, on Thursday morning—after early trading showed a GameStop stock price that continued to soar—Robinhood intervened by preventing its customers from making new orders on the company as well as other similarly soaring purchases for the AMC movie chain, Blackberry, and others.
Robinhood has stopped allowing users to buy GameStop, AMC, BlackBerry, and Nokia stock. https://t.co/AORntdA7JV
—Motherboard (@motherboard) January 28, 2021
“This is beyond insane,” tweeted Rep. Rashida Tlaib (D-Mich.) in response to the news.
Democrats on the Financial Services Committee, Tlaib added, “need to have a hearing on Robinhood’s market manipulation. They’re blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who’ve used the stock market as a casino for decades.”
According to Zach Carter, financial journalist at HuffPost, what the GameStop affair reveals above all else is that the so-called “market”—and specifically the machinations of the stock exchange—is fundamentally terrible at the one thing it often claims to do best: assign value to a company or industry. Carter writes:
Financial markets cannot tell us what is good and what is bad. They can only tell us what a lot of people thought they could make money on at a certain point in time. The real work of determining what kind of world we want to live in is the proper subject of democracy, not high finance.
The Redditors have made this brazenly clear to the world, and for that they should be celebrated rather than condemned. The situation, however, does demand a public policy solution. The Redditors have revealed an absurdity by being absurd. The appropriate response is not to demand an orgy of further absurdity, but to do something sensible.
So what would be a sensible solution?
In a statement late Wednesday, Sen. Elizabeth Warren jumped into the concern over GameStop and called on the Securities and Exchange Commission (SEC) to intervene. Though vague in what exactly must be done, Warren said, “With stocks soaring while millions are out of work and struggling to pay bills, it’s not news that the stock market doesn’t reflect our actual economy.”
“For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price,” Warren added. “It’s long past time for the SEC and other financial regulators to wake up and do their jobs—and with a new administration and Democrats running Congress, I intend to make sure they do.”
Carter, however, was more specific in his prescription.
“The simplest solution,” he wrote, “is a financial transactions tax―a small fee attached to every financial bet. This tax will either discourage reckless stock betting and reduce the volume of what is a mostly economically wasteful activity, or generate a great deal of revenue that can be devoted to more useful activities.”
Reich agreed. “At the least,” he said, “we need a financial transactions tax.”
In the end, opined Silverman in TNR, the entire absurd episode offers a deeply profound comment on the grotesque nature of modern casino-style capitalism that has wound its way so deeply into the global economy.
“The financialization of the U.S. economy over the last 40 years has been a disaster for most Americans—bringing income inequality, recessions, a housing crisis, and the impression, probably justified, that the economy simply doesn’t work for them,” he wrote. “It is indeed a giant casino, and like any casino, it’s rigged to the benefit of the operators and their partners. No wonder watching hedge funds scramble to cover their positions brings out a perverse pleasure in small-time day traders and socialists alike.”
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License
Jon Queally, senior editor and staff writer, has been with Common Dreams, where this article originally appeared, since 2007 covering US politics, foreign policy, human and animal rights, climate change, and much in between.
