GAMESTOP, WUT?
A thing happened this week that was not about Donald Trump, or Pastel QAnon, or the Capitol rioters’ arrests (although these things were also in the news.) It was not about how the GOP is finally facing up to the toxic nature of their Trumpist strategy and, after an internal reckoning, are turning back into a normal political party, haha, never going to happen.
No, I speak of the GAMESTOP MEME WAR that broke out when a bunch of guys on a sub-Reddit called r/WallStreetBets decided to all collectively invest in this one particular stock.
GameStop is a boring little chain store situated at that half-empty strip mall near you, the one you never go to. (Unless it has a mysteriously excellent dim-sum/Thai takeout place, like they do.) GameStop’s “business model” is to be a brick-and-mortar store that sells game cartridges and accessories for your X-box or whatever. Since gamers now stream everything online, or play on Steam or Origin, GameStop is basically BlockBuster in 2009: obsolete and sliding towards irrelevance and failure. Its stock was bobbing along at about $5/share, until this bunch of randos on Reddit decided to buy it – then this happened:
It worked so well that GME became a wonder of the financial world in just a few days. On January 26, Tuesday of this week, @EricBalchunas pointed out that GME was the most traded stock in the world: $20B worth of shares changed hands. That’s BILLION, with a “B.”
HOW IS THIS POSSIBLE??
The Redditers made this collective decision to buy GME while the shares were being heavily shorted by hedge funds. This meant that, along with driving up the price for their own profit, they could crash a few hedge funds: basically take all of Gordon Gekko’s money. This plan appeals to literally everyone who is not Gordon Gekko, because EFF THAT GUY, amirite?
Cartoonishly evil
Now stick with me while I try to explain “shorting” a stock. Investors will “short” a stock they think is weak, meaning that they are betting the price will go DOWN. This is the opposite of the usual “buy low, sell high” move.
The riskiest (but cheapest!) way to short a stock is to borrow stocks from a broker, sell them on the market, wait for the price to fall, and then buy the same stocks on the cheap, return the stocks to the broker, and so cash in on your gamble. The hedge funds had done this with GameStop stocks to the tune of tens of billions. This arrangement is called “naked short-selling” (pictured above) and, importantly, the arrangement has a time limit.
ENTER ROBINHOOD AND THE REDDITERS
The Redditers knew the hedge funds were shorting GameStop to the tune of BILLIONS of dollars because the funds publish that info, don’t ask me why. About half the members of r/WallStreetBets (which had 2.2 million members on Monday and now has 6.3 million) decided collectively to use their various chosen stock-trading apps, such as RobinHood, to beat the hedge funds at their own game. By radically driving up the price in a very short time, the Redditers hope to cash out at the top and make a TON of money. That money will come out of the hedge funds’ pockets, because they will be forced to buy the stock at the current high price in order to return the GME stocks to their broker. Melvin Capital, for example, has to return the stock TO-DAY! Sad trombone, Melvin Capital!
It may be that Melvin Capital and other hedge funds are striking new deals with their creditors to avoid disaster. The big boys tend to protect their network: the RobinHood app that Redditers used suddenly cut off their customers ability to buy GME stock but allowed selling, which was an attempt to force the Redditers to quit. Turns out that RobinHood’s biggest customer is Citadel, which is also invested in Melvin Capital, surprise! The Redditers were up-in-arms immediately, threatening a class-action lawsuit; and if you are eligible to join in, well, there’s an app for that! Here’s Vlad Tenev, CEO of RobinHood, on Thursday, explaining how his app is great, and he is a super-responsible business person, even though he doesn’t have quite enough money to run his company right now, blah, blah, blah….
WHAT NOW?
At close of business on Friday we are still waiting to see what will happen to the hedge funds holding all that stock — GME’s closing price was $325. They are now doing “after-hours” trading, which I do not understand. Still, whatever happens to these particular hedge funds and these particular stocks, things will not be the same from now on. It’s become crystal clear that the game is rigged in favor of the Richie-Riches in very concrete, dollars-and-cents ways that preclude ordinary people having any faith in the stock market whatsoever. George W. Bush never got to privatize social security and force working people into the stock market, and for that may we be truly thankful.
As for the Redditors vs. the hedge funders, your MassMiss favors the Redditors, of course, but the best you can say about that crowd is they are 4chan with less racism. Which is not a bad thing, and I hope they win. On the other hand, I don’t feel like I have a dog in the techbros vs chads conflict so…





































