In case you missed the news, Wall Street is scrambling after a bunch of self-described autists in a Reddit subreddit called WallStreetBets recently drove up the price of Gamestop stock astronomically to the point where the SEC has come out and said they are investigating what has taken place.
The short version of the story is a rather large hedge fund by the name of Melvin Capital (what a stupid name, by the way) had been shorting Gamestop stock, possibly using naked shorts (a practice the SEC made illegal in 2009) to drive the price down of a company that employees over 40,000 people.
If you're not familiar with short-selling, it's a practice in which hedge funds will borrow shares for a short period of time. They will then sell these shares on the basis that the price will continue to fall. The idea is that before they need to give the shares back, they will have to buy these shares back on the open market for market price. If you borrow shares worth $100, sell them and then the price falls to $50, you can buy them back and you've made $50 on each share.
A collective bunch of amateur investors decide to buy Gamestop stock en masse and ruin Melvin Capital's position. Melvin had lost upward of 30% in a week, a little over $5 billion, which is just a sheer amount of money to lose.
Now, this is what I call eating the rich. Even Alexandria Ocasio-Cortez seems to support what WSB have accomplished.
What makes it even funnier is that Melvin had to call on others for an infusion of funds to cover their loss. A subreddit managed to damage what was quite a large and successful hedge fund.
Seriously, look at those returns. Forget Bitcoin, maybe it's time to start investing in meme stocks. Gamestop stock is up almost 1700% for the year and it is only January. How long this will sustain itself before collapsing is anyone's guess.
You might recall in 2008 rather famously, the economy came to a screeching halt as financial institutions lost billions and a lot of people lost their livelihoods as the housing market driven by greedy Wall Street suits. A couple of big financial institutions crashed, people lost their life savings, their 401ks, it was a complete and total disaster. Despite the fact that this was the result of incompetence and illegal behaviour, Wall Street was yet again bailed out and nobody was held accountable.
To the contrary, Iceland famously jailed a bunch of people responsible for the Icelandic banking crisis, fuelled in part by the lack of regulation and flow-on effect from the 2008 GFC.
When the original Occupy Wall Street movement took place, it was a bunch of people camping out in the streets, which ultimately ended up changing nothing. However, I do find it ironic and hilarious that a bunch of Reddit investors have managed to move the market like this.
What makes it even more impressive is that WSB is not as organised as news organisations are making them out to be, it's a collective bunch of circle jerkers who mostly share memes and talk about TSLA stock puts. We are witnessing the birth of a real Occupy Wall Street. You don't win camping in the streets, you beat them at their own game.
Now, the SEC is investigating whether or not this subreddit and its promotion of the GME stock surmounts to a pump and dump. Isn't it amazing how a subreddit which are doing the exact same things like hedge funds and investment firms have been doing since the dawn of the stock warrants an investigation, but the possible illegal naked shorting of Gamestop stock doesn't warrant an investigation? It's okay if you're rich, but if you're poor, you're held to a different standard.
The real kicker in all of this which makes me laugh knowing we are possibly about to witness the demise of a large hedge fund or two is that the hedge funds have short sold more shares than exist on the open market (allegedly the figure is around 140%). What this means is that there are not enough shares for the hedge funds to even buy them back? Unless they can reach a compromise with their investors, they are well and truly fucked.
In what can only be seen as the regulators protecting the interests of large institutions, they are now calling for Gamestop stock to be halted for 30 days. This is how corrupt the traditional financial markets are and why decentralised cryptocurrencies as investments are needed.
The fact that if the market isn't moving in the direction that large investment firms like, they can call up their friends and have the stock suspended so their Wall Street brothers don't lose any more money. This isn't a free market, it's a mafia-esque protection racket for the rich.
I and everyone else who isn't a Wall Street corporate shill have zero sympathies for short-sellers and hedge funds who have historically bet against jobs and markets for years. Short sellers can break companies, companies which employ people who have families and bills to pay, compounded by the broken for-profit healthcare system that underpins the US. Short sellers have been getting rich at the expense of workers for far too long.
Seriously though, how fucking ironic is it that lobbyists have fought so hard to keep the market unregulated and "free", this is what a free market looks like. A bunch of Reddit investors can freely ruin short-sellers just like these short-sellers have ruined businesses and livelihoods.
If only the US government and regulators moved as swiftly to hand out stimulus checks or provide better healthcare for its citizens as they have to be so quick to leap to the defence of short-sellers and Wall Street.
The only crime in all of this is being poor.
Great read.
!BEER