For those of us who know the inner workings of the stock market as well as the wiring of the Large Hadron Collider, the drama surrounding GameStop was a true enlightenment. Although the story itself sounds esoteric, it actually reveals a lot about the ways in which economic and political power work today, and it also exposes the extent of market irrationality and the reach of corporate privilege.
If you haven't heard yet, GameStop is an American video game retail chain whose market share has declined significantly due to the growth of online commerce. Its stock has plummeted from $56 a share in 2013 to about $5 in 2019. The chain is preparing to close 450 stores this year. Several large investment funds have decided to cash in on GameStop's misery by giving shorts his shares. Shorting is a stock market bet that an asset, for example a stock, will fall in price. This maneuver can generate huge profits, but if the price does not fall, investors can also lose considerable sums.
That's what happened. A bunch of Anonymous from the Reddit forum r / wallstreetbets, an investment discussion group with over six million members, has decided to buy GameStop shares wholesale. Maybe they thought it was a good investment, maybe they were bored, maybe they wanted to kick Wall Street. Whatever the reason, GameStop's stock price soared. So it continued to grow. As soon as the news spread around the world, more people joined in, which raised the share price from around $40 to almost $400 in just a few days. Large investors suffered a large loss, while one investment fund, Melvin Capital Management, was forced to seek financial assistance. This story, however, is not only about the traders who got what they deserve, but also about the absurdities of the stock market.
One might naively think that the stock market exists so that people can invest in companies. Stock trading rarely has anything in common with productive investing. Author Doug Henwood estimates that initial public offerings (IPOs), through which anyone can buy shares in private companies, have raised a total of $20 billion over the past 657 years. In the same period, companies from the index S & P 500 (an index of the stock value of the 500 largest companies) spent $8,3 trillion buying their own stock to raise their price.
Stock buybacks - when a company buys its own shares to reduce the number freely available for purchase and thus drive up their price - is a form of market manipulation that was illegal in the US until Ronald Reagan decided that the ban was restricting market freedom. So many corporations, instead of building factories, started pumping money into their shares.
It lifted the stock market to record highs and brought generous profits to shareholders. But few others benefited. A pharmaceutical company Merck claims that its drugs need to be expensive to fund new research. In 2018, the company spent $10 billion on research and development — and $14 billion on share buybacks and dividends. One report suggests that if Walmart had channeled half the amount it spent on its stock buyback into employee wages, one million of its lowest-paid workers, many of whom live below the poverty line, could have received a 50% raise.
As instead of productive investing, speculation became the fuel of the stock market, large investors began to spend more and more money on games such as shorting. Last week, however, after being outplayed by a bunch of forum lunatics, the titans of Wall Street did what all privileged people do. They whined. How dare raja manipulate the market! Only someone with a penthouse in Manhattan who dines with presidents and governors of the Federal Reserve is entitled to that, not people with made-up nicknames on a forum. What would Severus Snape say in the episode Harry Potter and the Half-Blood Prince: “How dare you use my spells against me? I invented them."
Having good connections means that there is someone to hear the whining. Washington regulators are now looking into possible market manipulation by social media groups. Digital investment app Robinhood, which once helped open the stock market to a wider audience, last week restricted trading in GameStop shares by allowing investors to sell but not buy them, a surefire way to drive down the price. The company claims that this happened for technical reasons and not out of a desire to protect investment funds. Small investors, however, launched a class action against Robinhood for "deliberate market manipulation".
Online platform Discord banned the group wallstreetbets from its servers due to "hate speech, glorification of violence and dissemination of misinformation". Apparently, members of the group often indulged in racism and Islamophobia. Its founder, expelled from the group at the beginning of the year, claims that some moderators "were the most ordinary white supremacists". It's a strange coincidence, however, that the group was taken down for "hate speech" on the same day that investors lost huge amounts of money. On the other hand, the association of such groups with regressive politics reveals how Wall Street has become synonymous with liberals and the extent to which the populist right has appropriated people's anger against big corporations.
Discord's action once again demonstrates the power of tech companies to shut down groups or discussions that people of power and influence find problematic. It also shows how campaigns against "hate speech" and "disinformation" can become a means of suppressing various forms of rebellion against the government.
Maybe there's something cathartic about the sight of the wolves of Wall Street bleeding, but we shouldn't romanticize Reddit forumers. It was not an uprising or a French revolution in finance, as ex-Trump communications director Antoni Scaramucci senselessly described it, but a scheme to outplay professional investors on their turf.
Undoubtedly, many of these players are nasty characters of regressive political ideas. Their actions do not at all question the vanity of the stock market, nor do they diminish the misery the market has plunged so many lives into. On the contrary, the GameStop affair reveals all the weaknesses of the contemporary rebellion against power.
(The Guardian; Peščanik.net; translation: M. Jovanović)
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