“Remember all the times when your banks screwed you over.”
This is the resounding call from subreddit/WallStreetBets (WSB) that led to incredible surges in GameStop’s stock price in a collective effort to hurt those shorting the stock.
Short selling, or “shorting,” a stock is when an investor “borrows the stock and sells it” to then purchase the stock from the original owner at a later date. This means that the short is ‘betting’ money that the stock price will go down in the future. GameStop was widely shorted by hedge funds due to the pandemic decreasing retail store sales and the pivot toward digital game sales.
WSB took a deep dive into the hedge fund Melvin Capital. They had continuously shorted GameStop in what WSB alleged to be price manipulation. To combat this, the subreddit banded together to encourage its members to buy GameStop stock, hurting the short sellers.
The rise in stock price has caused short sellers to lose what NASDAQ estimates to be around $6 billion. The massive losses of Melvin Capital have caused the firm to receive capital infusions of $3 billion from Citron Research and Point72 Capital Management.
Reddit user ‘benaffleks’ described the reasoning for these buys well, saying, “This is a big moment. A tug of war between tradition and the future.” Their argument is that hedge fund managers live in the past and think “the average retail investors don’t know anything about finances.”
This rejection of traditional Wall Street practices has led to many posts like “LISTEN TO ME. DO NOT SELL TODAY. OR ANY DAY THIS WEEK…They are counting on fear to beat us.” WSB sees this movement as the rise of retail investors, enabling normal people to get involved in the stock market and take the power away from this country’s most wealthy.
Currently, this has led to the situation in a standoff. A large number of retail investors from WSB holding the line are not selling their stock. They hope that they can force large funds into a “short squeeze” where short sellers cash out and take their losses. The users of WSB are doing well in making their point—Wall Street is changing, and fast.
As the situation developed, members of WSB saw how significant the situation has become. One wrote to any government official that may be reading, “these boys played by the same rules that the big hedge funds owned by people who get trillions in bailouts do…Please do not step in on behalf of the wealthiest and the most powerful in this country.” This goes further to urge WSB’s point that large Wall Street investors have manipulated the market, gotten large bailouts and should not be in control anymore.
Emphasizing their difference from large investors, some users have focused on charity with their newfound gains.
Sophomore Jack Briggs told The DU Clarion that he and other students invested for the “considerable gains the past two weeks before.” But the “memes and ‘stick it to the hedge funds’” became an added bonus.
There have been negative reactions from trading insiders. Some have tried to freeze trading on GameStop. TD Ameritrade and Charles Schwab have restricted trades from their clients, and Wall Street has claimed that WSB is market manipulation. On Jan. 28, the “democratized” investing app Robinhood stopped trades of GameStop and other WSB target stocks on their app. There is currently a class-action lawsuit against Robinhood for these actions.
These actions have come under criticism from lawmakers. Democratic Rep. Alexandria Ocasio Cortez tweeted out against Robinhood’s actions and was supported by Republican Sen. Ted Cruz.
Lawmakers are taking action as Robinhood executives are expected to testify to Congress on their decision to stop trading. An investigation has been opened by the Securities and Exchange Commission, the government agency in charge of monitoring and regulating the stock market. This situation will keep developing as neither Reddit nor Wall Street is ready to back down just yet.
