The view from the top
You're going to go down real fast soon! Everyone loves the part of roller coasters where they go down fast, so this should be fun.
America’s hottest stock is Gamestop! It’s got everything: dying brick-and-mortar locations during a pandemic, a terrible reputation, the absolute conviction of a bunch of finance people that it’ll fail…
Hm, now that I write it all out, that seems like a bad stock? I sure hope I explain what’s happening soon!
Essentially, what’s happening is this: A bunch of Wall Street hedge funds think Gamestop’s stock will go down in value, so they borrowed Gamestop stock and sold it (known as short selling, or shorting), with the promise to buy it back later and give it back. But so many hedge funds did this that the same piece of stock was borrowed multiple times, which means the stock will have to be bought back multiple times.
Some Extremely Online guys on Reddit, both seeing this and already believing that Gamestop stock was properly valued or undervalued, started buying the stock. With those people buying, the price of the stock went up; with the hedge funds also having to buy back the shares they’d borrowed, the stock went up more; with Reddit seeing that the stock was going up and they were making money, more people bought stock and so the stock went up; with the crunch on and more hedge funds still having to buy back shares, the stock went up more; and so on.
It’s a bubble, in other words.
(Side note: Because one of the hedge funds on the periphery of this is owned by new Mets owner Steve Cohen, there was speculation earlier this week that this might be the latest in the eternal series of Mets disasters, but because that company isn’t super leveraged, that has abated a little bit)
And the thing about bubbles is, they don’t end well. Reddit ended up taking a lot of money from Melvin Capital Management, but the whole mass of people only has that money on paper as long as they don’t sell it. As soon as they start cashing out in any significant numbers — as soon as even a moderate percentage of people receive their profits — the balloon starts to deflate. Then the rest of the people, seeing their money dwindling, sell as much as they can as soon as they can, and then the stock drops to rock bottom prices.
In other words, ironically, there’s never been a better time to short Gamestop. Other than maybe tomorrow. Or maybe not! Welcome to stocks!
But none of that addresses the real question here, which is: Why Did Any Of This Happen? Why did Reddit decide they had to teach Wall Street a lesson about Gamestop, a historically terrible company with awful management that treated its employees like garbage and notoriously overcharged customers?
One part of it that you can’t ignore is that a lot of these people take pride in being gamers. There is a (sigh) Gamer Identity shared by a lot of people on the Internet, which has led to lots of bad things, like GamerGate and harassing women and whatnot, but has also led to some good dril tweets, so it’s impossible to say whether it is good or not:
So when they saw Big Bad Wall Street attacking Gamestop, a place for people to buy video games, they felt duty-bound to defend Gamestop, no matter how much it sucks and how useless it really is to them (the vast majority of games are bought digitally now, so a brick-and-mortar chain isn’t especially useful).
But then, if you’re going to take part in a big, organized effort like this against a bad guy, well, it helps if they’re actually a bad guy. And Wall Street sure looks that way to the rest of America; while the rest of us have had hours and wages cut, they’ve made money hand over fist for months on end. “Billionaires have made enough money since COVID started to pay for vaccines for everyone in America,” is the general tone of the discourse, and people just accept that, like, they’re not doing that? Which they could be doing? And they aren’t?
Fuck them. Fuck them. They deserve to suffer. These rich fucks running hedge funds are destroying companies just to make themselves richer, and someone has to make them hurt for it. It’s not about defending Gamestop; it’s about punching society’s villains in the face. Yes, you lost a couple billion dollars, asshole. You keep playing and you’ll lose another couple billion. And you have it coming.
But then, that’s not entirely it either. Because while there are people who do feel that way, honestly and justifiably, there are also masses of people who just want to be in on the joke. It is a hallowed tradition of the Internet to do it for the lulz, to make everything a joke until nothing matters. It’s a form of socializing, to be part of the in-crowd that keeps pissing off the big bully. They have jokes and references with each other, and when they see their community doing something, they have to join in.
These are, in other words, very normal forces propelling this group of Reddit traders to take on Wall Street. They’re defending something they care about and taking on unbeatable monsters and becoming part of a group that represents something more. In a lot of ways, it’s just like a video game, really. They’ve been trained their whole lives to think that this is the kind of against-the-odds fight that defines them as people. They’ve also been trained to think they can win, even if they rationally know they can’t.
Because it’s a bubble, remember. It will all collapse at some point, and a bunch of people will have lost money, and fewer people will have made money, and then we’ll all move on to the next thing. Some people will have made a lot of money (most of them have already made the money, to be honest), a few people will have lost a ton of money, and more people will have lost a bit of money. This isn’t a hard future to foretell. But it’s coming.
Like any good villains and heroes, Wall Street and Reddit are two sides of the same coin. They are both manipulating the stock market to the point of meaninglessness in order to make some cash. It usually works for Wall Street. This time it probably won’t. Maybe that’s enough for Reddit. In all likelihood, it’ll have to be.