“No better stock name then Gamestop to end this game of rigged markets – It’s fucking poetry that’s what it is.”
“If Papa [Elon] Musk is with us who can be Against Us!”
“Rashida [Tlaib, member of the Squad] is with us!!!!”
At time of writing, these are some of the most upvoted posts on r/WallStreetBets, a subreddit at the heart of the Gamestop stock storm. No doubt by the time of publishing they will be lost amid the endless activity which has helped rocket the game retailer’s share price to astronomical levels.
The debacle has sent the Wall Street elite into a tailspin. The same elite have benefited from these late years of capitalism – aptly dubbed “socialism for the rich, rugged capitalism for the poor” – availing of massive bailouts and enjoying stock market highs during the pandemic.
And so the GameStop story has gripped and compelled many who delight in seeing those vulture capitalists squirm. But the stakes are high, and this requires an analysis that goes beyond a simple middle finger to ‘the man’.
As with many retailers, 2020 was a difficult year for GameStop across the globe. Primarily based on the high-street, their lack of a serious online presence was heavily exposed during the pandemic. Then, in September, a 13% stake was bought by investor Ryan Cohen who spoke publicly about his plans to modernise the company to attempt to compete online with the likes of Amazon.
Stock market bubbles don’t begin as bubbles; they’re often rooted in an initial ‘good news story’ – something which is attractive to investors. This was the effect of Cohen’s announcement.
And the entrance of r/WallStreetBets turned the entire thing on its head.
The subreddit’s tagline “Like 4chan found a Bloomberg Terminal” references Bloomberg software used widely in the financial world and an anarchic, sometimes reactionary, corner of the web. It’s a decent approximation of what can be found there.
Redditors share trading tips and memes, using what could be kindly described as edgy lingo. GameStop stock was on their radar at different points in 2020, and when Cohen came on board many latched on to him and his narrative.
After the company’s share price rose steadily in the autumn, r/WallStreetBets got wind that some hedge funds were shorting GameStop’s stock.
The stock market, despite what the world of highfalutin finance tries to claim, is essentially a casino. And a short is a particular kind of bet; one which gambles on the stock in question losing value. The more the share prices fall, the more those engaged in shorting profit.
It works like this: an investor borrows shares from a broker and sells them for money. If a hedge fund borrowed shares and sold them for $100m, they could buy the same amount back for less when when the price of the shares drops, say $90m. They return the shares to the broker, pocketing a handsome $10m in the process.
The logic behind the shorting of GameStop was that despite the bullish talk from Ryan Cohen and the flurry of investor interest, the retailer still faced an extremely challenging pandemic situation, and the share price should eventually reflect this reality and dutifully fall.
Clearly any decent society would treat the Wall Street universe as one massive pariah. And investment funds which engage in shorting would be the pariah of that pariah.
At a basic level, profiting from the losses of other companies is grim because it is always the workers who suffer most. But that’s not all. Shorting can help bring about further financial difficulties; if word gets out that an esteemed fund thinks your company is in trouble it can make markets nervous, create instability, and scare off future investment.
The attempted short of GameStop angered redditors. Some had bought stock themselves, while others had an affinity for GameStop as a gaming outlet and wanted to see it do well. And on a subreddit which styles itself as a ‘little guy’ and a day-trader space, many didn’t like the idea of a multi-billion dollar hedge fund benefiting from the company going out of business. When Goliaths in Wall Street picked out GameStop for a short, they helped forge a David in the process.
Their strategy to fight back was simple: invest, invest, invest. Keep buying, have “diamond hands” by holding your shares and refusing to sell. The aim was to keep prices rising enough that their Wall Street opponents would be dealt a severe financial blow.
If we take our previous example of a hedge funder who borrowed shares for $100m, we can see how they get into trouble if prices rise and rise. This time, in order to buy shares to give back to their lender, they will have to fork out more, say $110m. Their hopes of a handsome $10m profit just became a $10m deficit.
Two choices face a short seller if prices don’t decline. They can either take the hit, buying shares at the higher price to return to the broker. Or they can double down, borrowing more on riskier and riskier terms, hoping the market will decline.
It’s clear that some shorters, like Melvin Capital, have taken losses in the billions. And when a short seller takes a loss by buying at the higher price, it can fuel a further rise.
This is exactly what happened with GameStop, and the stock then bubbled.
It’s hard to grade capitalism’s ills. But these shorting practices and the institutions which revel in financial speculation are arguably a callous crescendo.
Take the example of Puerto Rico, where Wall Street bondholders are leveraging the island’s debt to ram through a restructuring deal which would privatise and pillage everything but the sun and the air.
Or the more simple fact, as Oxfam reported earlier this week, that the world’s 10 richest people saw their wealth rise by $540bn during the pandemic, impossible without capitalism’s financial sphere.
The term vulture fund does a disservice to vultures.
So watching certain hedge fund owners spiral as they’re caught out by a memeing band of amateur investors is pretty enjoyable. A quick and quirky tonic during challenging times.
Of course, Wall Street wasn’t going to take this lying down. Over the past few days they have gone on the offensive, decrying the ‘mob’ who have ‘distorted’ the proper function of the stock markets.
The head of Nasdaq called for a halt in trading to give funds time to ‘recalibrate their position’. Without a hint of irony given their incessant lobbying for laxer rules, demands for better regulation have suddenly become widespread. And the US media is awash with discussions of bogeyman market manipulation by internet shadows.
More blatant was yesterday’s development, where the buying of GameStop stock was suspended on the Robinhood app. Robinhood is at the centre of this story, essentially allowing people to trade freely and easily in stocks. Preventing purchases yesterday effectively manipulated prices so that they would fall.
The US establishment is now closing ranks in response to some uppity little people and this isn’t the only reason that our quirky tonic should come with serious health warnings.
“You cannot lose if you do not play”
While some hedge funds have already suffered substantial losses and more may follow, when the whole thing bursts lots of ordinary people will lose out too.
Much of the mainstream commentary puts what we’re seeing down to a ‘democratisation’ of finance, because of the spread of those easy-access apps like Robinhood.
We’re not witnessing ‘democracy’, but deregulation in action – systematic deregulation of the financial component of an economic system in crisis, which began in the Reagan and Thatcher years.
And yesterday’s market shenanigans is a stark reminder: deregulation is there to ensure that Wall Street always wins out, while the rest suffer.
It’s worth remembering what The Wire‘s Marla Daniels once advised: “The game is rigged, but you cannot lose if you do not play”.
It’s not clear yet where this will end but there are some final points that socialists should bear in mind.
The world of stock market investment is full of pitfalls for the Left.
Certainly, the GameStop adventure has acted as a lightning rod for class anger in US society and directed it at Wall Street titans. It has forced the financial elite to expose its hand. They can manipulate the market to their heart’s content but when ordinary people bankrupt a hedge fund, suddenly rules are being broken.
But it is also riddled with contradictions. For example, posts worshipping arch-capitalist Elon Musk are side-by-side with others proclaiming victories for the working classes over the 1%. The subreddit is a hodge-podge mix of Bernie supporters, right-wing libertarians, and many others besides.
And aside from people getting in way over their heads, becoming addicted to what is essentially a form of gambling, there is the further normalisation of a toxic Thatcherite-style individualism to be wary of. Thatcher herself favoured integrating people’s savings into the investment world precisely because it would create the appearance of a common interest between the two.
More seriously still, the confliciting ideas to be found on r/WallStreetBets indicate the potential for this issue to be taken up by the Right. Free-market defenders are out in force over GameStop, as are the likes of AOC and Ilhan Omar – but the Trump years have shown that in the absence of a coherent Left, class rage can easily be led down a far-right path.
Finance and Capitalism
The establishment decries the GameStop situation as ‘undermining’ the role of the stock market in providing productive investment for firms, but this couldn’t be further from the truth.
Businesses raise most of their revenue for productive activity from profits. As Robert Brenner said in May as stock markets were careering to new heights despite the global pandemic, it is “unconcerned, as it long has been, about underlying profits, let alone productivity.”
And setting aside the contradictory ideas dominating these developments, on a strategic level, targeting individual funds is ultimately futile without the necessary mass movements which could take on the political and economic establishment.
Consider how Blackrock, one of the biggest and most notorious international investment funds, profited massively from Melvin Capital’s GameStop losses. BlackRock bailed Melvin out when their shorting attempts failed – and made a boatload in the process.
Even if the particular, and extraordinary, circumstances which compelled tens of thousands of people to buy GameStop shares could be repeated, taking out individual hedge funds in this manner is akin to a game of whack-a-mole.
In the even less likely scenario that a mass investment campaign could be waged which would rock the system more generally, as some are proposing, we would do well to remember the lessons of 2008 whereby ordinary people the world over were made to shoulder the fallout from the crash. And more importantly for today, as Michael Roberts points out, many workers’ pensions are mixed up in the business of hedge fund gambling.
These betting games aren’t a realistic strategy for those of us who want an end to capitalism. They are no substitute for mass movements, on the streets, in workplaces, in our communities.
But the debate that the GameStop turmoil has created shouldn’t be dismissed outright; an organised left can make use of these crisis moments to expose the fault lines in the system. In these discussions, we should be wary of the argument that high finance is the only source of our ills. “Financial greed is perverting capitalism!”
No doubt there is blood on their hands, for their profit-mongering starts wars, burns the planet, and helps cause pandemics. But finance capital is a symptom of our decrepit social order, not necessarily a root cause. While Marx called it the “fountainhead of all manner of insane forms,” he never divorced it from the exploitative relations at the heart of the system.
And as these are days in which conspiracy theories abound, it is important too to be alert to the antisemitic version of this argument which has too often reared its ugly head. Rather than laying the blame for the excesses of the financial world at the doorstep of the economic structure itself, the far-right point the finger at ‘Jewish cabals’ who in their account have corrupted an otherwise decent capitalist system.
To fully tackle the predatory world of Wall Street, we need to undo the fundamental dynamic at the heart of our society: the fact that people have to sell their labour power in order to survive.
The GameStop saga shows an appetite for the former. It is up to us to explain the necessity of the latter.