GameStop rebels take on wolves of Wall Street
Will the GameStop revolutionaries win in the end? Activist small investors have beaten the big hedge funds at their own game. But some say the share-buying frenzy will end in tears.
There is mayhem on Wall Street. Stockbrokers strained to keep up with stock market activity. Hedge fund managers watched billions be wiped off the value of their company.
Behind it all: a struggling videogame store, an online forum and a billionaire’s tweet.
Last year, a share in GameStop cost less than $3. Last week it rose to $469. Soaring stocks are usually good news for big business. By the laws of economics, GameStop’s share price should be dropping.
Wall Street was betting that GameStop was doomed. Hedge funds make billions by borrowing stocks, selling them and buying them back when the price falls. This is shorting. The funds say they are protecting their clients. Critics call them wolves. Last year they made $127bn.
Online, a rebel alliance is plotting to beat these financiers at their own game. WallStreetBets is a community of amateur traders on Reddit. By buying cheap GameStop shares, they squeeze the price higher and watch the uber-rich lose money.
They are calling it a digital Peasants’ Revolt.
After the revolt is the crackdown. Facebook closed a group of GameStop traders, stockbrokers limited their buying ability. Politicians on both ends of the spectrum joined the rebels’ cause.
Economists warn this will end badly. GameStop is caught in a stock market bubble.
Will the GameStop revolutionaries win?
Gaming the system
No, revolutions end in failure. Ringleaders are punished and ordinary people pay the price. The super-rich have an advantage. As tech giants like Google and Facebook take over the Internet, it will become harder for groups to organise.
Yes, if you take the long view. Feudalism was not overturned by one revolt. An economic system that makes billionaires richer during a pandemic cannot last. This is a symbolic moment when the powerful are not invincible.
- Is it right to steal from the rich and give to the poor?
- The game Monopoly was designed to show how capitalism works. Design your own game.
Some People Say...
“Markets can remain irrational longer than you can remain solvent.”John Maynard Keynes (1883 - 1946), English economist
What do you think?
Q & A
- What do we know?
- It is generally agreed that the stock markets climbed to record levels in the past year, despite a recession that shrunk the global economy by 4.4%. Some of the biggest winners have been technology firms, as people spend less time on the high street and more time at home and online. Last year, the billionaire Ryan Cohen joined GameStop with plans to move the business online. But experts say it faces an uphill battle competing against Internet giants Google and Amazon.
- What do we not know?
- One main area of debate is around what kind of revolutionaries the GameStop traders are. Some compare them to Internet trolls or to extreme-right chat forums like 4chan. Others take seriously their critique of inequality and intention to donate their profits to charity. Some critics say they are not revolutionary at all, but are mostly young, bored men looking for fun and a quick win. With 4.5 million subscribers to the WallStreetBets forum, the full picture is probably very complex.
- Wall Street
- The New York street where the world’s two largest stock exchanges are located. It is also a metonym for the entire American financial industry.
- Hedge fund
- These are investment companies that use complex strategies to beat the market and make profit, even when shares are falling.
- The retailer began in 1984 as Babbage's, named after Charles Babbage, the Victorian inventor of the Difference Engine, a forerunner to the modern computer.
- If the price rises sharply, short investors rush to buy back their stock, pushing the price higher. This is called a short squeeze.
- Peasants’ Revolt
- A major uprising in 1381 led to the sacking of the Tower of London. Around 1,500 rebels were executed, including its leaders Wat Tyler and John Ball.
- Left-wing Congresswoman Alexandria Ocasio-Cortez tweeted that hedge funders treat the economy “like a casino”. Republican Senator Ted Cruz replied, “fully agree”.
- A political and economic system in Europe and Japan in the Middle Ages. Noble families allowed people to live on and farm their land in return for a share of the crops.