As you read this, you might’ve heard the news by now. Wall Street is currently in chaos, even more so than the #OccupyWallStreet protests of almost ten years ago. While that consisted of picketing and civil disobedience, which could be curtailed and discouraged by police action, this unprecedented event in Wall Street history is done by turning their weapons against them, thanks to an online community called WallStreetBets.
I tried making a video about this, but I’ve since dumped it as I’m displeased with the quality. I’m two months out of practice and there are videos that do it way better than I do. I suck at talking about finance—I can’t even properly manage my own finances. In the meantime, I’m just sharing posts about the situation on the Facebook page. For now, this blog post will do.
DISCLAIMER: I’m not a financial expert. Most of my financial education is from studying financial disasters and scandals, which gives me a particular bias on this topic. Reader discretion is advised.
WTF Happened? WTF is WallStreetBets?
This video by Upper Echelon Gamers is perhaps the strongest video I’ve seen on the issue. It clarifies a lot of misinformation from mainstream media (i.e. who the people in r/WallStreetBets are), who are behind the Robinhood trade restrictions, and the massive response to the whole situation. It also doesn’t hold back on opinions from the retail investor’s perspective.
NOTE: The following is based on the transcript of the video, which I decided to use here as it describes the situation better than I can write on my own since I’m not a financial writer.
What is a Short?
Wall Street operates a web of complex financial strategies to turn a profit at the expense of average Americans. One of those methods is short selling. Here’s the basic gist of it:
- Find a struggling company in the stock market.
- Borrow shares of that company from a lender.
- Sell shares with the promise to buy them back later.
- Wait for that company’s share price to fall.
- Buy back shares at a cheaper price.
- Return shares to the lender and pocket the difference.
- Ideal Scenario: Company dies soon after Step 3 so you don’t have to buy back the shares since they’d be worthless.
The main problem here is that short selling can also drastically reduce a company’s stock price by creating downward pressure as a result of leverage.
The Shorting of GameStop
Wall Street hedge funds identify targets for short selling every single day. One such target was GameStop—the struggling video game retailer that was on the ropes due to the pandemic and practically obsolete business models, but is not dead yet.
Wall Street wanted them to die, so they placed massive short positions against the stock, causing it to fall and fall and fall, and doubling down again and again and again, hoping that it would go under—or “zero out.”
To be clear, zeroing out a company is the best case scenario for a short seller on Wall Street because it means the company dies. You literally just don’t have to buy back those borrowed shares because they are worthless.
GameStop has over 14,000 employees, even after drastic layoffs in 2020. This effectively means that hedge funds were taking a position to deliberately push the share price down and hopefully feast on its carcass.
WallStreetBets
Enter WallStreetBets, a subreddit based around YOLO stock plays and memes. It’s not a shadow cabal of elite hedge fund executives, but mostly regular people having fun online. It’s like 4chan’s /biz/ boards, but with a lot less crypto and alt-right garbage.
In the coming days and weeks, you will be seeing coordinated media attacks against this board and all others like it by describing them as “alt-right” and “incels.” You will probably hear the word “Gamergate” or “nihilist” or “Nazi.” Do not listen to them.
This is simply a group of people who joke about and invest in various stocks, that’s all. The community has exploded since then, bringing in all sorts of new people, but they were just retail investors who were communicating and having fun when all of this began.
They identified Gamestop as being massively over-shorted—it was one of the most shorted stocks in Wall Street history, in fact—making it ripe for a short squeeze. That means buying lots of that stock to raise its price, which forces all those hedge funds with borrowed shares to buy them back. The resulting chain reaction drives up the price further as a result of those circumstances.
For months, they bought what they could. It was then catalyzed by a positive announcement from GameStop about a new board member that everyone was very enthusiastic for, as well as some promising new strategies in 2021.
The price finally took off, thus the beginning of financial history as the stock price went from being a beleaguered value to hundreds of dollars.
Melvin Capital
It’s highly probable there’d been so much short selling that these hedge funds couldn’t cover their position. If they could buy them back, it was costing them billions of dollars.
The first casualty was Melvin Capital, whose short position was so brutalized when the price was in the 60s that they ended up needing a cash infusion of $2.8 billion just to stay alive. That cash infusion came from two other financial giants—Point72 and Citadel. That’s where things got really bad.
It all happened early in the process—22 January 2021, to be exact. This milestone helped catapult the online retail investor movement into a global spotlight.
Response to the Historic Short Squeeze
A Storm is Brewing
People are searching for a cause right now—us vs. them, left vs. right, retail vs. Wall Street— and the idea of hedge fund billionaires losing everything when the financial abuse that they’ve been delivering to the American people for decades is only ever met with government bailouts and never consequences.
It became extremely appealing for what started as a savvy financial play became something so much more. This was about the retail investors—who are discriminated, degraded, despised, and ridiculed by hedge funds and brokers—versus Wall Street themselves who rigged the game, financially abused the populace and got away with it each and every day.
The Tipping Point
This wave of interest in GameStop and other stock tickers was a veritable tsunami, not just domestically, but also globally. People all around the world started to buy and hold with the express intention of making Wall Street bleed for decades of malfeasance and their history of crashing the economy—ruining lives while getting bailed out with taxpayer dollars.
This Yahoo! Finance interview features Louis Rossmann, Apple repair expert and major figure in the Right To Repair consumer technology movement. It turns out he was also a frequent user on WallStreetBets, which seems to make sense since he’s an entrepreneur based in New York City.
He says it best that most people who started buying GameStop stock were looking to make money during a time of mass unemployment, when ordinary people have eight extra hours a day to read up on this stuff. It does look like such a phenomenon could’ve only happened during a global pandemic that has lasted for a year and counting.
But what followed was what truly transitioned it from people following a proven formula to class warfare against the white collar criminal class.
Snowball Effect
The following week, beginning 25 January, things got even worse. The buying pressure was so immense, it began to spill over to other short-sold tickers—AMC, Blackberry, Bed Bath and Beyond, Nokia, the list goes on.
There are many out there even now who proclaim these as psychological attacks from the institutions against the collective buying power that was focused primarily in the beginning on GameStop by way of distraction.
Buying pressure mounted and stocks rose by multitudes of times their previous value in a single day. If a hedge fund needed to be bailed out after the price hit 60, what did we think was going to happen when the price hit 400? As of this writing, it’s holding at above $300.
The support for this endeavor in online communities absolutely exploded. Millions of users have joined message boards and forums to be a part of what’s going on.
Media and Wall Street Response
This is where the media and the hedge funds that were under fire began retaliating. The list of their responses will only grow from here, but already includes price manipulation after hours.
When most retail investors aren’t allowed to trade the stock, the hedge funds short sell back and forth between each other to drive the price lower and lower without an abundance of volume and scare their enemies into submission.
It also includes articles written—some of them already forced to retract—about WallStreetBets having connections to the alt-right because what started as a simple financial play driven by gamers, memers, and Reddit users has become all-out information and financial warfare. That’s not hyperbole.
The Brief Disappearance of r/WallStreetBets
Apparently, due to the influx of new users, the WallStreetBets subreddit was made private by its own moderators, but only for less than an hour.
They left a message stating, “We are experiencing technical difficulties based on unprecedented scale as a result of the newfound interest in WallStreetBets. We are unable to ensure Reddit’s content policy and the WSB rules are enforceable without a technology platform that can support automation of this enforcement. WallStreetBets will be back.”
Plenty of speculation surrounds that momentary disappearing act. Some speculate pressure from Reddit administration, while others bring up bots and malicious attacks aimed to violate Reddit’s terms of service in an effort to have the subreddit be wiped from existence on the platform.
Deletion and Return of WallStreetBets Discord Server
One of the first and biggest retaliations occurred against the WallStreetBets Discord server. It was a large and growing server with so many users that there were likely bad apples among them. One user circumvented the moderation bots using special characters to type a racial slur. That was used as a reason to nuke the entire server.
The nuking was likely an effort to shut down the communication channels of a financial enemy, executed by powerful institutions. After Discord faced massive backlash for this action from every conceivable angle, Discord reopened the WallStreetBets server and are aiding them in the moderation effort.
That should have been the approach they should’ve taken instead of banning a server with hundreds of thousands of members. The collective voices have grown so large and amplified that they are becoming impossible to ignore.
Robinhood Halting Buys of $GME, $AMC, etc.
Next, brokers began to limit certain functions in retail investor accounts. They began to systematically restrict the trading process and even experienced perfectly coordinated trading outages right as the prices of multiple tickers began to skyrocket on Wednesday, 27 January.
On Thursday, 28 January, the biggest attack yet was launched. Robinhood, followed by other brokers such as Webull, shut down the purchasing options for GameStop ($GME), AMC Theaters ($AMC), and other stock tickers on their respective apps. They would let users sell these stocks, but not buy them.
Robinhood had been the primary app used for these trades. As the name suggests, the app markets itself as a way for retail investors to make trades in the stock market in a way that’s simple and easy to understand. However, by implementing that restriction, they showed their true colors—that they don’t exist for the people, but for Wall Street.
This was the nuclear attack, and everyone around the world can see them for what they truly are. But the problem with internet psychology is that telling people they can’t do something will only make them want to do it more.
This is where for many people, it stopped being about the money and truly became class warfare waged in the only way and through the only medium that they could find when a system is entirely rigged against them.
Citadel
Remember Citadel, one of the companies that bailed out Melvin Capital? It’s effectively the puppeteer behind Robinhood, the app that many retail investors were using to execute this very push. The mechanism for this is called Payment For Order Flow (PFOF).
PFOF is a tiny fraction of the income for some brokers, but it’s the lifeblood of Robinhood. Their no-fees model relies on the PFOF method, and it gets routed through Citadel, who has a vested interest in stopping the people from making money on $GME.
Citadel bailed out the very firm that had heavily shorted $GME. That ignores the fact that PFOF is quite literally the act of selling trade data to firms before it gets to users, basically allowing them to cheat the system and screw over retailers every single day. It was basically a peasant activity tracker.
Damage Control
The app got bombed with 1-star reviews by angry users after the restriction was implemented. Google then removed at least 100,000 negative reviews on the Google Play app store.
That’s curious since Google’s corporate code of conduct used to have the famous line “Don’t be evil” since 2000. They removed it in 2018 with an updated version that doesn’t explicitly mention the line. It seems like they can’t go on without compromising, and this proves it.
Before you go, “That’s because it’s review-bombing, so they have the right to remove any sort of trolling from their platform,” take note that most of those negative reviews come from retail investors who were locked out of buying those stocks. That’s a legit reason to write negative reviews since the company was absolutely going back on their word regarding what the app is all about. Hell, it’s in the name of the app itself.
The final nail in the coffin for Robinhood was likely how the CEO answered the questions regarding the company’s decision to restrict trades.
Robinhood issued a statement about how this is for your own good, how this is just a result of market volatility and not because of a market maker—Citadel—told them to. They’re not Robin Hood; they’re the Sheriff of Nottingham working for their Prince John, which is Wall Street.
Subsequent Reactions
Making Things Worse
This cascaded to other brokers as well with further restrictions, outlined once and for all that the game is being played and managed by criminals. This reality was made so glaringly obvious, it can no longer be ignored. Not only was buying halted, but rumors that Robinhood was enacting forced closure of open GameStop positions for certain users on their platform depending on size were swirling.
They locked the populace out of the platform and then off-loaded large volume holders wallets right into the lowest price point that day. This caused them to lose hundreds of thousands of dollars, right during the time that the market was only accessible to hedge funds and other Wall Street institutions.
Robinhood on Life Support
Immediately, a class action lawsuit was filed. An app for signing onto Robinhood more easily was created because they’re contending with half of the whole internet at this point. Users then began the exodus from Robinhood servers because the company’s position had been made brutally clear. They stand for the profit of Wall Street. They will deliberately and maliciously attack their own user base when the hedge funds are threatened.
One small shred of justice here—it has been discovered that within hours of this decision, Robinhood was drawing on lines of credit from banks to stabilize their financial position. One can only hope that they experience the full extent of consequences for their actions.
Government and Celebrity Response
Rumors continued to swirl that Sequoia Capital, the White House, and other financial institutions exerted pressure on brokers to close trading for certain stock tickers and allow them to exit the positions that, should they be trapped in, would bankrupt them completely like they deserve. We have even arrived at the point where there’s bipartisan support behind the cause.
When you as a corrupt financial parasite land so far on the wrong side of this battle that AOC, Ted Cruz, and Donald Trump Jr. all agree, then we might have finally pushed the system to such a precarious extreme and change might actually occur. There are bipartisan calls for Robinhood and other brokers to be investigated, lawsuits opened, letters to the Department of Justice from attorney generals, and the list goes on.
A growing pool of celebrity personalities and politicians are lending their voices as well because even if some of them do not believe in this cause—even if they do this purely for the accolades and reverence it might bring from the masses—the battle lines have been drawn so deep that it’s not clear how this dissipates without actual consequences.
Led by the likes of Elon Musk, David Portnoy, Chamath Palihapitiya, Mark Cuban, and many more, this is only just beginning to grow.
Launching Dogecoin to Mars
Aside from stocks, WallStreetBets and other online communities have taken this concerted effort to the realm of cryptocurrency. But in this case, it’s not Bitcoin or even Ethereum, but Dogecoin—an altcoin created during the peak of the eponymous meme as a sort of joke.
By pumping up Dogecoin, we see how much power that people can exert on the financial world if there’s cooperation behind a common goal, facilitated almost solely through online communication. They chose the meme coin, of course. It only makes it funnier and more poignant. Everyone’s getting FOMO for DOGE.
And they will HODL until they land on the MOON. Or even MARS.
Conclusion
We’ll see in the coming days whether this situation concludes with deregulation becoming passe. The legacies of Ayn Rand, Alan Greenspan, Ronald Reagan, and other champions of deregulation and laissez-faire capitalism culminated in the 2008 recession, the widening wealth gap, and the dystopian economic landscape of today where the great majority of people my age have no hope of owning homes and gaining financial stability, even when they work hard and do everything right simply because they weren’t born in the right social strata.
Hopefully, good change can finally take place, not just in America, but for the rest of the world as well. May the waves of this event reverberate globally well enough to finally fix what was long broken and give future generations more hope than ours had. We don’t just need to wake up, but educate ourselves as well.
Or Wall Street can just show us our place by beating us with experience, then make a concerted effort for the next few years to make sure this never happens again. They can no longer rely on ignorance to keep the kids from the cookie jar.
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