GameStop isn’t exactly Fortune 500 material, so how did its stock manage to join the ranks of some of the nation’s most successful corporations, including Google, Tesla and Amazon?
Between Jan. 25 and Jan. 27, GameStop’s stock soared in value, seemingly out of nowhere. On closer inspection, the anomaly turned out to be a coordinated effort by users on the social news site Reddit to short squeeze GameStop’s stocks.
GameStop is one of the most popular shorted stocks on Wall Street. A short is a method Wall Street investors use to make money off of low-value stocks. Investors borrow certain stocks and if the stock falls in value as they predict, they can buy it at a lower price and keep the difference. It’s almost like stock gambling.
So, what is a short squeeze? The simple explanation is when a heavily shorted stock, like GameStop, rises in value instead of falls. Investors consequently lose their money that they bet on the stock.
GameStop’s stock surge, otherwise known as “GameStop Gate,” came as a shock to some, especially the affected investors. But as outrageous as the situation is, the Reddit users who organized the stunt didn’t break any laws.
So, why are brokerages like Robinhood trying to stop individuals from purchasing GameStop stock if it is their right, protected by law, to do so? The attempt to shield billionaire investors from the consequences of their own actions by suppressing small, everyday investors is a blatant and shameless act of market manipulation.
Rep. Alexandria Ocasio-Cortez, Sen. Ted Cruz and Tesla CEO Elon Musk all agree. Yes, you read correctly –– they agree, barring small investors from purchasing stocks is wrong. GameStop Gate only brought to light what has been the reality in the U.S. for a long time: the stock market is a scam.
There is outrage among hedge fund investors and managers over the GameStop surge. Hedge fund Melvin Capital Management lost 53% in January as a result of the surge. Many affiliated with the affected hedge funds have expressed their anger over the situation, claiming the Reddit-organized stunt cost them billions. Trading app Robinhood went as far as to remove GameStop from the app to slow the surge in a blatant attempt to protect the interests of the rich.
The U.S. is facing the worst economic downturn since the Great Depression. In the richest country in the world, 1 in 4 families have faced food insecurity this year. While hedge fund managers rake in billions, the nation’s poverty rate is 12.2% with North Carolina standing at 13.6% and Watauga County at a staggering 23.3%. While American billionaires gained nearly $1 trillion as a result of the pandemic, unemployment rates for low-wage workers have yet to recover to half the rate they were pre-COVID. Billionaires added on average 57% to their net worth between March and December 2020 while American families struggle to put food on the table. Most notably, Tesla CEO Elon Musk’s net worth rose a shocking 524%.
Yes, billionaires lost some money because of the GameStop surge, but they will still be exponentially richer than the overwhelming majority of Americans. One Twitter user joked, “I know this GameStop stuff is funny, but you have to remember this is hurting real people who own multiple boats.”
The pushback from finance billionaires is laughable. Hedge fund manager Leon Cooperman slammed GameStop investors in a CNBC interview calling them “losers.” It is incredibly hypocritical for hedge fund executives like Cooperman to criticize Reddit users’ game-like treatment of the market when Wall Street investors like himself gamble with working Americans’ livelihoods everyday. Cooperman’s criticism of small investors for using the same means he used to make his fortune demonstrates his and other billionaires’ outstanding lack of self-awareness.
GameStop Gate may have begun as a meme, but it now represents the disconnect between Wall Street and the American people. Hedge funds continuously attempt to suppress the actions of ordinary Americans whose tax dollars pay for their corporate bailouts. Wall Street only supports a free market if it means the rich keep getting richer. The GameStop surge is an example of regular people exercising their right to participate in a so-called “free market” that obviously favors the wealthy. The situation represents a long-standing truth in America: rules are meant for the rich to break and to keep the poor in their place.