The forces driving the GameStop rebellion
“Stop the steal!” Trumpist insurgents shouted as they rampaged through the US Capitol on Jan. 6, referring to what they falsely claimed was a rigged election.
Three weeks later, a different and non-violent crowd went on a different rampage, this one tearing through Wall Street, borrowing the slogan to defend their right to flex their muscle in the stock market. They had already sent the markets reeling and caught the attention of government watchdogs at the highest levels, after they sent the prices of distressed companies shooting into the stratosphere. It was a move that, not coincidentally, was reminiscent of other anti-establishment rebellions popping up across the world.
You may not find much in common between what happened in Washington and what transpired this week on Wall Street, or in other seemingly unrelated raucous protests overseas, but if you look closely, there is a common thread, a common set of forces at play, and a not-so-hidden warning.
Few people had heard about GameStop before this week, much less about GameStop stock, GME. But two groups had: The members of an online forum on the social media platform Reddit and Wall Street financiers, who had bet heavily on the failure of the company. In the past few days, the two clashed in what amounted to financial warfare. The online youngsters headbutted the traders, drawing financial blood in the process. It was a sight to behold!
The forces fueling the emotions and the mechanics of the clash are not unlike what we’ve seen in other confrontations in recent months. Social media as the organizing environment; a sense of frustration against the establishment; a belief that some sort of injustice is benefitting the powerful, and a newfound source of strength, a way to attack, to inflict fear and pain on those viewed as responsible, or at least benefitting from that injustice. The difference, of course, was that what the Capitol rioters did was break the law and what the Redditers did on Wall Street appeared to be perfectly legal.
What better way to get even, they might have thought, than to stick it to the very rich, to the Wall Street elite, no less. The moment had echoes of Occupy Wall Street, but this was a different generation, a different time, and very different tactics.
Members of the Reddit page WallStreetBets decided to go after short sellers, traders who believe a stock price is going to fall badly. Short sellers borrow stock and sell it, expecting that the stock will drop, perhaps the company will go out of business. Their plan is to buy the stock much more cheaply than they sold it in order to return the stock they borrowed, and in the process make a profit. But if the price goes up instead of down, suddenly they have to pay a lot more than they received when they sold the borrowed stock. The cost to short sellers in a so-called short squeeze can be catastrophic.
So, Reddit traders set out to boost the stock of GameStop, a struggling video game retailer. When the stock started climbing, other buyers jumped on board. Then short sellers were forced to buy to repay their loan. It was a dizzying process. The stock exploded, up more than 1,200%.
The game extended to other companies, including Nokia, AME and Blockbuster, creating and destroying fortunes, putting hedge funds against the wall, triggering alarms in Washington and Wall Street. The question came up in the White House press briefing, where President Joe Biden’s press secretary confirmed the White House is “monitoring” the situation.
Some online trading platforms crashed; trading was halted due to the huge swings. When the app Robinhood announced it would stop trading the targeted stocks, someone quickly filed a lawsuit accusing it of market manipulation. Robinhood later changed its stance. Adding to the drama, Rep. Alexandria Ocasio-Cortez had called for an investigation of Robinhood’s move. When Republican Sen. Ted Cruz replied “fully agree” with AOC, she blasted him, accusing him of “trying to get me killed,” on Jan. 6. “You can sit this one out,” she advised about the trading turmoil.
Of course, the events in Washington and on Wall Street are very different, but a number of similarities suggest we will see more anti-establishment developments erupt where and when we least expect it. And the suddenness of the events, along with the damage it can inflict — as we already saw on Capitol Hill, on Wall Street, and in other places including, for example, nearly a dozen cities in the Netherlands recently — could be startling.
In the case of the violent insurrection, the coup attempt of Jan. 6, the fact that a single charismatic figure, the outgoing president, stoked the emotions and directed his followers into the focus of their attack, turned the anger of the multitudes organized mostly through social media into a very specific and uniquely destructive conflagration.
It’s a reminder that free-floating anger and a restlessness to become empowered, to exact revenge, and to right a perceived wrong, can turn explosive under the sway of charismatic demagogues. Without such leadership, movements can erupt and shake things up, but they become truly dangerous when a leader emerges.
In the Wall Street confrontation, Elon Musk threw some logs in the bonfire, but he was not the leader. The Reddit traders broke no glass; they didn’t kill anyone. But there was plenty of metaphoric and very real financial carnage.
The financial system was shaken, and deeply troubled. The markets, which had preoccupied many observers by climbing relentlessly despite the pandemic recession, suddenly looked vulnerable to the unpredictable behavior of mostly anonymous players. And “players” seemed like the right word. The Reddit crowd, and the people who followed their lead, seemed to be pulling a prank, but it was one with potentially dire consequences. If a Reddit forum can create and destroy billions of dollars, how much can we trust the markets, financial engines of the US economy? And if the players could disrupt US markets, what could they do to smaller ones around the world? How much should we worry about the global economy, already battered by a once-in-a-century pandemic?
From Capitol Hill to Wall Street, from the Netherlands to Germany, the people are restless, social media is open, and institutions are vulnerable. Economic inequality, pandemic frustration, and a sense of uncertainty have brought us to what feels like a hinge in history. The challenge for responsible leaders feels as crucial as it has at any time in living memory.
