GameStop takes on Big Finance, with predictable results
If you haven’t heard about GameStop recently then you probably don’t have social media, and I respect you. However, something quite strange is happening in the stock market right now, and I’d like to reflect on this briefly.
Basically, a bunch of internet trolls have decided to fight hedge fund capital on their own terms. In the past most hedge funds have manipulated markets for their own interests, and then when things go wrong (think 2008) they weep and want to get bailed out. Usually, governments acquiesce because these sources of capital are “too big to fail”. These hedge funds are usually the loudest voices when it comes to deregulation and free movement of capital. They don’t want to be told what to do, they just want to make money. In 2007/08 we got a taste of what happens when we leave big capital to its own devices, but it seems we have not learnt our lesson. However, this time, it’s the hedge funds who have got shafted, and its mostly hilarious.
There are two basic ways you can “bet” on a stock. You can go “long”, which is where you buy the stock, and hope that over time its price will go up and you will make money. Easy.
Alternatively, if you think a stock is on its way down, you can go “short”. Going short entails selling the stock before you own it. Essentially, you sell the stock at its current price, hoping that it will decrease in value, and then buy it back at the lower price, pocketing the difference. If, however, the price of the stock goes up, your downside is massive, as the price of the stock could continue ticking up.
Enter Melvin Capital and Citron, two hedge funds. Both of these had shorted GameStop, believing that the company could not compete in an increasingly digital world.
The lads over at r/wallstreetbets got wind of this, however, and decided to say fuck you to big capital. In probably the only wholesome moment of 2021, retail investors rushed to buy GameStop stock in unprecedented numbers. Four months ago, GameStop was trading at $6 a share, it is now worth upwards of $300. Overall, those who had short positions open on GameStop have incurred losses of $5 billion this year so far. $1.6 billion of that took place last Friday alone. In essence big capital has lost a lot of money.
So, what has been their response to this devastating loss of revenue? You guessed it: they want legal and regulatory repercussions. The same people who sold sweetened shit to one another in the form of sub-prime derivative traded mortgages in 2007 (which led to massive unemployment and a global financial crisis) now want regulatory bodies to intervene on their behalf because they now find themselves getting screwed over? I can’t help but laugh.