Here is the history of American desire. First we wanted to be free. Then we wanted to be rich. Then we wanted to be famous. And now we want power.
All of that was on display in last week’s GameStop stock market drama. The internet gang of traders who drove the price of GameStop into the stratosphere — with no underlying reason — certainly got rich. They inadvertently got famous. But mostly, for a moment, they held the power.
Power to stick it to short-selling hedge funds. Power to watch those funds go down. Power to be on equal footing with those they perceived to have rigged the game.
And it is a game. Make no mistake. None of what happened last week had anything to do with the real value of GameStop as a company.
So before we vent our righteous anger at one side or another — and there was plenty of venting last week, even by people who had no idea what was going on — let’s understand what happened.
First of all, the company. GameStop. Back in the 1980s it was called Babbage’s, a single store in Dallas selling mostly Atari video games. Babbage’s grew and expanded and went public a few years later. It merged with another company, then was purchased by Barnes & Noble, then was renamed and morphed into another company and eventually became GameStop, an independently traded entity.
It set up retail stores all over the globe. You see them everywhere at shopping malls. Red and white letters? Lots of video games? Recently, GameStop had over 5,000 outlets.
All of that is normal growth for a successful company.
What happened last week was not.
Sticking it to the man
To understand last week’s mayhem, think of the way people bet on football games. Some bet on a team to win. That makes sense.
But others bet on something called the “over-under.” This is how many total points will be scored in the game. Say the number is 50. Bet the over, you bet the teams will score more than 50 points combined. Bet the under, you’re hoping they’ll score fewer.
These bets have nothing to do with the purpose of the football game, which is to win. Over-under bettors don’t care who wins. They just want a number.
This is a lot like short-selling in the stock market. Average people invest in a stock hoping it will go up. They want it to do well. But there’s this shadow world of betting on stock futures — done largely by hedge funds — who only care about a number. And short-selling, which is betting that the price will go down, want the number heading south.
Enter the gang of reddit.com traders who called themselves WallStreetBets. They used the power of their group’s population, millions of them, to drive the price of GameStop up, up, and away — as much as a 1,700% jump in less than a week. Because there were so many of them all pulling together, no single one had to invest too much money. The Wall Street Journal likened them to “an immense school of fish flashing in unison.”
This not only made them quick profits (if they got in low enough) but it cost the short-selling hedge funds dearly. Their bets blew up. They had to buy back the stock to keep their losses from escalating, which only made the stock price go higher and cause even greater damage to other short-sellers. Those funds lost billions. Billions. With a “B.”
You might think this was all about profit. But interviews with some of the WallStreetBets folks revealed a David and Goliath narrative. Many just wanted to show they could upend the institutional giants. Online, they urged one another not to sell, “to hold the line,” like French revolutionaries on the barricades in “Les Misérables.”
Messages on reddit abounded with cheers of “sticking it to the man.” One investor posted a passionate letter calling certain hedge funds “everything that I hated” during the financial crisis in 2008 and gushed, “We have a once in a lifetime opportunity to punish the sort of people who caused so much pain.”
All this through GameStop? You almost expected to look out the window and see a mob waving PlayStations and screaming “Viva la revolution!”
Stealing from the rich, giving to the poor?
But power is a currency now, and the more one group asserts it, the more another wants it. So it shouldn’t surprise anyone that once WallStreetBets seized control, another party tried to seize it back.
This is where Robinhood came in. Robinhood is an online brokerage service that many small-time investors use — including folks in the WallStreetBets group — partly because it doesn’t charge for transactions.
On Thursday, Robinhood shut down trading on GameStop and similar stocks. Critics saw this as Robinhood being in cahoots with the hedge fund suits. This enraged the small-time investors — rightfully so — and had lawmakers from both sides of the aisle screaming foul. The truth is more complicated than that (has to do with collateral and intermediaries, but let’s skip that for now). Eventually Robinhood relented, and allowed some trading to continue. But the damage, and the image tarnish, had been done.
So. Now that we understand this crazy event, what is the fallout? Who are the injured parties? It’s hard for hedge funds to cry foul, since this is the world they live in, even though critics should acknowledge that hedge funds can’t legally collude the way individual investors on reddit can.
What about the reddit investors? Are they heroes? For what? Making a quick fortune while doing nothing? In driving the markets crazy, they also roiled other people’s investments, 401(k) plans and retirement funds. Average folks like themselves. And invariably, many in the reddit gang will lose money, because a stock that is worth around $30 a share can’t stay at $350 for long.
As for lawmakers screaming about the poisonous influence of big money? Well. That’s too ironic even for these cynical times.
The fact is, everyone wants to be in control — or at least in control of their own destiny. The events of 2020, from COVID-19 to George Floyd to the presidential election, left many Americans feeling they had no control at all. They felt powerless. Shut down. Locked in.
Some took to the streets. Some took to rallies. And some now have taken to the financial markets. To me, these are all branches of the same tree.
No one wants to feel under someone else’s thumb. Fame is a way to escape that. Money lets you buy your way out. Power, of course, is the ultimate weapon.
But all of it is rooted in a desire to be free. Free of oppression. Free of class or category. Free to be equal in all opportunities. Which brings us back to how America started.
Unfortunately, as our forefathers quickly learned, everyone being free and equal requires everyone to respect one another, and to avoid domination in any form. Otherwise, you’re just trading bad guys.
So the hedge fund crowd learned a humbling lesson last week. But anyone inspired by the reddit rebels’ riches might remember the words of a few sage old men:
“When life looks like easy street, there is danger at your door.”
That’s not some banker. That’s the Grateful Dead. Viva la revolution, indeed.
Contact Mitch Albom: malbom@freepress.com. Check out the latest updates with his charities, books and events at MitchAlbom.com. Download “The Sports Reporters” podcast each Monday and Thursday on-demand through Apple Podcasts, Google Play, Spotify and more. Follow him on Twitter @mitchalbom.
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