Occupy Wall Street 2.0

If you have been anywhere near market news last week, you could not have missed the stunning saga of GameStop. This heavily indebted chain of over 5,500 game stores in the United States, Canada, Australia, New Zealand, and Europe was valued at $1.2 billion on January 4. A lot of hedge funds were short on the stock, betting that the business would get worse, the stock price will fall and they would buy it back cheaper. And then, suddenly, a horde of “investors” banded together under a Reddit sub-group called wallstreetbets, and descended like fearless marauding Mongols to scoop up GameStop shares.

The collective buying was so volcanic that it ignited a history-making short squeeze as short-sellers scrambled to buy back the stock they had shorted to cover their humungous losses. GameStop shares rocketed 20 times in just a few weeks, and suddenly a renegade group of individual investors became the hot topic of conversations and primetime coverage, drawing comment from politicians, institutional investors, regulators, and businessmen. The smart hedge funds seem to have lost $7 billion (as of now, and the game is not yet over).

Wall Street elites are shocked. When I say “elites”, I mean the same storied mutual funds that present themselves as expert stock pickers and attract trillions of dollars, but cannot beat the market; the high-frequency trading (HFT) shops, which are allowed to front-run others and which would otherwise be illegal; the billion-dollar hedge funds that claim special insights but make their money primarily through insider trading. Some people have invoked visions of the French Revolution, a bunch of renegade retail traders bringing the mighty traders of Wall Street quivering to their knees. The entitled elites are disturbed. They are using their pet media outlets to complain about market manipulation by a bunch of dopamine-driven youths, staking their $1,200 stimulus cheques and $600 unemployment supplements as gambling chips on free brokerage apps, such as Robinhood. The apps have incorporated all the bells, whistles, cues, and triggers of video games designed to encourage trading addiction among a new bunch of stock-trading kids. Turbo-charged by margin accounts and social media tribalism, these traders seem to be parlaying their easy winnings in a roaring bull market into even bigger bets, high and heroic on their newly minted philosophy of YOLO (you only lose once). As a result, stocks of other bankrupt or comatose companies too have been sent skywards, unhinged from fundamentals.

How should one view this phenomenon? Many sober heads see this as a systemic failure, day trading gone rogue, or market manipulation in a different avatar. Others see it as Occupy Wall Street 2.0, a continuation of the same anger against the establishment, after the global financial crash that drew ordinary citizens in September 2011 to Zuccotti Park, in New York City’s Wall Street financial district. They were protesting against social and economic inequality, greed, corruption, and the influence of lobbyists and corporations on policymaking, especially in the financial sector. The OWS slogan said it all — “We are the 99%” — reminding us of the divide between the wealthiest 1 per cent and the rest of the population. Two months later, the protesters were forced out of Zuccotti Park. The protest ended but the anger didn’t.

The anger could have led to changes. But no one would listen. Not only did no US banker or investment banker go to jail despite passing off billions of dollars of toxic parcels as investment products, after causing the global financial crisis they walked off with their bonuses, while corruption, lobbying, and shady deal-making allowed banks to be bailed out without any consequences. Regulators and policymakers who failed to regulate went out of the revolving door and became consultants to the same bankers and investment bankers, after retirement. The anger against “generational injustice” only increased, even as high-frequency trading firms continued to vacuum up super smart physicists and mathematicians to make even more money at faster trading speeds, instead of these brilliant minds solving real-life problems.

The GameStop saga has opened up a new frontier of anger against the financial elites. It is Occupy 2.0 with a big difference. It is not a physical protest that is hard to sustain. It is not an outside force. The little guys have played the same game as the giants, and beat them. Sure, big-momentum players joined in once GameStop came into play, and have made much more money. Sure, there are many aspects to it that are not healthy. But there is absolutely no doubt that Wall Street has brought this on itself. Those who are shaking their heads at the irrationality miss the fact that an app (Robinhood) named after a man who robbed the rich to help the poor, and has marketed itself as born out of “Occupy Wall Street”, has turned its customers into products; the app is selling their trading data to broking firms like Citadel Securities, which would front-run them! And they miss that the founder of the Citadel hedge fund recently bought the most expensive home in the US — the ultimate perversion of the Robinhood idea.

They miss the fact that 20 years ago Warren Buffet calculated that Wall Street, which adds very little value to the society, needed $100 billion a year to pay for its upkeep — the money that came from the rest of the population. They ignore that the big guys have been stacking the decks in their favour for decades, that regulatory capture is a byword for US financial capitalism. Hence, you cannot miss the delicious irony that a bunch of little guys using a game-like trading app to buy a stock called GameStop, have inflicted billions of dollars of losses on those who have so far got away by gaming the system. Game on.

The writer is the editor of www.moneylife.in | Twitter: @Moneylifers