How the GameStop Crisis Will End

A GameStop store in New York City, Jan. 27, 2021 [AFP/Michael M. Santiago]

By Sarah Leonard

The breathless story of this week has been about GameStop, the ubiquitous suburban mall standby that was always out of the video game you wanted. But the real story has been missed by lots of commentators.

Here’s the quick rundown: hedge funds bet against GameStop assuming — for good reasons — that its stock price was headed for the gutter. A bunch of Redditors on r/wallstreetbets decided otherwise. They bet on GameStop, AMC and a few other weak companies and encouraged others to do the same. The result was a runaway increase in these stock prices, dazzling market watchers with the power of collective action and infuriating hedge funds. Those funds then had to buy the stock they had shorted to cover their losses, resulting in what’s called a “short squeeze.”

It was, briefly, delightful to watch Wall Street being thrown into chaos by the little guy. Some even cited Karl Marx, who played the market himself and joked to a friend that “it’s worthwhile running some risk in order to relieve the enemy of his money.”

But in the end, the game is rigged for the rich. Private equity firms that were AMC’s creditors have been the biggest beneficiaries. Robinhood, the trading platform widely used by small individual investors, quickly slowed trading on the controversial stocks, effectively protecting hedge funds’ bets and preventing small investors from taking advantage of the boom. Congresswoman Rashida Tlaib condemned the move, arguing that if hedge funds have been allowed to warp the markets for their own gain, the average investor should be allowed to as well. The chasm between the fanciful fluctuations of the stock market and the real economy of goods and services has never been clearer.

In the end, gambling on the boom and bust of the market is not a game designed for you and me. A few Redditors who get out in time and some big private equity firms will make bank, but most people’s investments will go bust when the stock inevitably crashes. This is hardly a win for collective action. I’ll be following writer Malcolm Harris: “Logging off for a day,” he tweeted, “because I can't watch working people facing wage stagnation get suckered into day trading.”

---

You might also enjoy