People who had never shown an interest in the stock markets were suddenly gripped by the movements of some obscure shares last week. The GameStop saga, as it is now known, caused a media circus, drawing in America’s most high-profile politicians, infuriated hedge funders and most crucially: normal people. It is now even going to be made into a Netflix movie.
A simple version of the events goes as follows: retail investors (“ordinary people”) organised on platforms such as Reddit and Facebook to pour money into a number of stocks, most prominently American video game retail chain GameStop but also Nokia, ARM, BlackBerry and others. Members of these groups had gotten wind that hedge funds had shorted these stocks—i.e. bet on their prices falling. This practice has been widely critiqued in the past not only for the high likelihood of loss, but for its possible disastrous impact on the companies involved.
Driven by at-home traders like Keith Jill, thousands of “ordinary people” used finance platforms such as the trading app Robinhood to drive up GameStop’s share price by more than 1,700 per cent. Many of these people were Gen Z men and completely new to trading. Their goal: to not only make money for themselves, but also, for many, to attack billion-dollar hedge funds such as Citron and Melvin Capital who had been shorting these stocks. For some, this was about “undermining Wall Street” more than anything.
As a result, hedge funds lost billions—estimates vary from $5bn to $70bn—because they were “squeezed out” by the collective of retail investors. The volume of people buying GameStop shares caused the price to rise even further as institutional funds were forced to buy in, too, covering their short-positions. Online platforms stepped in. Robinhood (temporarily) suspended trading of the most volatile stocks; some Facebook, Reddit and Discord groups were censored, made private or shut down.
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Economists may interpret this episode—which might repeat itself in the future if regulators do not step in—as one of market failure (though, what hedge funds do in essence is distort the market; what happened here is that a collective of retail investors came together to “distort” it in the opposite way). But there is another side to it too: the “small man’s” rebellion against the power of platforms enabled and disabled by technology.
A post on Reddit, which received supportive 16,000 upvotes within a day, put the underlying feeling this way: “Wall Street Bets Taught us That IF WE TRUST EACH OTHER AND ACT AS PARTNERS, WE CAN MOVE MOUNTAINS… How can we create a sense of community with one another?”
Reddit, and to an extent Facebook and multimedia messaging app Discord, served as community building hubs. Users came together and organised globally, virtually, across borders and with converging aims: to make some quick money and “stick it to the man.” (This decentralised, disruptive, and democratic vision of public life was, after all, central to the founding ethos of much of early Silicon Valley.) Once inspired, the so-called “mob” found a most powerful, new tool: Robinhood, an easily accessible online trading platform. The app enabled a quick attack on financiers. For once, it looked like the “plebians” could win a financial war against the “experts.” Markets could—with the help of glitzy new tech tools—be manipulated in anyone’s favour, really.
On Saturday, I listened to an online discussion on the saga, mostly populated by Americans. The hosts affirmed that “we can’t attack rich people in real life, but this is the way we interact now, via the financial markets… Normal people are starting to fight back.” This was “Occupy Wall Street (with teeth)”—an attack on powerful financiers by ordinary people with immediate and concrete consequences, instead of lengthy occupations of space that changed very little in policy after all.
But while some platforms had initially helped to mediate a fast win for retail investors, the very same platforms soon snapped back. They temporarily banned and suspended groups and users. Suddenly, the most important tool in the hands of “ordinary people” was taken away from them. At one point, Robinhood heavily restricted the trading of up to 50 stocks in the likes of Gamestop (of which users can still only buy a maximum of 1 share today). In the meantime, hedge funds and other institutional investors could recover. The reasons for this restriction are not exactly clear—Robinhood’s CEO claimed yesterday that the company was forced to clear accounts by the National Securities Clearing Corporation (NSCC) and couldn’t afford to do that; the only way out was to restrict trading in volatile stocks.
But why these limitations happened doesn’t matter as much—what the GameStop saga shows us is how powerful these platforms are. They have transformed from neutral platform to “editor.” Alexandria Ocasio-Cortez and Ted Cruz briefly became unlikely allies, both criticising Robinhood’s decision to restricting customers’ ability to trade, with Cruz affirming “The same rules should apply to everybody—rich and poor alike."
So, what does GameStop teach us about the future of democracy, organising and technology? Platforms can promise as much democracy, freedom and choice as they want. Robinhood’s vision is to “democratize finance for all.” But in the end, they are just another form of very much centralised power. Facebook and Google have been critiqued heavily for this kind of manipulation; why should a new generation of platforms, all still financed, observed and driven by the same mostly white men with Stanford degrees, be any different? The only answer for “ordinary people” appears to involve leaving the platforms altogether to find a new, and even more transparent, technology (and here, cryptocurrency has been already touted as a possible contender.)
