An uprising against Wall Street? Hardly. GameStop
was about the absurdity of the stock market
Kenan Malik
The financial titans silenced the ‘retail investors’
who sought to boost an unloved video store chain
Sun 31 Jan
2021 09.00 GMT
For those
of us who are as intimate with the inner workings of the stock market as we are
with the circuitry of the Large Hadron Collider, the brouhaha over GameStop has
been illuminating. While the story may seem esoteric, it is highly revealing of
the way economic and political power operates today, laying bare both the
irrationality of the market and the reach of corporate privilege.
For those
who don’t know, GameStop is a US video game retailer that has lost much of its
market share to online trade and whose stock plummeted from $56 (£40) a share
in 2013 to about $5 in 2019. It is set to close 450 shops this year. Some big
hedge funds decided that they would cash in on GameStop’s misery by shorting
its shares. A short is a bet that an asset, such as a share, will decline in
price. It’s a manoeuvre that can generate huge profits. But if the asset price
doesn’t fall, investors can also lose a lot of money.
And that’s
what happened with GameStop. A bunch of Reddit geeks on the online forum
r/wallstreetbets, an investment discussion group that boasts more than 6
million users, decided to buy GameStop shares en masse. Perhaps they saw it as
an investment, perhaps they were bored, perhaps they wanted to inflict pain on
Wall Street. Whatever the reason, the consequence was to push GameStop’s share
price up. And up. Once it became a global story, others piled in too, boosting
the share price from about $40 to almost $400 in a matter of days. As a result,
big investors lost big, one hedge fund, Melvin Capital Management, even being
forced to seek a rescue package. The story, however, is not just about traders
getting their comeuppance, but also about the absurdity of the stock market.
One might
naively imagine that it exists to allow people to invest in companies. But
share trading often has little to do with productive investment. According to
the writer Doug Henwood, IPOs – initial public offerings through which people
can buy shares in private companies – have, over the past 20 years, raised a
total of $657bn (£479bn). Over that same period, the companies in S&P’s 500
stock index have spent $8.3tn (£6trn) buying their own stock to boost its
price.
A stock
buyback – a company purchasing its own shares to reduce the number openly
available and so push the price up – is a form of market manipulation that was
illegal in the US until Ronald Reagan decided that to ban it was to restrict
market freedom. As a result, many corporations, instead of building factories,
now plough money into their own shares.
It has
helped raise the stock market to record levels and provided shareholders with a
huge largesse. But few others have benefited. The pharmaceutical company Merck
insists that it must charge exorbitant amounts for its medicines to help fund
new research. In 2018, the company spent $10bn on research and development –
and $14bn on share repurchases and dividends. One report suggests that had
Walmart diverted half the money it has spent on stock buybacks into wages, one
million of its lowest-paid employees, many of whom live below the poverty line,
could have had a 50% pay increase.
As
speculation rather than productive investment has become the fuel of the stock
market, so big investors have come to spend more time playing games such as
shorting. Last week, though, having been outgamed by a bunch of nerds, the
titans of Wall Street did what all entitled people do. They whined. How dare
people manipulate the market! Only those with Manhattan penthouses who attend
dinner parties with presidents and Federal Reserve governors should be able do
that, not people with online handles such as DeepFuckingValue. As Severus Snape
exclaims in Harry Potter and the Half-Blood Prince: “You dare use my own spells
against me, Potter? It was I who invented them.”
Having the
right connections means that when you whine, others listen. Regulators in
Washington are now keeping an eye on possible market manipulation by social
media groups. The digital investment app Robinhood, which has helped open up
the stock market to a wider public, last week restricted trades in GameStop,
allowing investors to sell but not to buy, a sure way of pushing share prices
down. The company insists that this was for technical reasons rather than from
a desire to protect hedge funds. Small investors have, however, taken out a
class action against Robinhood for “knowingly manipulating the market”.
Discord, an
online platform, banned wallstreetbets from its servers for spreading “hate
speech, glorifying violence and spreading misinformation”. By all accounts,
group members indulged in racism and homophobia. Its founder, who was expelled
earlier this year, claims that some moderators “were straight-up white
supremacists”. It’s quite a coincidence, though, that the group should be taken
down for “hate speech” on the day that big investors lost so much money. At the
same time, the relationship between such groups and regressive politics shows
how much Wall Street has become associated with liberals and how much of the
anger against big corporations has been hoovered up by the populist right.
Discord’s
action demonstrates again the power of tech companies to shut down groups or
discussions that those with power and influence find troublesome. It
demonstrates, too, how campaigns against “hate speech” or “misinformation” can
become means of throttling much wider forms of challenges to authority.
There might
be something cathartic in watching the wolves of Wall Street themselves beeing
savaged, but we should not romanticise the Reddit geeks. This was not an
“uprising” or “the French Revolution of finance”, as Donald Trump’s former
communications director Anthony Scaramucci absurdly described it, but a scheme
to play professional investors at their own game.
Many of the
players are undoubtedly unsavoury figures with regressive politics. Their actions
do nothing to challenge the inanities of the stock market or to diminish the
miseries the market imposes on so many people’s lives. On the contrary, what
the GameStop affair reveals are the frailties of the contemporary challenge to
power.
• Kenan
Malik is an Observer columnist
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