The GameStop short squeeze fueled by the Reddit community r/WallStreetBets has raised questions about how the United States should regulate speculative trading and the global financial system at large. Melvin Capital, the hedge fund that took the most ambitious short position on GameStop (GME), lost 53% on its investments in January after the GME share price skyrocketed resulting in a $2.8 billion bailout from Point72 and Citadel. CNBC estimates that short-sellers across various financial firms lost approximately $13 billion dollars as thousands of Reddit-inspired day traders and private citizens bought GME shares and sent the stock up from $4/share to $347/share at its peak. The buying frenzy started when Reddit user Keith Gill noticed that approximately 140% of GameStop stock was being shorted. Coupled with the recent hiring of a new CEO, users saw an opportunity to band together and defend the once-beloved video game retailer. During the height of the squeeze, when hedge funds were taking massive losses, notable financial commentators and pro-establishment figures demonized this kind of market activity every hour on cable news. Despite this, GameStop continued to skyrocket in value until Robinhood, the online trading platform for everyday people that most Redditors used, shut down all buying–but not selling– of GME and other “meme stocks”. This move was unforeseen and unprecedented which led to further public outcry. But was this all the GameStop squeeze was? Just a hedge fund getting unlucky because a few thousand trolls on Reddit thought punishing speculators through GameStop was funny? No, this was a populist uprising that created a new conversation around the democratization of finance.
The pages of r/Wallstreetbets were filled with populist revolutionary rhetoric and amassed an unprecedented people’s movement that resulted in a major blow to the financial elite. Reddit investors were even rallying to not sell their shares in order to bleed out the hedge funds at their own personal loss. In addition, sales and views spiked for the movie The Big Short which outlines the Wall Street corruption that led to the 2007-2008 financial crisis. Political-cultural pundits such as billionaire Chamath Palihapitiya (CEO of Social Capital) and journalist Saagar Enjeti (The Hill) opined that the GameStop saga represented a financial rebellion against what people believe is a rigged and corrupt financial system. Palihapitiya stated in a CNBC interview that this was “a pushback against the establishment in a really important way” and that many of these GameStop investors believe that “coming out of 2008 what happened was Wall Street took an enormous amount of risk and they left retail as the bag holder”. He goes on to say that many of the GameStop investors were children during the Great Recession and lost their homes as their parents lost their jobs. He then poses the question that encapsulates the hatred towards Wall Street felt in this generation: why did the big banks and hedge funds get bailed out while nobody came to help my family?
These points laid out by Palihapitiya as well as criticism of Robinhood’s decision to suddenly restrict the trading of certain stocks created a rarity on Capitol Hill—bipartisan consensus to support the average American. A significant number of politicians on both sides of the aisle such as Newt Gingrich, Senator Elizabeth Warren, Donald Trump Jr., and Senator Bernie Sanders voiced their disapproval of Robinhood. The most notable incident of bipartisanship, though, was when Texas Republican Senator Ted Cruz tweeted that he “fully” agreed with New York Democratic Representative Alexandria Ocasio- Cortez’s view that the Robinhood decision was “unacceptable” and that she’d support a Congressional hearing as a member of the Financial Services Committee. Considering that the duo is on polar ends of the ideological spectrum, this appeared as a welcome stepping stone to real change in Washington
Unfortunately, this glimmer of hope was short-lived. Not long after Ted Cruz tweeted his support of Rep. Ocasio-Cortez’s views, she fired back at him: “you almost had me murdered 3 weeks ago so you can sit this one out,” she tweeted, referring to the horrific Capitol Hill Riot. So the culture war and political polarization continues then? Perhaps. This was only one instance in the public eye and we have yet to ascertain all the ripples made in the streets of DC. Unfortunately, the Biden administration has yet to give us a clear answer to their views and courses of action in light of the GameStop squeeze. When pressed on the issue, White House Press Secretary Jen Psaki has continually declined to speak about GameStop in detail and refused to address potential conflicts of interest in the investigation. Many journalists have rightfully called out the fact that Janet Yellen has received approximately $800,000 in “speaking fees” from Citadel — an elite hedge fund that took heavy losses in the GameStop squeeze that is being accused of forcing Robinhood to restrict trading– this year alone and over $7 million from various Wall Street firms over the last 2 years according to Forbes. This unaddressed conflict of interest may be an indication of where the Biden administration and the rest of Washington really stands on the Reddit Revolution and economic populism more broadly.