GameStop is a company that sells video games in malls. In the last 12 months, it reported a net loss of $275 million USD and its stock traded as low as $3.50 in March. At the end of 2020, GameStop was valued at $1.3 billion USD. 

GameStop’s shares opened on January 28 at $347.51, and the company was valued at nearly $30 billion USD, an increase of more than 2,200 per cent. 

The story of how this extraordinary bubble inflated — and the response it has generated — reveals a great deal about how our economic and legal institutions function to protect the wealth and power of the capitalist class to the detriment of everyone else. To understand why, let’s start at the beginning. 


Last March, when pandemic lockdowns began, GameStop’s share price cratered. This was understandable, given that many stores were either closed or empty at the time.  

A few months later, a guy by the name of Ryan Cohen — the former CEO of an online pet food company called Chewy — started buying lots of GameStop shares at what he apparently felt was a cheap price. Cohen now owns a major stake in GameStop, and thinks the company can be turned around by selling video games online. 

Others disagreed with Cohen’s thesis, and started short selling GameStop’s stock. This means in effect they bet that the stock price would go down. Notable short sellers included the hedge fund Melvin Capital. Remember that name for later, because we need to take a brief detour into the mechanics of short selling.

When someone makes a short sale, they borrow a stock from someone who already owns it, and then resell the stock. For this privilege, the short seller pays the lender of the stock interest and provides collateral. If the price of the stock falls, the short seller re-buys the stock at the lower price and returns it to the lender. The short seller’s profit is the difference between the price of the stock when they sold it and when they rebought it — minus the interest they paid to the lender to borrow the stock. 

If your bet is right and the price of the stock you’ve shorted does decline, it’s a nice way to make a return. But if you’re wrong, the losses on a short sale are theoretically unlimited. This is because the price of a stock is also theoretically unlimited. 

At some point you need to return the shares you borrowed to the lender, and if the price of that stock goes up after you’ve resold it, you’ll take a loss buying it back. What’s worse, as the stock price rises, your lender will demand more collateral to ensure that they get repaid. When their bets go bad, short sellers can either close their positions and take a loss (the difference in the share price plus all the interest they paid to the lender) or they can hold on and pony up more collateral. 

All this to say, if you short a stock and the price rises by a lot — let’s say 2,200 per cent — you’re in deep trouble. 

Back to GameStop: A few months before Cohen started buying GameStop, a user called DeepFuckingValue on the Reddit forum WallStreetBets also started betting that GameStop’s share price would increase. Since September 2019, they have posted at least monthly updates on their bet, which they call “GME YOLO.” 

The original rationale for the bet is basically irrelevant at this point. What matters is that the idea of betting big on GameStop and attacking the hedge fund short sellers picked up steam on the forum. As a result, more people began purchasing GameStop stock, driving the price up substantially. 

For the reason I explained earlier, this price run-up has already inflicted serious losses on big short sellers, such as Melvin Capital, which announced yesterday that it closed its GameStop position after taking a $3.75 billion loss — a claim disputed by the WallStreetBets crowd — and was forced to take $2.75 billion in cash from another hedge fund called Citadel — again, remember that name — to shore up its financial position.

Predictably, this caused much weeping and gnashing of teeth among rich investor types. Hedge fund billionaire Leon Cooperman decried the phenomena of traders “sitting at home getting their checks from the government, trading their stocks” and argued that “this fair share is a bullshit concept” and “a way of attacking rich people.”

Had the response ended there, however, there wouldn’t be much to this story — another example of the disconnect between the stock market and the real economy, sure, but that’s nothing new. 

Instead, what happened next made as plain as day what those of us on the left have been arguing forever: The rules of our economy are made — and can be changed on a whim — by capitalists to protect their economic and political power at everyone else’s expense.

A Rigged Economy 

After a sharp increase in the price of GameStop shares on January 27, users of the popular U.S. trading app Robinhood — more than half of whom own GameStop shares —  awoke the next morning to find that they could sell, but not buy, shares in GameStop and a number of other companies with share prices driven by Internet popularity.

Robinhood, which claims its mission is to “democratize finance,” makes money by selling “order flow” to big hedge funds like Citadel Securities, a subsidiary of Citadel LLC which also owns Citadel, the hedge fund that bailed out Melvin Capital. Citadel LLC is owned by Ken Griffin, the richest person in Illinois, who reportedly has a net worth of $12 billion. In fact, purchases from Citadel Securities accounted for more than a third of Robinhood’s revenue from order flow in the first quarter of 2020.

The practical effect of Robinhood’s decision to ban the purchase, but not sale, of GameStop shares was to push its users to sell and tank the stock price, which is exactly what happened: Shares fell by more than 75 per cent at one point during the morning of the Robinhood ban. 

Conveniently, a big drop in GameStop’s share prices benefits those shorting the stock — such as hedge funds like Melvin Capital and their new partial-owners at Citadel — while costing those amateur day traders that bought into the mania around the stock. 

Rashida Tlaib, a Democratic congresswoman from Michigan, called for Congressional hearings on market manipulation by Robinhood, and claimed the company was “blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who’ve used the stock market as a casino for decades.” Whether what Robinhood has done is market manipulation in the legal sense or not is a question I leave to the lawyers.

Tellingly, the response of financial institutions and regulators to this has not been to scrutinize and limit the activities of the hedge funds or Robinhood, but of Reddit’s day traders. Nasdaq’s CEO said they would halt trading on any stock that shows “unusual activity” it determines to be driven by “social media activity.” TD Ameritrade restricted trading of certain shares. Wells Fargo banned its advisors from recommending GameStop shares. The top securities regulator in Massachusetts said trading in GameStop shares indicated something “systematically wrong” with the stock.

As venture capitalist Chamath Palihapitiya pointed out in an interview on CNBC, the amateur traders have only done what wealthy investors and hedge fund managers do regularly: share ideas for bets and join each other in making those bets. The only difference is that the rich do it during private, luxurious “idea dinners,” while the amateurs make do with public Internet forums.

Of course, it should come as no surprise that everyday investors are being held to a different — and higher — standard than the rich and powerful. That is because the “standard” is a fiction invented to create the appearance of a level playing field. The GameStop saga shows us what a joke this is in reality. All there is, I’m sorry to say, is wealth and the power it confers upon those who have it: the power to bend, break, and change the rules of the game whenever they choose to make money at our expense. 

I’m not a financial advisor, but my recommendation would be to avoid betting anything you can’t lose on GameStop or other highly shorted stocks. It’s capitalism, baby, and the house always wins.

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