The Gamers’ Uprising Against Wall Street Has Deep Populist Roots

Wall Street may own the country, as Kansas populist leader Mary Elizabeth Lease once declared, but a new generation of “retail” stock market traders is fighting back.

A short squeeze frenzy driven by a new generation of gamers captured financial headlines in recent weeks, centered on a struggling strip mall video game store called GameStop. The Internet and a year off in this shut down to study up have given a younger generation of investors the tools to compete in the market. Gerald Celente calls it the “Youth Revolution.” A group of New York Young Republicans who protested in the snow on January 31 called it “Re-occupy Wall Street.” Others have called it  Occupy Wall Street 2.0

The populist uprising against Wall Street goes back farther, however than to the 2010 Occupy movement. In the late 19th century, the country was suffering from depression nearly as severe as the Great Depression of the 1930s. Kansas populist leader Mary Elizabeth Lease declared in a fiery speech in 1890:

Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master. 

Wall Street still owns the country. Millions of people have been forced out of work, while billionaires have doubled their money in the stock market. But a new generation of “retail” stock market traders is fighting back. (“Retail” traders are individuals trading for their own accounts as opposed to institutional investors.) Occupy Wall Street succeeded in raising awareness of the issues and putting a spotlight on the villains: the chief fault for the subprime crisis and 2008 crash was not with the defaulting homeowners but was with the banks. The Wall Street bankers, however, were not much fazed by the protests on the streets outside their windows. Not until January 2021 was Wall Street actually “occupied,” with millions of small traders landing a multibillion-dollar blow to at least a few of the mighty Wall Street hedge funds. GameStop was the most heavily shorted stock on the market, and the losing hedge funds were on the short end of the stick. 

The Short Squeeze

“Short selling” works like this: an investor borrows shares from a broker middleman and immediately sells them, hoping to buy them back later at a lower price, return them to the broker, and pocket the difference. The trade, however, is quite risky. If the shorted stock keeps going up, the shorter’s potential loss is unlimited. “Covering” the short position by buying the shares at a higher price and returning them to the lender will result in a loss. But if the shorter fails to cover, the broker will eventually demand more collateral as protection against its own potential losses.  

“Naked” short-selling involves selling stock without borrowing it. Naked short-selling is illegal, but the regulation is not well enforced, and in this case, short-sellers had sold 40% more GameStop shares than were in existence. That made the short-sellers extremely vulnerable to a “short squeeze.” WallStreetBets, a Reddit social media forum that then had 2.7 million members (a number that has since risen to about 8 million) called the shorters’ bluff and bought furiously, using a game-like trading app called “Robinhood.” The hedge funds had to buy the shares back to cover at the new price, further driving the stock up; and other players, seeing the action, jumped in. This is what is known as a “short squeeze” – driving the shorters to buy before the stock is out of reach. The WallStreetBets short squeeze drove the GameStop stock price up nearly 900% in five days, to around $380 on January 27. The 52-week low before that was $2.57.

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William K. 3 weeks ago Member's comment

One item not mentioned in this post is that every one of those shares bought as the price was rising was sold by somebody who already owned it. THOSE were the folks who made the big profit. The bad news is that to turn a profit on stock that has increased in value one must sell it, and to sell stock there must be buyers. And who wants to buy shares for $350 that are really only worth $3.00, like they were 3 weeks earlier, if nothing has happened to increase their value. And share VALUE is not the same as the selling price, usually.

So while the adventure may have put a dent in the profits of one hedge fund, it was by no means really a battle won.

Beating Wall Street effectively will require a fundamental change in what the federal reserve bank actually does, and who it is done to. But that is less likely than Vladimer Putin being elected as Pope.

Bill Johnson 3 weeks ago Member's comment

I just don't understand those "diamond hand" kids who pumped their life savings into GameStop but refused to sell. I get that they wanted to teach the Hedge funds and shorts a lesson. But they could have sold for hundreds more than they paid and made millions. Instead they refused to sell and took a loss.

William K. 3 weeks ago Member's comment

Indeed! It sort of seems that they did not understand that "to get rich quick you must sell quick," which is fundamental to stock market speculation.

My thinking is that it probably also has to do with the short attention span syndrome that has afflicted a large part of the population. Success in day-trading, or in any sort of fast-moving area takes a fair amount of focus as well as fast responses.

That is my perception of the reason that many hung on and took a loss. Quite a bit like driving fast in heavy traffic in bad weather.

Katy Lin 3 weeks ago Member's comment

Fascinating, thanks Ellen!