Man, Economy, and Stonks: Free Market Populism
Before going into this week’s events, it must be said that the cause of these events is not going to be any particular recent news or event. The populist movement this country has been seeing for over a decade is the impetus for the Big Short-Squeeze. An article will be written on the history of the populist rise since and in response to the Great Recession of 2008 shortly here on The Hoppean - creating this historical narrative for the right will be very important for our purposes.
A brief description of financial terminology is necessary in order to understand this event. Shorting is when you borrow a share from a shareholder promising to give it back in a set time frame and pay interest on the current value of the share. You then sell this stock and wait for the stock to fall in price to buy it back again. You give the share back to the shareholder, pay the interest, and pocket the rest as profit. This can be likened to reversing the normal stock market mechanism of buying a share when it is low and selling when it is high in order to profit from the fluctuation of the share price. When you short a stock, you want to sell it when it is high and buy it when it is lower to turn a profit.
This week’s events were kicked off by a single Reddit post called Gamestop Investment Thesis. In the post, Gamestop ($GME) was identified as a frequently shorted stock by hedge funds. It was so frequently shorted, that it had a short interest ratio of over 100%. It turns out that the shorting of the stock by the major hedge funds actually affected $GME enough to ensure a profit the next week. It was noted that enough buys of the stock could increase the price to make whoever had shorted the stock make a loss on their endeavor.
Reddit, more specifically r/WallStreetBets, started increasing the price of $GME and other stocks that were noticed to be frequently shorted. This specifically attacks hedge funds, which were bailed out in 2020 to save them the fate that was allowed to befall the masses as a result of the lockdowns and interest rates were slashed by the Federal Reserve, making short-selling even more profitable. More broadly, Wall Street was bailed out by the mass printing of dollars in 2020, which keeps the stock market increasing in dollar value. This seems to be understood by many people behind the squeeze. Sadly, these hedge funds are where people’s retirements are placed. So, many people will be caught in the crossfire of attacking these hedge funds. This will also not hurt the investment banks, as they will be paid interest for making the loans. The house never loses. We can also expect more hedge fund bailouts as we go forward.
The most interesting aspect of this was that the people involved did not sell when the price of the stock skyrocketed for the most part. As calls from the leaders of this sub-Reddit have made clear, these people are not interested in making money, but in hurting the most powerful. This is retaliation for Wall Street getting bailed out in 2008 and in 2020. It is also noted by these same people that Wall Street manipulates the stock market on a regular basis. Jim Cramer went into exactly how this was done years ago. This is not a left-wing movement against capitalism. This is a right-wing populist movement attacking those in the financial sphere who had consistently hurt them over the past - that is the moneyed interests that help run the empire.
This type of event is a symptom of both the populist rise over the past dozen or so years as well as the crises of the past year of causes by the lockdowns and the election, which most of the Republicans think was stolen from them. We can expect far more of the same kind of unprecedented events as populism continues to rise and the crisis in America worsens.
