This is a much more informative article on the subject.
Miriam
Published on
Thursday, January 28, 2021
byCommon Dreams
How the Ongoing GameStop Fiasco Highlights the Sinister Nature of Modern
Casino Capitalism
"Wall Street and stock market are metaphors for a society rotting from
self-indulgence, greed, widening inequality, and financial entrepreneurship
that builds nothing, improves nothing, creates nothing, and solves nothing."
byJon Queally, staff writer
A woman walks past the GameStop store inside the Susquehanna Valley Mall. An
online group sent share prices of GameStop (GME) and AMC Entertainment
Holdings Inc. (AMC) soaring in an attempt to squeeze short sellers. (Photo:
Paul Weaver/SOPA Images/LightRocket via Getty Images)
A woman walks past the GameStop store inside the Susquehanna Valley Mall. An
online group sent share prices of GameStop (GME) and AMC Entertainment
Holdings Inc. (AMC) soaring in an attempt to squeeze short sellers. (Photo:
Paul Weaver/SOPA Images/LightRocket via Getty Images)
"Anyway, tax the rich," concluded Congresswoman Alexandria Ocasio-Cortez in
her brief Twitter assessment of the ongoing saga.
What's important to know, wrote Left Business Observer editor Doug Henwood,
is that the whole episode is "a lesson in the absurdity and uselessness of
the stock market."
"Financial markets cannot tell us what is good and what is bad. They can
only tell us what a lot of people thought they could make money on at a
certain point in time." -Zach Carter, HuffPostMost crucially, explained
journalist and author Jacob Silverman for The New Republic, is that what has
transpired thus far "shows how casino capitalism is eating the world."
Speaking of eating, one participant who-along with her husband-had already
made an estimated $1,700 as of Wednesday by helping boost a stock which has
sent the financial world into a tizzy this week said there was a "catharsis
to actually making money" off the pain of Wall Street titans who have done
the same to average Americans for decades and didn't feel bad about it for a
second. "Eat the rich," she said in an interview with the New York Times.
The topic at hand, of course, is GameStop-the video game retail chain (also
known by its stock ticker symbol GME) which is now at the center of an
explosive fiasco on Wall Street in which major investment firms and hedge
funds got taken to the cleaners by users of an online message board, namely
the Reddit sub-page r/WallStreetBets, who mobilized collectively to drive up
the company's stock price at a moment when many large, institutional
investors had placed large bets for it to go down.
"Wall Street and stock market are metaphors for a society rotting from
self-indulgence, greed, widening inequality, and financial entrepreneurship
that builds nothing, improves nothing, creates nothing, and solves nothing,
but merely moves money from one set of pockets to another," tweeted
economist and former Labor Secretary Robert Reich in the early hours of
Thursday morning.
As Silverman explained in his piece for TNR on Wednesday:
GME opened at $354.83 [Wednesday]-an increase of almost $200 over its
previous close. In the last few days, hundreds of millions of shares have
changed hands, snapped up by both Reddit day traders and big hedge funds who
have been forced to buy more shares to cover their short positions. On
Tuesday, it was the most traded stock in America.
While pundits search for explanations, large investors are scrambling to
stem their losses. Being on the wrong side of a short position can lead to a
vicious cycle in which one has to keep buying a rising stock at higher and
higher prices. Melvin Capital, one of the hedge funds with the biggest bets
against GME, received a bailout of nearly $3 billion from Point72, a fund
owned by Steve Cohen, who also owns the New York Mets. Melvin later managed
to extricate itself and close out its position but not without suffering
what may have been several billions of dollars in losses.
A financial head-scratcher for many not familiar with terms like
"short-selling" and "stock puts"-not to mention "subreddits" and popular
day-trader apps like Robinhood, on which much of the amateur trading is
taking place-progressive critics argue that what the whole "kerfuffle"
represents is just how far detached the stock market is from the actual
economy and, in an ironic twist, how the open manipulation of GameStop share
prices reveals about what a farce the financial system has now become. As
Henwood put it, "Who knew GameStop would itself become such a game?" But a
game with serious implications.
"This drama, like the seemingly endless rise in stock prices since 2009,
interrupted briefly by the COVID-19 scare last March," he wrote in his piece
for Jacobin, "is a sign of a financial system totally out of touch with
economic reality."
Along with a warning of how things will end, Henwood explained part of the
dynamic this way:
Bubbles like this always end in a crash, and those Redditors who haven't
sold their shares will be left holding a very depleted bag. [...] In the
meanwhile, it's funny to see some Wall Streeters complain that there's
something unfair about this action, since these are the sorts of games they
play with each other and the general public all the time. They talk up
stocks or talk them down, depending on their interests, and plot against
what they see as weak or vulnerable players all the time. It's just that the
speculators with names like DeepFuckingValue who are savaging them for now
are the wrong kind of people. They don't live in Greenwich in houses with
twenty-car garages.
In a newsletter post Thursday morning, former Wall Street professional
Alexis Goldstein said that while many have framed the story as a David vs.
Goliath situation, in which the Reddit collective had outsmarted the
institutional cretins of Wall Street, the dynamics are more complicated than
that.
"The financialization of the U.S. economy over the last 40 years has been a
disaster for most Americans-bringing income inequality, recessions, a
housing crisis, and the impression, probably justified, that the economy
simply doesn't work for them." -Jacob Silverman, The New RepublicSo if the
question becomes, "Is this really Robinhood sticking it to Wall Street?"
wrote Goldstein, "the answer is, no." While her reason for that is somewhat
complicated, it boils down to the way Wall Street operates. Given the amount
of fire power that larger investors have over the amateur day-traders using
apps like Robinhood-including massive information collection operations and
the ability to utilize lightning-fast trading algorithms-she argues that
while some financial titans might have lost their shirts, others were there
to claim massive profits.
"This this isn't hedge funds versus retail [traders]," Goldstein wrote.
"It's hedge funds versus other hedge funds."
As journalist Jack Crosbie wrote at Discourse Blog on Wednesday:
the only rule of gambling though is that the house always wins. And the
stock market is set up so that the hedge funds and the investment management
companies and the big banks are always, always the house. What we're seeing
right now is a guy who rolled up with a pocket full of change hitting the
jackpot on a penny-slot. The other thing, of course, is that watching a guy
hit a jackpot is really only good for the casino, because everyone who sees
him do it thinks they're going to be the next one to hit.
Consider also this: BlackRock Inc, the world's largest asset manager, owns
about 13% of GameStop. During this entire thing, it's made approximately
$2.4 billion dollars, perhaps as much as $1.2 billion this month alone. That
doesn't mean that it's a bad thing that some Reddit guys decided to own a
guy who named his amoral investing company after his dead granddad Melvin
into the sun, but it does mean that in the grand scheme of things, the house
is doing just fine - and indeed, could blow the whole thing up at any
moment.
Indeed, on Thursday morning-after early trading showed a GameStop stock
price that continued to soar-Robinhood intervened by preventing its
customers from making new orders on the company as well as other similarly
soaring purchases for the AMC movie chain, Blackberry, and others.
"This is beyond insane," tweeted Rep. Rashida Tlaib (D-Mich.) in response to
the news.
Democrats on the Financial Services Committee, Tlaib added, "need to have a
hearing on Robinhood's market manipulation. They're 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."
According to Zach Carter, financial journalist at HuffPost, what the
GameStop affair reveals above all else is that the so-called "market"-and
specifically the machinations of the stock exchange-is fundamentally
terrible at the one thing it often claims to do best: assign value to a
company or industry. Carter writes:
Financial markets cannot tell us what is good and what is bad. They can only
tell us what a lot of people thought they could make money on at a certain
point in time. The real work of determining what kind of world we want to
live in is the proper subject of democracy, not high finance.
The Redditors have made this brazenly clear to the world, and for that they
should be celebrated rather than condemned. The situation, however, does
demand a public policy solution. The Redditors have revealed an absurdity by
being absurd. The appropriate response is not to demand an orgy of further
absurdity, but to do something sensible.
So what would be a sensible solution?
In a statement late Wednesday, Sen. Elizabeth Warren jumped into the concern
over GameStop and called on the Securities and Exchange Commission (SEC) to
intervene. Though vague in what exactly must be done, Warren said, "With
stocks soaring while millions are out of work and struggling to pay bills,
it's not news that the stock market doesn't reflect our actual economy."
"For years, the same hedge funds, private equity firms, and wealthy
investors dismayed by the GameStop trades have treated the stock market like
their own personal casino while everyone else pays the price," Warren added.
"It's long past time for the SEC and other financial regulators to wake up
and do their jobs-and with a new administration and Democrats running
Congress, I intend to make sure they do."
Carter, however, was more specific in his prescription.
"The simplest solution," he wrote, "is a financial transactions tax―a small
fee attached to every financial bet. This tax will either discourage
reckless stock betting and reduce the volume of what is a mostly
economically wasteful activity, or generate a great deal of revenue that can
be devoted to more useful activities."
Reich agreed. "At the least," he said, "we need a financial transactions
tax."
In the end, opined Silverman in TNR, the entire absurd episode offers a
deeply profound comment on the grotesque nature of modern casino-style
capitalism that has wound its way so deeply into the global economy.
"The financialization of the U.S. economy over the last 40 years has been a
disaster for most Americans-bringing income inequality, recessions, a
housing crisis, and the impression, probably justified, that the economy
simply doesn't work for them," he wrote. "It is indeed a giant casino, and
like any casino, it's rigged to the benefit of the operators and their
partners. No wonder watching hedge funds scramble to cover their positions
brings out a perverse pleasure in small-time day traders and socialists
alike."
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