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WASHINGTON – They endured a financial crisis. Two deep recessions. Lots of student debt. Stagnant salary. Expensive health care. Gloomy employment prospects.
They have watched the ultra-rich grow richer as a pandemic has thrown tens of millions of people out of work and left many more isolated and vulnerable at home.
Now they think it’s time for recovery.
Almost a decade after the Occupy protest movement left Wall Street more or less unscathed, the citadel of finance is in danger of facing another onslaught.
The day traders, mobilized on a subreddit page, poured all the money they can find into the shares of a struggling video game retailer called GameStop and a few other battered companies. Their purchase caused the stock prices of those companies to surge beyond anyone’s imagination – and, no coincidence, inflicted huge losses on the hedge funds of the super-rich, who had bet stocks would fall.
Their strategy, of course, is fraught with risk. The prices of the stocks they bought are now multiples above any level justified by income, profits or future prospects. The danger is that at any time stocks could crash.
Perhaps. But as one Reddit user wrote on Friday, claiming that hedge fund financiers would drink champagne as they looked down upon Occupy Wall Street protesters in 2011:
“I’d rather lose everything than give them what they need to destroy me … I’m going to burn everything just to upset them.” ”
Their rage and hellish will to prey on powerful Wall Street financiers has thrilled ordinary investors and heightened their fears about the fragility of markets in general after a prolonged period of stock market gains fueled by interest rates. ultra-low. These fears have caused the S&P 500 Index to suffer its worst week of losses since October.
GameStop Shares? They climbed nearly 70% on Friday. Over the past three weeks, they’ve made a staggering 1,600% gain.
“They’ve figured out how to play the way Wall Street plays for a long time,” said Robert Thompson, who has long followed cultural trends as director of the Bleier Center for Television and Popular Culture at Syracuse University. “I’m amazed it didn’t happen sooner. ”
Young traders like Zach Weir, 27, who bought five shares of GameStop this week have fueled the frenzy.
“I’m a college student, so it’s basically a month’s rent for me,” said Weir, who is pursuing a master’s degree in marketing.
He did it, he said, because he believes in the cause: to protect a darling game store, where he would spend time as a teenager on Friday nights, from the finance moguls who want the company goes bankrupt.
What if he loses his investment?
“If my account goes to zero, it goes to zero,” Weir said. “At this point, it’s not about the money. I think it’s bigger than money now ”
Frustration and anger at the growing financial inequalities in the US economy have been growing for years. According to the World Inequality Database, led by Emmanuel Saez and Gabriel Zucman, economists at the University of California, the richest 1% of Americans collected around 19% of pre-tax income in 2019, up from less than 11% in four decades. earlier, Berkeley, with other researchers.
New York University economist Edward Wolff found that the richest 10% of Americans own about 85% of equity wealth, a share that has grown steadily over time.
The financial crisis that triggered the Great Recession of 2007-2009 intensified resentment against bankers who funded the bad loans behind the disaster and ignored the obvious risks, only to receive bailouts from taxpayers and largely evade responsibility. Growing outrage fueled the Occupy movement, in which protesters took control of New York’s Zuccotti Park and other public spaces and demanded sweeping financial reforms that hardly happened.
The coronavirus has inflicted further suffering, flattening the economy and leading to the loss of jobs for more than 20 million Americans. This week, a report by anti-poverty group Oxfam found that the world’s 10 richest men have inflated their collective wealth by $ 500 billion since the pandemic broke out in March. Meanwhile, nearly 10 million people who lost their jobs because of the pandemic remain unemployed.
The stock market, a target chosen by Reddit day traders, has long been America’s leading symbol of entrenched wealth. But technology, including forums like Reddit, has made it ever easier, faster, and simpler for wronged people to mobilize, exchange information, and collectively map out strategy. And ecommerce apps, including Robinhood, allow hobbyist traders to buy commission-free stocks with just one click.
They spotted a vulnerability in the market: the so-called short squeeze.
When hedge funds and other investors want to bet that a stock’s price will fall, they organize a short sale: they borrow shares from GameStop, for example. Then they sell those borrowed shares, planning to buy back the shares later at a lower price and pocket the gain.
But short selling can backfire disastrously if the stock goes up instead of down. Then short sellers may be forced to bail out their bets by buying the target stock. Buying them, in turn, can push up the share price and make matters even worse for short sellers in an intensifying feedback loop.
GameStop, its future jeopardized by e-commerce and a pandemic that has driven customers away, is among the shortest stocks. Some of the Reddit rebels are gamers who want to protect the retailer from Wall Street predations. Or simply strike a blow at hedge funds and financiers who have lived great as others have suffered.
Not all day traders are inflamed with anger. They just see an opportunity to make money and pay their bills.
“A lot of people have trouble paying their rent,” said Alexis Goldstein, a veteran of the Occupy movement. “Many people are at risk of deportation. A lot of people are really desperate, quite frankly, for new ways to make money. ”
Yet Goldstein fears that the revolt will ultimately fail.
On the one hand, some of the Wall Street companies targeted by Redditors are actually profiting from the very volatility that the onslaught of Redditors has created.
And the most sophisticated professional traders are undoubtedly figuring out how to capitalize on the chaos. Normally, they have to work hard and invest heavily to figure out what their competition is doing and capitalize on that information. In contrast, Reddit day traders announce their intentions, brazenly and publicly.
“I suspect it’s not the Robinhood investors and the Redditors making the money,” Goldstein said.
She would like to see another range of reforms – reforms to curb Wall Street excesses while helping those who have been left behind.
“Hopefully we can ask ourselves some fundamental questions about whether we want our markets to be speculative or whether we want them to create innovation and jobs,” she said. ”
Tom Osran, a 59-year-old Chicago lawyer, has been reading the WallStreetBets forum on Reddit for years. But it wasn’t until last week that he decided to take action for the first time by purchasing GameStop. His investment, he said, is up 1,000% from last week, although he declined to disclose the dollar amount.
Osran said he believes his astronomical rise in stocks could save GameStop from hedge funds that bet a company with 40,000 employees will fail.
“It’s fun to be part of a movement,” Osran said.
He knows he could lose whatever he put into GameStop actions. Yet he is philosophical.
“We’re all adults, we all know stocks can go up and down,” Osran said. “It’s been incredibly lucrative so far, but it could all go away tomorrow.”
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Pisani reported from New York.
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