WASHINGTON (AP) – They have been through a financial crisis. Two deep recessions. Hills student debt. Stationary payment. Expensive healthcare. Dim job prospects.
They have seen the rich get richer while a pandemic throws tens of millions of people out of work and leaves many more isolated and defenseless at home.
Now, they feel, it’s payback time.
Nearly a decade after the Occupy protest movement left Wall Street more or less intact, the financial citadel is likely to face another attack.
Day traders, mobilized in a Reddit chat room, poured all the money they could into the shares of a struggling video game retailer called GameStop and a few other successful companies. Its purchase swelled the companies’ share prices beyond anyone’s imagination – and not coincidentally, the hedge funds of the super-rich, who made bets that the shares would fall, inflicted huge losses.
Their strategy is, of course, full of risks. The prices of the shares they bought are now more than any level justified by income, earnings or future prospects. The danger is that the shares may collapse at any time.
Maybe so. But as one Reddit user wrote on Friday, claiming that hedge fund financiers would drink Champagne if they looked down on protesters on Wall Street in 2011:
“I’d rather lose it than give them what they need to destroy me … I’ll burn it all just to spit on them.”
Their anger and a hellish attempt to pick powerful Wall Street financiers frightened ordinary investors and heightened fears about the fragility of the markets in general after a long period of stock price-fueled gains by ultra-low interest rates. Those fears only led the S&P 500 index to lose the worst week since October.
GameStop shares? They rose nearly 70% on Friday. Over the past three weeks, they have made a significant profit of 1,600%.
“They’ve figured out how to play like Wall Street has been playing for a long time,” says Robert Thompson, who has long followed cultural trends as director of Syracuse University’s Bleier Center for Television and Popular Culture. “I’m surprised it didn’t happen earlier.”
Young traders have fueled the madness, such as 27-year-old Zach Weir, who bought five shares of GameStop this week.
“I’m a college student, so it’s actually a month’s rent for me, ‘says Weir, who is pursuing a master’s degree in marketing.
He did so, he said, because he believed in the matter: protecting a cherished game store, where he would hang out as a teenager on Friday night, against financial authorities who want the business to fail.
And 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 the money now ”
Frustration and anger over the growing financial inequality in the US economy have been growing for years. The richest 1% of Americans collected about 19% of pre-tax revenue in 2019, up from less than 11% four decades earlier, according to the World Inequality Database, run by Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley. together with other researchers.
Edward Wolff, an economist at New York University, found that the richest 10% of Americans own about 85% of the stock, a stock that has grown steadily over time.
The financial crisis that led to the Great Recession of 2007-2009 financed the resentment towards the bankers who financed the deadly loans behind the disaster and ignored the obvious risks, only to receive taxpayers and release the liability. jump. Increasing anger fueled the Occupy movement, in which protesters took over Zuccotti Park in New York and other public spaces and demanded demanding drastic financial reforms that largely did not happen.
The coronavirus inflicted further pain, plaguing the economy and losing more than 20 million Americans. This week, a report by the anti-poverty group Oxfam found that the ten richest men in the world have swollen their combined wealth by $ 500 billion since the pandemic broke out in March. Meanwhile, nearly 10 million people losing their jobs to the pandemic remain unemployed.
The stock market, the chosen target of Reddit day traders, has long stood as America’s leading symbol of entrenched wealth. But technology, including forums like Reddit, has made it increasingly easier, faster, and easier for victims to mobilize, exchange information, and plan joint strategies. And e-commerce programs, especially Robinhood, allow amateur traders to buy commission-free stocks with 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 price will fall, they arrange a short sale: they borrow shares from, for example, GameStop. Then they sell the borrowed shares and plan to buy back the share later at a lower price and pocket the profit.
But shorting can catastrophically fall back if the stock rises instead of falling. Then the short sellers can be forced to save their bet by buying the target stock. Buying it can, in turn, push the stock price higher and higher, exacerbating short sellers in an intense feedback loop.
GameStop, the future hindered by e-commerce, and a pandemic that kept customers away is one of the heaviest stocks. Some of the Reddit rebels are gamers who want to protect the retailer from the predations of Wall Street. Or just give a fair blow to hedge funds and financiers who have lived big like others who have suffered.
Not all day traders are ignited by anger. They only see the chance to make money and pay bills.
“A lot of people struggle to pay rent,” said Alexis Goldstein, a veteran of the Occupy movement. ‘A lot of people are in danger of being evicted. Many people are very desperate, to be honest, for new ways to make money. ”
Yet Goldstein is worried that the uprising will eventually fail.
First, some of the Wall Street businesses that are the targets of the Redditers are actually taking advantage of the volatility that has fueled the assault of the Redditers.
And the most sophisticated professional traders undoubtedly calculate how to exploit the chaos. Normally, they have to work hard and invest a lot to determine what their competitors are doing and to take advantage of the information. In contrast, the Reddit day traders announce their intention, shamelessly and in public.
“I suspect it’s not Robinhood investors and Redditers who are making money,” Goldstein said.
She would like to see another reform – reforms to curb the extravagance on Wall Street while helping those left behind.
“Hopefully we can ask fundamental questions whether we want our markets to be speculative or to create innovation and jobs,” she said. “Stop pushing so hard for your money and instead build the social safety net.”
Tom Osran, a 59-year-old Chicago lawyer, has been reading the WallStreetBets forum on Reddit for years. But only last week did he decide to act for the first time by purchasing GameStop. According to him, his investment is 1,000% higher than last week, although he did not want to disclose the dollar amount.
Osran said he reckons his astronomical share increase could save GameStop from hedge funds that bet a company with 40,000 employees will fail.
“It’s nice to be part of a movement,” Osran said.
He knows he could lose everything he invested in GameStop shares. Yet he is philosophical.
“We are all adults, we all know that stocks can go up and down,” Osran said. “It has been insanely profitable so far, but it may disappear tomorrow.”
___
Pisani reports from New York.