The Reddit-GameStop Saga Is A ‘Billions’ Episode Happening In Real-Time

It’s easy to hazard a guess for why people don’t follow news about Wall Street: It makes us feel powerless in a million different ways all at once. When endlessly confusing financial instruments get filtered through infinite layers of elite cronyism and poured into a big old vat of government corruption, it’s no surprise that the general public is left disengaged. A feeling which, as Ryan Gosling says in The Big Short, Wall Street thrives on — making us think that “only they can do what they do; or, even better, for you to just leave them the fuck alone.”

Who can blame us for tuning out? It’s what literally everyone seems to want. Plus, it’s too painful to look.

We watched the government bailout banks while leaving homeowners to rot in ’08. In 2020, we saw friends, businesses, and entire communities decimated by a pandemic that has been (both inexplicably and quite predictably) good for the stock market and bad for the wealth gap (even worse for the racial wealth gap). So sure, we know Wall Street is screwing us, but we’d really rather not hear the bawdy details.

The chance to briefly fight off this antipathy to knowing what’s happening on Wall Street is part of what makes the Reddit-GameStop stock saga so fun to follow. It’s full of chaotic energy, archetypical themes, and (while there’s a lot more going on than meets the eye) it seems like a plot we can track without too much effort (thanks to Trevor Noah in the bath). On paper, it’s Robin Hood vs. the greedy ruling class in both the literal and metaphorical senses (Robinhood is the name of a trading platform where much of the story has gone down and which has now turned heel by restricting trades on certain stocks).

It’s like a real-time episode of Billions where Bobby Axelrod gets the absolute screws put to him by a bunch of lone investors making memes on message boards. Pretty fun, while it lasts.

Andrew Ross Sorkin, who co-created Billions, is covering it for the Times. Michael Burry, played by Christian Bale in The Big Short, is the voice that helped spark original optimism in GameStop. At this rate, Adam McKay will own the rights to the r/WallStreetBets subreddit by the end of the week and Ben Mezrich will have a draft of a book turned in by February.

For those not yet following along, here are some Cliff’s Notes on the whole Reddit-GameStop story:

• In October, Redditors noticed that GameStop (GME) stock was being heavily shorted (people were betting on it to fail), with Melvin Capital, run by Gabriel Plotkin, holding a large short position. (Hedge Funds don’t have to share their short positions, though they can often be deduced and Plotkin had disclosed some of his.)
• Perhaps because Plotkin’s short positions seem to heavily feature nostalgic brands for internet natives (Bed, Bath, & Beyond and Express are also on his list), because shorting brick and mortar retail in a pandemic feels almost absurdly exploitive, or simply because they wanted to make money on undervalued prospects, Redditors on the popular forum r/WallStreetBets targeted those same companies (and other brick and mortars) as stocks to buy. (There was a solid case to be made, at that time, that the stocks being shorted were undervalued or, at the very least, that the short positions held by Melvin and others were too large.)
• By buying call options and using platforms like Robinhood to purchase fractional shares, Redditors created a “short squeeze.” Shorts pay off when the price of a stock falls — if it goes up, the shorts incur negative value and anyone holding shorts has to pay daily interest on them and make sure they have the money to cover their positions.
• The price of GameStop stock trended upwards for a few months and spiked astronomically on Monday, as more and more Redditors got in on the action of artificially inflating a stock to stick it to the hedge funds that bought the original shorts.
• The short squeeze turned into a “gamma squeeze” on the hedge funds. (There is no upper limit of what you can lose with a short — if a stock you betted on going down keeps going up, you have to exit your position with a loss or find the money to hold it.) This forced Melvin Capital and other hedge funds to either dump their positions and take a bath or pay enormous fees in order to maintain their positions while getting squeezed.
• The internet rejoiced and Redditors urged one another to hold their positions as Melvin Capital got bailed out by other Wall Street goliaths. Melvin Capital publicly claimed to have exited their position — though Redditors aren’t buying it.
• Right now, GME stock is incredibly volatile but up around $400 per share [UPDATE: It closed at 193.60 on Thursday]. It was near $19 per share on NYE 2020.
• The SEC announced that they’re closely tracking how GameStop has been traded over the past week. Yesterday, hedge fund managers called for regulation — something they’re not in the habit of doing — very publicly. (The way Gamestop has been traded more closely resembles a momentum stock amplified by media coverage and an engaged populace than actual collusion.)
• Robinhood announced that they’re restricting trading on GameStop and other volatile stocks.

That’s… the gist. There’s a lot more to it. (This has all been a boon to the explainer economy, too.)

Just like any good episode of Billions, the subplots are still hazy and will take a while to become clear. There are probably a few “heists behind the heist” going on — whether that’s hedge funds making side bets or frontrunning by paying for information from Robinhood to buy stocks and resell them at a profit in a matter of nanoseconds, Melvin Capital allegedly planting an MSNBC story about dumping their position, or hedge funds who bought into the rise early allegedly seeding commenters on Redditor to keep the pump going.

The whole mess isn’t getting untangled anytime soon, that’s for sure. There have already been a few wild plot twists — like people gradually realizing that Robinhood was more villain (or profiteer) than hero in all this.

Even if determined Redditors holding GME stock ride this thing ’til the wheels fall off out of spite (“to the moon!” is their slogan), the stock price won’t be sustained over the long term (because GameStop is a better prospect than the hedge funds betting against it think, but it’s not Google) and someone is going to pocket the cash when the bottom drops out. Hopefully, it makes some Redditors rich, but it’s also inevitably going to benefit Wall Street. We know that already, we’ve seen how every movie and TV show about corporate greed ends.

Brace yourself for a few title cards before the end credits about the actual collusion that was going on between the big firms and Robinhood and a melancholy postscript that essentially says, “and they’re still doing it, right now.“

Nevertheless, a few billionaires are having a rough week and one that’s likely to get rougher if Redditors hold on and keep pushing, which they’re vowing to do (with encouragement from Ja Rule). As Billions noted in its short squeeze plot arc, interest and fees are accumulated on short positions daily and can balloon quickly. So while victory might not be clear cut, it seems likely that some hedge fund investors will lose significant portions of their funny money and substantial credibility with corporate investors over this fiasco.

Maybe that wasn’t the point in the beginning, but a quick look at the current threads on r/WallStreetBets will tell you it’s sorta the point now. Certainly, the Reddit, Twitter, and certain segments of the media are eager to celebrate these few glimmering days of feeling like David triumphed over Goliath. Plus we all get some laughs at the expense of billionaires getting foiled by people with names like /FartHammer6969.

https://twitter.com/Sebastian_FL123/status/1354549289008115716

By the time the dust truly settles this whole story will have returned to the realm of “Wall Street tales of greed that most of us don’t have the disposable time or interest to follow.” When the big reveal comes (financial reporter Alexis Goldstein lays out the biggest probable winners here), most folks will have tuned out already. Some celebrity will have said something dumb and the cultural conversation will move on.

Why? Partially because it’s so maddening to follow the financial world. But also because most Americans don’t own even a fraction of the shares traded on Wall Street.

Sure, folks might hold some shares of a company via a mutual fund that’s part of a retirement package they can’t touch (where roughly 30% of US-owned stock shares are held), but with 40% of US corporate equity owned by foreign investors in 2019 and rich Americans gobbling up the lion’s share of what’s left, the amount of directly held stock by the bottom 95% of families is, according to data published Tuesday by the New York Times, in the 5% range. Meaning 95% of the country isn’t really invested in the world of investing.

Of course, when Wall Street’s push for profits leads to wage stagnation or jobs slashed in favor of shareholder dividends or stock buybacks, the bottom 95% are the ones who feel it the most. This is, again, what makes a Reddit revolt feels so cool. Even when we admit that the story behind the story inevitably won’t end up being quite so tidy as it seems right now.

With the chessboard looking incredibly messy right now, the best we can say is that it’s exciting to see a small fraction of Wall Street’s underbelly exposed. The fact that the stock market is just rampant gambling in every sense (with American workers typically picking up the tab) is, gradually, becoming common knowledge. Moments of wild speculation and frenzy like this remind us: that’s pretty much all Wall Street does. This knowledge can potentially create a sea change around investing in which rampant greed is checked.

At the very least, there are a lot of hedge fund managers who will have to also hedge their lust for money out of fear of becoming the next viral target.

Wednesday, Chamath Palihapitiya — a tech investor who often takes vocal positions against Wall Street’s excess, has lots of fans on r/WallStreetBets, and has now both made and donated money thanks to a GameStop position — said on MSNBC: “Just because you’re wrong doesn’t mean you get to change the rules.”

It’s a great pull quote for this real-time drama, if not 100% correct. In the past, hedge funds and other big investors have been allowed to change the rules when proven wrong. Because while hedge funds absolutely treat investing like gamblers, they’re also — when conglomerated together — “the house.”

And one way or another, the house always wins. Robinhood restricting trading seems to be a harbinger of that. Has there ever been a Billions episode where the little guy comes out on top?

Still, it’s hard not to be at least a little charmed by the Reddit-based investors who seem to know all of this and are nevertheless committed to “holding the line.” Whether they’re doing it for the nostalgia, for the laughs, to troll big investors, or simply to get rich off a market opportunity just like everyone else who speculates on stock, they’ve made it fun for the 95% of us who don’t truly benefit from the market to pay attention to just how broken the system is. And they’ve absolutely infuriated everyone who has a stake in “business as usual” on Wall Street.

That, in itself, makes their efforts a success.