WASHINGTON – They went through a financial crisis. Two deep recessions. Heaps of student debt. Stagnant wages. Expensive health care. Reduce job prospects.
They saw the super-rich get richer as a pandemic took tens of millions of people out of work and left many more isolated and vulnerable at home.
Now, they feel, it’s time for the rematch.
Almost a decade after the Occupy protest movement left Wall Street more or less unscathed, the citadel of financial power faces another attack.
Day traders, mobilized on a subreddit page, poured all the money they found into the stocks of a struggling video game retailer called GameStop and a few other defeated companies. Their purchase inflated the stock prices of these companies beyond anyone’s imagination – and, not coincidentally, it inflicted huge losses on the hedge funds of the super-rich, who bet on the fall of the shares.
Their strategy, of course, is fraught with risks. The prices of the shares they bought now are multiples above any level justified by revenues, profits or future prospects. The danger is that, at any moment, stocks may collapse.
Maybe yes. But, as a Reddit user wrote on Friday, stating that hedge fund financiers would drink champagne by despising Occupy Wall Street protesters in 2011:
“I prefer to lose everything than to give them what they need to destroy me … I will burn everything just to irritate them. ”
The anger and stubborn urge to choose powerful Wall Street financiers sent chills through ordinary investors and heightened fears about the fragility of markets in general after a prolonged period of stock gains fueled by extremely low interest rates. These fears only made the S&P 500 index suffer its worst week of losses since October.
GameStop shares? They shot up almost 70% on Friday. In the past three weeks, they have delivered an astonishing 1,600% gain.
“They figured out how to play the way Wall Street has been playing 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 surprised it hasn’t happened before. ”
Fueling the frenzy are young brokers like 27-year-old Zach Weir, who bought five GameStop shares this week.
“I’m a college student, so that’s basically a month’s rent for me,” said Weir, who is doing a master’s in marketing.
He did this, he said, because he believes in the cause: protecting a beloved gaming store, where he used to hang out as a teenager on Friday nights, from financial tycoons who want the company to fail.
What if he loses his investment?
“If my account drops to zero, it goes to zero,” said Weir. “At this point, it is not about money. I think this is bigger than the money now ”
Frustration and anger at the increase in financial inequality in the American economy has been growing for years. The richest 1% of Americans collected about 19% of pre-tax revenue in 2019, down from less than 11% four decades earlier, according to the World Inequality Database, managed by Emmanuel Saez and Gabriel Zucman, economists at the University of California , Berkeley, along with other researchers.
New York University economist Edward Wolff found that the richest 10% of Americans own about 85% of the shares, a share that has grown steadily over time.
The financial crisis that triggered the 2007-2009 Great Recession intensified resentment against bankers who had financed the bad loans behind the catastrophe and ignored the obvious risks, only to receive taxpayer bailouts and largely escape liability. The growing outrage fueled the Occupy movement, in which protesters occupied Zuccotti Park and other public spaces in New York and demanded far-reaching financial reforms that, for the most part, did not happen.
The coronavirus inflicted more pain, leveling the economy and causing more than 20 million Americans to lose jobs. This week, a report by the anti-poverty group Oxfam found that the 10 richest men in the world have increased their collective wealth by $ 500 billion since the pandemic began in March. In the meantime, almost 10 million people who have lost their jobs due to the pandemic remain unemployed.
The stock market, the target chosen by Reddit day traders, has long been the main symbol of America’s ingrained wealth. But technology, including forums like Reddit, has made it easier, faster and simpler for those affected to mobilize, exchange information and strategize collectively. And e-trading apps, especially Robinhood, allow amateur traders to buy shares without commission with one click.
They identified a vulnerability in the market: the so-called short squeeze.
When hedge funds and other investors want to bet that the stock price will fall, they plan a short sale: they borrow shares from, say, GameStop. Then they sell those borrowed shares, planning to repurchase the shares later at a lower price and pocket the gain.
But the short shot can backfire disastrously if the stock rises instead of falls. Short sellers can then be forced to give up their bets by buying the target shares. Purchasing them, in turn, can drive stock prices up even further and make things even worse for short sellers in an increasingly intense feedback loop.
GameStop, with its future threatened by e-commerce and a pandemic that has kept customers away, is among the best-selling stocks. Some of the Reddit rebels are gamblers who want to protect the retailer from Wall Street predation. Or just take a hit on hedge funds and financiers who have lived well while others have suffered.
Not all day traders are inflamed with anger. They just see an opportunity to make money and pay bills.
“A lot of people are having trouble paying rent,” said Alexis Goldstein, a veteran of the Occupy movement. “Many people are at risk of being evicted. Many people are frantically desperate for new ways to make money. ”
Even so, Goldstein fears that the revolt will fail.
On the one hand, some of the Wall Street companies that are targeted by the Redditors actually profit from the very volatility that the Redditors’ attack has generated.
And the most sophisticated professional traders are undoubtedly calculating how to capitalize on chaos. Typically, they need to work hard and invest heavily to determine what their competitors are doing and profit from that information. On the other hand, Reddit’s day traders are blatantly and publicly announcing their intentions.
“I suspect it is not Robinhood’s investors and Redditors who are making money,” said Goldstein.
She would like to see a different list of reforms – reforms to control the excesses of Wall Street and help those left behind.
“Hopefully, we can ask fundamental questions about whether we want our markets to be driven by speculation or whether we want them to create innovation and jobs,” she said. “Stop fighting so hard for a buck and rebuild the social safety net instead. ”
Tom Osran, a 59-year-old lawyer from Chicago, has been reading the WallStreetBets forum on Reddit for years. But it was only last week that he decided to act for the first time, buying GameStop. His investment, he said, increased by 1,000% from last week, although he declined to disclose the dollar value.
Osran said he estimates that the astronomical increase in its shares could save GameStop from hedge funds that bet a company with 40,000 employees will go bankrupt.
“It’s fun to be part of a movement,” said Osran.
He knows he can lose everything he has invested in GameStop shares. However, he is philosophical.
“We are all adults, we all know that stocks can go up and down,” said Osran. “It has been incredibly profitable so far, but it could end tomorrow.”
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Pisani reported from New York.