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Inside the Reddit group that left traditional investors $5B in the red
Joe Biden is president. Democrats control the House and Senate. Tech overlords are quashing dissent. We’re in the middle of what our betters call the “Great Reset,” when the power of big institutions and the Really Smart People™ is supposed to be re-established after the unfortunate deviation of the Trump years. The hoi polloi are supposed to know their place now, especially those annoying loudmouths on the Internet.
How’s that working out? Just ask Melvin Capital. Melvin was a short-seller that made a big bet that GameStop would go down. Nothing unusual about that, as making negative bets is what short-sellers do, and GameStop, a tired franchise with a poor outlook, was a plausible candidate for a stock decline.
This position came to attention of the r/wallstreetbets group on Reddit, and some of its members decided to give Melvin a hotfoot. Members of the group, who often invest via the youth-oriented platform Robinhood, started buying shares in GameStop. As individuals, they weren’t buying huge amounts; Warren Buffet, they aren’t. But as a group, they did manage to bid the price up. And up. And up. (Many also instructed their broker not to allow their shares to be “loaned” to short-sellers needing to make up their stocks, further reducing the supply).
The result was that GameStop, which had been trading between $3 and $10 a share, rocketed north of $300. This was disastrous for Melvin and other short-sellers, who would have to pay a stiff premium to buy stock to cover their positions, and then sell that stock at a steep loss. (This is why short-selling can be so dangerous.) Melvin was reportedly forced to seek loans from other funds and closed its position at a loss, as did other speculators.
This display of spontaneous group power by a bunch of previous unknowns has frightened the Really Smart People™ and led to reactions that will make things worse, not better. Some discount brokers started displaying warnings and limiting trades. Discord, a popular online chat service used by the r/wallstreetbets group, shut down the group’s service, offering the usual contemporary excuse that the group was engaged in “hate speech” and “spreading disinformation.” Uh-huh.
Meanwhile, regulators huffed and puffed, and CNBC was filled with industry bigshots arguing that this sort of thing shouldn’t be allowed — although, as critics noted, the Reddit mob was just doing to the short-sellers what Wall Street insiders do all the time to retail investors.
The Biden administration, meanwhile, weighed in with the sort of response we’ve come to expect from the Really Smart People™. Asked if the White House was concerned about the stock market and the movement of GameStop stock, Press Secretary Jen Psaki responded: “Well, I’m also happy to repeat that we have the first female Treasury secretary.”
Prediction: We will see more Big Tech censorship, maybe even government regulators, set against the Robinhood crowd. But it won’t work the way the censors and regulators hope.
Writing for The Post this week, Charles Gasparino explained why the little guys got together to buy GameStop: “Mostly, they’re out to hurt the big guys.”
The Big Guys’ problem is that nobody likes them much. From Silicon Valley to Wall Street, they’re deeply unpopular with ordinary Americans, on both the left and the right, resentment they’ve stoked with selfishness, arrogance and condescension. Their solution to this unpopularity has been to use their control over online platforms, and their influence over the government, to silence their critics.
But they can’t stop the signal. No sooner did the tech giants collude to shut down Twitter alternative Parler than a new revolt sprang up somewhere else entirely among stock traders on Reddit. What will it be next? Truck drivers refusing to deliver food to Silicon Valley? Plumbers boycotting “woke” executives? It’ll probably be something cleverer and less foreseeable than that, but it’ll be something. The more the techno-elite tightens its grip, the more Americans will slip through its fingers.
As Matthew J. Peterson tweeted, “Massive tectonic shifts towards large-scale political resistance and deep cultural rebellion going on right now. Don’t let the bastards gets you down. Big Brother is freaking out for a reason.”
The freakout by our betters is real. Ironically, all the Really Smart People™ would have to do to make the problem go away is to stop throwing their weight around, stop condescending and start treating their fellow Americans as fellow citizens worthy of respect. At least, that’s what they would do, if they were actually really smart.
Glenn Harlan Reynolds is a professor of law at the University of Tennessee and founder of the InstaPundit.com blog.
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