VIDEO: The Reddit Revolution, GameStop and Melvin Capital
greenwald.substack.com
One of the most interesting and potentially significant conflicts to happen in some time — not just financially but culturally and politically — deserves serious scrutiny.
Funny how the hedge funds cry to the SEC and the administration and then all of a sudden we see this BS.
ANYONE who tries to spin the actions of Robinhood, Discord, the other trading platforms as ANYTHING OTHER than a clear attempt to protect the hedge funds from their stupid bets is just a pathetic Wall Street apologist and shill.
January 27th and 28th, 2021 saw the Washington Post at last totally divorce itself from what used to be called “the news”. I have the Post delivered to my door every day. On the morning of January 27, I eagerly opened my copy to see what the Post had reported on one of the biggest if not the biggest news stories of the week, the revolt of the small retail investor against the hedge fund giants. To wit the meteoric rise of shares in GameStop which cost several hedge funds who had shorted the stock billions of dollars. A rare, rare victory of the small guy against the titans of the financial world. I couldn’t find a single mention of the story in the paper! Not on the front page and even not in the “business” section. I assumed I had missed the story and went back through the paper page by page. Nope, it wasn’t there. Not one word! In the real world of journalism this would have led to the firing of the editor. But we work under different rules now.
I can imagine the editors not knowing how to play this news. Yes, they could have simply stated the plain facts; the stock moved how much, and hedge funds lost so much, but they didn’t. News is about so much more than facts these days. The dilemma was this; clearly it was at least a symbolic victory for the small guy and a demonstration of a fearsome new power in the financial world and the Post staff and management saw themselves as champions of the little guy. On the other hand, it was a near mortal blow to some of the captains of the industry who have now become (at least for public consumption) friends of the Democratic party and fierce enemies of the guy who used to be president. (Don’t blame me for bringing him into the story, the Post did that on their own) And besides the Post is a business that has had its ups and downs in recent years, and it doesn’t pay to make enemies of these guys, not to mention the owner of the Post, Jeff Bezos is one of the world’s richest men and has much more in common, if not outright friendship with said titans. So the Post decided to punt and skip the story altogether. Perhaps it took them a day to consult with Mr. Bezos and others in the industry and in the world of politics to see how to spin the story. Oh, how I would like to be a fly on the wall of the editor’s office! I am sure there was some real debate going on! I am sure the Post’s woke staff had plenty to say about this story.
Move to Thursday the 28th. The story framing is complete, and it comes down on the side of the elites. Now it’s a front-page story. In a very long two-page article the Post plays the role of the hedge fund toady and defender. The small investor is now “a flash mob with money”. And we know what sinister connotations the word “mob” has taken on in the past few weeks. As crazy as it seems the article doesn’t mention the role of short sellers (who smell bad) until the twentieth paragraph on an inside page and doesn’t mention the specific hedge fund until the twenty-ninth paragraph when this information was all over the news. Unbelievable! The Post preferred to call the hedge funds “big Wall Street firms, “wealthy institutions”, and “big institutions”.
By late Thursday the political/financial industry dealt the small investor a savage blow in a naked show of force. Halting the purchase of GameStop shares but not their sale meant the market could go only one way, down, saving hedge funds from losing billions more if not saving some from total destruction. If this isn’t the definition of market manipulation, the word has no meaning. It will be interesting to see how the liberal mainstream media plays this story in coming days. They can’t support both sides. At least we know where the Post stands. The story is not over.
So the real issue now is not so much the little guys versus the hedgies but it's the fact that the system (Discord, Robinhood, TD, etc) are now forcing the price lower by basically stopping people from buying the stock.
Glenn, one of the stories that got "memory-holed" by Obama's Praetorian Guard media was his role in persuading members of the Congressional Black Caucus to switch their votes on the 2008 bailout without receiving the protections for distressed homeowners that they had been holding out for. It should be better known as one of the original moments establishing the basic framework of the kind of woke neoliberalism that we're now so familiar with: the exploitation of identity politics as a means of providing cover for corrupt corporate powers.
And now RobinHood and other popular "retail" investment apps and services have DE-LISTED Gamestop (GME) and others including Bed Bath and Beyond and Blackberry. You can't even find them - they've been removed from the search.
This is what happens when "titans" used to being able to game the system easily for themselves and their uber-rich clientele encounter the actual negative outcome of a RISK they took on a short. There are more short positions on Gamestop stock than there are stocks. Let that sink in for a minute. There are about 1.5 million more shorts (meaning borrowed stocks which were sold hoping the price crashes) than there are actual stocks. That, my friends, Wall Street says is "due to a technicality." The whole system is a sham. It's time to destroy Wall Street and stage another Occupy movement - this time with the force and fury of the summer's police protests.
I hope this Gamestop/Reddit episode inspires new and original thinking about all the ways ordinary Americans -- politically left or right -- can legally undermine and dethrone our repugnant ruling classes.
I've always found the concept of hedge funds - in which people buy stocks not to invest in companies, but to speculate - to be immoral. You're basically gambling that certain companies will lose value, and make money when this happens. Hedge funds generate no actual wealth for society, they create nothing of value. They are parasites. And if you read the Reddit subs of the folks who are driving up the price of the hedge funds' target stocks to preclude the hedge funds from making money off of other people's losses, you'll find that my view is a common one. It's a way of screwing over the folks who have been screwing over our economic system for decades now. Hedge funds have siphoned trillions of dollars out of the stock market - trillions of dollars that could have, should have, been invested in R&D, marketing, new startups, etc., and instead did nothing but line the pockets of a very small number of people who are very good at anticipating when some companies would lose value. Anything that hurts the hedge funds is good for the American economy, and good for the American people.
I don't think that the hedge fund made "a terrible bet" - they made a very smart bet.... but they went to an extreme risk to make that bet and the Reddit folks simply capitalized on the system which gloriously made that risk a reality. The issue is not the betting process, it is the definition of 'risk.' The rigged game that the wealthy play by serves to negate that risk at the expense of others - and I am thrilled to see them suffer the consequences of [or, rather, that they *should* suffer the consequences of].
When this started on Jan 7 or so, GME had 65 million shares on the board and Wallstreet short sellers had calls on 72.5 million shares. Meaning, the Wallstreet fund big wigs had somehow used leverage to buy more shares than actually existed.
This was so obvious (and blatantly illegal by the way) that even your average uninformed day-traders noticed. This meant that when the shorts inevitably came due, there weren't enough shares to buy to cover the calls, and if small investors held onto their shares instead of selling, the price would skyrocket, which would make the losses even bigger for the shorts as time went by.
It was the arrogance, greed and willful illegality(something they knew they could get away with, since they always had done so before) of the Citadel investment group and friends, which practically invited this act of populist uprising.
It was a chance to stick it to the yellow-tie fat-cats, and make some dough at the same time.
Every time Glenn said "Wall Street", I heard "Washington"..........because the problem isn't Wall Street......it's that Government has too much power.......and creates a market for "favors" from which they "sell" that power. If government had the Constitutionally limited role they're supposed to have........Wall Street wouldn't waste their time with their lobbying efforts......because Government has nothing to SELL!
Bipartisan Consensus, or what I like to call, Well Funded Organized Crime.
In 1999 and 2000, President Clinton signs the Gramm–Leach–Bliley Act and Commodity Futures Modernization Act. These acts made it legal for our banks to operate as casinos (CDOs, CDSs, MBSs…).
In 2005, Barney Frank: “Obviously, speculation is never a good thing…but you’re not going to see the collapse that you see when people talk about a [housing] bubble. And so, those of us on our committee, in particular, will continue to push for homeownership.”
2008-2009, "The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution," Sanders said.
A battle of epic proportion has seen it's first skirmish. The GME short play aimed at Wall Street hedge funds who had shorted 170% of the float, penetrated their sacred gilded coffers and ransacked their treasure.
They were beaten back today by effectively moving the goal post whilst the winning kick was in the air. I think battle lines will continue to develop and the plutocrats will not go gently into battle.
I have nothing against short sellers. They typically provide a valuable service, and much fraud has been uncovered by short sellers who bet against a company they believe is perpetrating a fraud. They have an economic incentive to do this, so they shouldn't be viewed as heroes. But, it benefits the market when fraud is uncovered or deterred (e.g., don't engage in fraud for fear that you might attract scrutiny of short sellers looking to profit).
The issue here is the exactly the same as the issue that arose when Parler was banned: Corporations are abusing their platforms to rid themselves of those engaging in disfavored speech.
In Parler's case, it was conservatives. Don't kid yourselves for a moment that they were banned because Parler is where capital protests were organized. If that were true, Facebook and Twitter would also be banned. But, Parler is smaller and generally has speech that is disfavored. While more capital protests were organized on Facebook and Twitter, those platforms already are deplatforming those whose speech they don't like. So, Apple, Google and Amazon don't lift a finger or even mention them when deplatforming Parler.
It's the same thing with the WSB crowd. It's the speech that's disfavored. The monied interests don't like that they can band together, share ideas and impact the entrenched interests of billionaires. So, they deplatformed this collection of disfavored speakers: take away their platforms on Reddit; take away the Discord server; eliminate their ability to express themselves (in the form of stock trades) on Robinhood; etc.
It's just another episode of crony capitalism and collusion. Most people don't care about Parler. Most don't care about the WSB crowd. The problem is: Most won't care until they come for you. Big tech can pick you off, one by one because individually you don't matter. This playbook has been in effect for at least 10 years now. It's accelerating, but it didn't start with Parler. It's been going on for quite some time (e.g., Cloudflare and 8Chan, but many incidents predate that as well.)
Glenn your enthusiasm is palpable! The giddy look as you explain this situation is priceless! Thank you! And p.s I have a friend who made over a million dollars!!! He plans to fund his future children’s education with the proceeds.
This all rings true to me. Got out of the market years ago because "market fundamentals"--the actual economic health of traded companies--no longer drive what the market does and how it acts. Put another way, the "Invisible Hand" of the market is so corrupt that individual investors have little chance and little security. Hats off to those who found a way to strike back, and thanks for the jolt of schadenfreude.
There will of course be a reaction from the Masters. Here's one possible outcome--the gamestop rebellion will be couched as a mild form of economic terrorism, and provisions will be included in the upcoming Domestic Terrorism Bill. The relevant provisions naturally will be written by Wall Street lawyers and lobbyists, just as healthcare lawyers and lobbyists wrote much of the ACA.
A positive outcome from this crowd-sourced technique might be in it's application to other sectors, such as oil/gas. Oil/gas is hugely dependent on wall street funding. How could the gamestop tactic be used to hasten the demise of oil/gas industry? Which would benefit the entire planet.
Hedge Funds = Big Democratic Donors
Big Tech = Big Democratic Donors
Administration = Democrat
Funny how the hedge funds cry to the SEC and the administration and then all of a sudden we see this BS.
ANYONE who tries to spin the actions of Robinhood, Discord, the other trading platforms as ANYTHING OTHER than a clear attempt to protect the hedge funds from their stupid bets is just a pathetic Wall Street apologist and shill.
January 27th and 28th, 2021 saw the Washington Post at last totally divorce itself from what used to be called “the news”. I have the Post delivered to my door every day. On the morning of January 27, I eagerly opened my copy to see what the Post had reported on one of the biggest if not the biggest news stories of the week, the revolt of the small retail investor against the hedge fund giants. To wit the meteoric rise of shares in GameStop which cost several hedge funds who had shorted the stock billions of dollars. A rare, rare victory of the small guy against the titans of the financial world. I couldn’t find a single mention of the story in the paper! Not on the front page and even not in the “business” section. I assumed I had missed the story and went back through the paper page by page. Nope, it wasn’t there. Not one word! In the real world of journalism this would have led to the firing of the editor. But we work under different rules now.
I can imagine the editors not knowing how to play this news. Yes, they could have simply stated the plain facts; the stock moved how much, and hedge funds lost so much, but they didn’t. News is about so much more than facts these days. The dilemma was this; clearly it was at least a symbolic victory for the small guy and a demonstration of a fearsome new power in the financial world and the Post staff and management saw themselves as champions of the little guy. On the other hand, it was a near mortal blow to some of the captains of the industry who have now become (at least for public consumption) friends of the Democratic party and fierce enemies of the guy who used to be president. (Don’t blame me for bringing him into the story, the Post did that on their own) And besides the Post is a business that has had its ups and downs in recent years, and it doesn’t pay to make enemies of these guys, not to mention the owner of the Post, Jeff Bezos is one of the world’s richest men and has much more in common, if not outright friendship with said titans. So the Post decided to punt and skip the story altogether. Perhaps it took them a day to consult with Mr. Bezos and others in the industry and in the world of politics to see how to spin the story. Oh, how I would like to be a fly on the wall of the editor’s office! I am sure there was some real debate going on! I am sure the Post’s woke staff had plenty to say about this story.
Move to Thursday the 28th. The story framing is complete, and it comes down on the side of the elites. Now it’s a front-page story. In a very long two-page article the Post plays the role of the hedge fund toady and defender. The small investor is now “a flash mob with money”. And we know what sinister connotations the word “mob” has taken on in the past few weeks. As crazy as it seems the article doesn’t mention the role of short sellers (who smell bad) until the twentieth paragraph on an inside page and doesn’t mention the specific hedge fund until the twenty-ninth paragraph when this information was all over the news. Unbelievable! The Post preferred to call the hedge funds “big Wall Street firms, “wealthy institutions”, and “big institutions”.
By late Thursday the political/financial industry dealt the small investor a savage blow in a naked show of force. Halting the purchase of GameStop shares but not their sale meant the market could go only one way, down, saving hedge funds from losing billions more if not saving some from total destruction. If this isn’t the definition of market manipulation, the word has no meaning. It will be interesting to see how the liberal mainstream media plays this story in coming days. They can’t support both sides. At least we know where the Post stands. The story is not over.
So the real issue now is not so much the little guys versus the hedgies but it's the fact that the system (Discord, Robinhood, TD, etc) are now forcing the price lower by basically stopping people from buying the stock.
And that's what the SEC should be investigating.
Glenn, one of the stories that got "memory-holed" by Obama's Praetorian Guard media was his role in persuading members of the Congressional Black Caucus to switch their votes on the 2008 bailout without receiving the protections for distressed homeowners that they had been holding out for. It should be better known as one of the original moments establishing the basic framework of the kind of woke neoliberalism that we're now so familiar with: the exploitation of identity politics as a means of providing cover for corrupt corporate powers.
And now RobinHood and other popular "retail" investment apps and services have DE-LISTED Gamestop (GME) and others including Bed Bath and Beyond and Blackberry. You can't even find them - they've been removed from the search.
This is what happens when "titans" used to being able to game the system easily for themselves and their uber-rich clientele encounter the actual negative outcome of a RISK they took on a short. There are more short positions on Gamestop stock than there are stocks. Let that sink in for a minute. There are about 1.5 million more shorts (meaning borrowed stocks which were sold hoping the price crashes) than there are actual stocks. That, my friends, Wall Street says is "due to a technicality." The whole system is a sham. It's time to destroy Wall Street and stage another Occupy movement - this time with the force and fury of the summer's police protests.
I hope this Gamestop/Reddit episode inspires new and original thinking about all the ways ordinary Americans -- politically left or right -- can legally undermine and dethrone our repugnant ruling classes.
I've always found the concept of hedge funds - in which people buy stocks not to invest in companies, but to speculate - to be immoral. You're basically gambling that certain companies will lose value, and make money when this happens. Hedge funds generate no actual wealth for society, they create nothing of value. They are parasites. And if you read the Reddit subs of the folks who are driving up the price of the hedge funds' target stocks to preclude the hedge funds from making money off of other people's losses, you'll find that my view is a common one. It's a way of screwing over the folks who have been screwing over our economic system for decades now. Hedge funds have siphoned trillions of dollars out of the stock market - trillions of dollars that could have, should have, been invested in R&D, marketing, new startups, etc., and instead did nothing but line the pockets of a very small number of people who are very good at anticipating when some companies would lose value. Anything that hurts the hedge funds is good for the American economy, and good for the American people.
I don't think that the hedge fund made "a terrible bet" - they made a very smart bet.... but they went to an extreme risk to make that bet and the Reddit folks simply capitalized on the system which gloriously made that risk a reality. The issue is not the betting process, it is the definition of 'risk.' The rigged game that the wealthy play by serves to negate that risk at the expense of others - and I am thrilled to see them suffer the consequences of [or, rather, that they *should* suffer the consequences of].
When this started on Jan 7 or so, GME had 65 million shares on the board and Wallstreet short sellers had calls on 72.5 million shares. Meaning, the Wallstreet fund big wigs had somehow used leverage to buy more shares than actually existed.
This was so obvious (and blatantly illegal by the way) that even your average uninformed day-traders noticed. This meant that when the shorts inevitably came due, there weren't enough shares to buy to cover the calls, and if small investors held onto their shares instead of selling, the price would skyrocket, which would make the losses even bigger for the shorts as time went by.
It was the arrogance, greed and willful illegality(something they knew they could get away with, since they always had done so before) of the Citadel investment group and friends, which practically invited this act of populist uprising.
It was a chance to stick it to the yellow-tie fat-cats, and make some dough at the same time.
Every time Glenn said "Wall Street", I heard "Washington"..........because the problem isn't Wall Street......it's that Government has too much power.......and creates a market for "favors" from which they "sell" that power. If government had the Constitutionally limited role they're supposed to have........Wall Street wouldn't waste their time with their lobbying efforts......because Government has nothing to SELL!
Bipartisan Consensus, or what I like to call, Well Funded Organized Crime.
In 1999 and 2000, President Clinton signs the Gramm–Leach–Bliley Act and Commodity Futures Modernization Act. These acts made it legal for our banks to operate as casinos (CDOs, CDSs, MBSs…).
“I got bad advice on derivatives: Clinton”
https://economictimes.indiatimes.com/news/international/i-got-bad-advice-on-derivatives-clinton/articleshow/5829941.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
In 2002, President Bush issued America's Homeownership Challenge to increase commitment to the minority market.
https://www.youtube.com/watch?v=QYvtvcBKgIQ
In 2005, Barney Frank: “Obviously, speculation is never a good thing…but you’re not going to see the collapse that you see when people talk about a [housing] bubble. And so, those of us on our committee, in particular, will continue to push for homeownership.”
https://www.youtube.com/watch?v=iW5qKYfqALE
2008-2009, "The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution," Sanders said.
https://money.cnn.com/2010/12/01/news/economy/fed_reserve_data_release/index.htm
And the cover up. “Eric Holder, Wall Street Double Agent, Comes in From the Cold”
https://www.rollingstone.com/politics/politics-news/eric-holder-wall-street-double-agent-comes-in-from-the-cold-49262/
A battle of epic proportion has seen it's first skirmish. The GME short play aimed at Wall Street hedge funds who had shorted 170% of the float, penetrated their sacred gilded coffers and ransacked their treasure.
They were beaten back today by effectively moving the goal post whilst the winning kick was in the air. I think battle lines will continue to develop and the plutocrats will not go gently into battle.
I have nothing against hedge funds, except possibly the carried interest tax loophole they all exploit. https://www.investopedia.com/articles/investing/101415/2-ways-hedge-funds-avoid-paying-taxes.asp But, that's not their fault. It's Congress's fault and one more way they protect rich, entrenched interests.
I have nothing against short sellers. They typically provide a valuable service, and much fraud has been uncovered by short sellers who bet against a company they believe is perpetrating a fraud. They have an economic incentive to do this, so they shouldn't be viewed as heroes. But, it benefits the market when fraud is uncovered or deterred (e.g., don't engage in fraud for fear that you might attract scrutiny of short sellers looking to profit).
The issue here is the exactly the same as the issue that arose when Parler was banned: Corporations are abusing their platforms to rid themselves of those engaging in disfavored speech.
In Parler's case, it was conservatives. Don't kid yourselves for a moment that they were banned because Parler is where capital protests were organized. If that were true, Facebook and Twitter would also be banned. But, Parler is smaller and generally has speech that is disfavored. While more capital protests were organized on Facebook and Twitter, those platforms already are deplatforming those whose speech they don't like. So, Apple, Google and Amazon don't lift a finger or even mention them when deplatforming Parler.
It's the same thing with the WSB crowd. It's the speech that's disfavored. The monied interests don't like that they can band together, share ideas and impact the entrenched interests of billionaires. So, they deplatformed this collection of disfavored speakers: take away their platforms on Reddit; take away the Discord server; eliminate their ability to express themselves (in the form of stock trades) on Robinhood; etc.
It's just another episode of crony capitalism and collusion. Most people don't care about Parler. Most don't care about the WSB crowd. The problem is: Most won't care until they come for you. Big tech can pick you off, one by one because individually you don't matter. This playbook has been in effect for at least 10 years now. It's accelerating, but it didn't start with Parler. It's been going on for quite some time (e.g., Cloudflare and 8Chan, but many incidents predate that as well.)
I have a Frankfurt investment banker friend who puts it most simply: “America has two conservative parties.”
Glenn your enthusiasm is palpable! The giddy look as you explain this situation is priceless! Thank you! And p.s I have a friend who made over a million dollars!!! He plans to fund his future children’s education with the proceeds.
This all rings true to me. Got out of the market years ago because "market fundamentals"--the actual economic health of traded companies--no longer drive what the market does and how it acts. Put another way, the "Invisible Hand" of the market is so corrupt that individual investors have little chance and little security. Hats off to those who found a way to strike back, and thanks for the jolt of schadenfreude.
There will of course be a reaction from the Masters. Here's one possible outcome--the gamestop rebellion will be couched as a mild form of economic terrorism, and provisions will be included in the upcoming Domestic Terrorism Bill. The relevant provisions naturally will be written by Wall Street lawyers and lobbyists, just as healthcare lawyers and lobbyists wrote much of the ACA.
A positive outcome from this crowd-sourced technique might be in it's application to other sectors, such as oil/gas. Oil/gas is hugely dependent on wall street funding. How could the gamestop tactic be used to hasten the demise of oil/gas industry? Which would benefit the entire planet.