If you have been following anything even remotely related to investing in the past month, im sure you have heard about the r/wallstreetbets/gamestop/robinhood debacle.
For those that have no knowledge, or interest, in these matters, the gist of the situation is that an online community on popular interest based media network forum Reddit, referred to commonly by its address “r/WallStreetBets,” is a community that is based around non-professional,or day-traders, who commonly trade on a newly popular platform called ‘robinhood’ recently, a group of traders on the forums noticed that a specific hedge fund had bet on several stocks, like AMC and Gamestop, to fall in share price; this is a practice commonly referred to as a ‘short’, in contrast to a ‘long’ which is conventional value investing. These redditors/traders pooled their manpower and access to the commission free platform of robinhood to purchase as many shares of stock they could ,and hold while the value increased as a result of the high demand; this is a process commonly known as a short squeeze, because the goal of such a maneuver is to ‘squeeze out’ as much stock value from a company as possible, in order to convince those who shorted the stock to buy in at rising share prices, such to mitigate further monetary loss.
Immediately after this became public, economists, businessmen, and elites were lambasting the perceived recklessness of these moves by the day traders. While, to some degree, the actions these traders partake in are closer to betting than actual quantitative investing, there was really no acknowledgement of the predatory, and often similarly structured actions of big hedge fund, likely because such an action would not economically be perceived as reckless due to them having capital to back up most of these moves/cover their potential losses, and most of such moves on their do not rely on the whims of several loosely affiliated individuals whose only form of interaction is an online forum.
Anger from the elites was met with hostility from the day trading crowd, who doubled down on their moves, and essentially claimed martyrdom. Their surprising success in squeezing GameStop caught the attention of the public and the pundits. After a few days, commission free platforms, namely robinhood, stopped allowing new purchases of stock in various companies which were seeing large gains. This move was met with even more hostility from the day trading crowd, and the perceived interference in the free market caused the movement to gain more mainstream traction. Famous Millionaires and billionaires like Mark cuban praised these day traders and even gave them advice. Much of their criticism was similar to that found on the r/WallStreetBets Forums; that the market was only free to those with an excess of means, and that this was proof that when the masses pooled their resources together and concentrate their efforts, they had a genuine fighting chance at directly financially crippling some of the big hedge funds. This begs the question of freedom; are our markets truly free if the people are subject to one set of rules, while other organized entities are exempt from these rules within the same system?
The above is not an entirely complete account of the events of the past few weeks, but the above seems to prove what some have already theorized. Our markets have never really been free. The term ‘free market’ is what some would consider an ‘anti-concept’ which is a term that is even more confused when one tries to reconcile its definition and its meaning in practice. The fact of the matter is the market is not truly free, because the government has the right to intervene, and help out private companies, and also potentially direct their efforts towards sabotaging a company. The question of whether a truly free market would be a better system than the one we have is an entirely different one, but the fact remains that the ‘capitalism’ and ‘self-determination’ that is so central to the propagation of the american dream seems to fade for these redditors and day-traders. While there are undoubtedly some doing this for short term fiscal gain, the posts originated on the forum with the intention to draw light to how harmful the practice of ‘shorting’ was. A sizable portion of the traders who bought stock in Gamestop and similar companies were doing so with disregard to financial gain, and more to make the statement that such a practice was unfair, partially by showing the hedge funds that their strategies were no less risky than any big move day-traders make. The question then remains; was this whole thing based on a risky gamble, or a true cause which people saw as worth fighting for? Regardless, I think the outcome illuminated many glaring flaws in how the Government interacts with the markets, and how this in turn influences the various demographics and actors within the markets, especially when it comes to giving the large organized entities more access and leeway while not affording the same luxuries to enterprising individuals.