wall street

The Final Boss Is Capitalism

The Reddit forum WallStreetBets is fueling the frenzy of stock trading that started with GameStop. Photo: Bloomberg via Getty Images

Everybody loves a good revenge story. Better still if the tale pits an underdog against a mighty foe. From enough of a distance, the journey of GameStop’s stock price looks like it satisfies all requirements. A group of Redditors purchased GameStop shares in what’s known as a “short squeeze” and raised the beleaguered retailer’s stock price by over 400 percent within a week. Hedge funds lost millions of dollars — and the denizens of r/wallstreetbets raked in the cash.

Back on the subreddit — which says it is “like 4chan found a Bloomberg terminal illness” — traders rejoiced. “THIS IS FOR ALL THE FAMILIES THAT LOST THEIR HOMES, THEIR CARS, THEIR LIVES BECAUSE OF THE SHIT FUCKING DECISIONS FROM 2008. FUCK YOU, AND FUCK YOUR PARASITIC BUSINESS MODELS,”  proclaimed one user, n00b001. They added a request: “DANCE FOR ME MONKEY.”

N001b001 did not respond to a request for comment. But the monkeys are dancing: Melvin Capital, which had shorted GameStop stock, is down 30 percent, and the wealthy are distraught. On CNBC, billionaire Leon Cooperman complained that ne’er-do-wells were “sitting at home getting their checks from the government, trading their stocks.” In a battle between Cooperman, who once wept at the prospect of higher taxes, and a r/wallstreetbets user who says they used l’affaire GameStop to get out of medical debt, men and women of conscience must side with the Redditor. Look a little closer, though, and this isn’t much of a revenge story at all. The monkeys still have minds of their own, and they may be stronger than Redditors realize.

By Thursday morning, the gears had already begun to turn against r/wallstreetbets. They lost a choice weapon when Robinhood, a popular free stock-trading app, said it would restrict trading certain securities, including GameStop and a handful of other stocks all targeted by Reddit. Some users could sell GameStop securities they already owned, but wouldn’t be able to open any new positions. (The move might not have been legal, and there’s already a class-action lawsuit.) The price of GameStop shares began to drop. And Melvin Capital, the Redditors’ great enemy, has received a bailout worth $2.75 billion from Point 72 and Citadel LLC — the parent company of Citadel Securities, the largest market maker used by Robinhood. The revolutionary vanguard ran into an ouroboros of shit.

While some on the left celebrate r/wallstreetbets for upsetting a few hedge-fund guys, and see political potential in its unformed populist energies, the reality is not quite so subversive. Redditors simply held a mirror up to a rotten system. The stock market was never all that rational. Redditors may indeed be motivated by “a mix of greed and boredom,” as the New York Times recently suggested, but it’s hard to argue that their besuited foes are motivated by anything more meaningful. As for Robinhood, it doesn’t exactly live up to its name. The app and tools like it “rely on what’s known as payment for order flow as their profit engine in lieu of commissions,” as CNBC put it in 2020. That makes Robinhood a lot of money, which helps it keep its trades “free” and allows it to bring more people into the market, fulfilling its promise to “democratize finance” in a literal sense. But the app was never built for true wealth redistribution.

“Robinhood is selling your order flow to a hedge fund,” explained Alexis Goldstein, a former Wall Street professional turned advocate for finance reform. By using the app, she said, “maybe you’re sticking it to one hedge fund. But Citadel went and then bought the hedge fund that the Redditors think that they caused to go under.” Robinhood, she added, is just “a fig leaf over a larger battle between two different Goliaths.” The Davids can get stamped underfoot.

“There are two things about bubbles. They always go on longer than you think, but they do eventually burst,” said Doug Henwood, the author of Wall Street and editor of Left Business Observer. When that inevitably happens, the average Redditor “will be left holding the bag,” he added.

The amount of trouble a Redditor could find themself in depends on the kind of trading they’re doing, Goldstein said. “If people are telling the truth, and who knows if they are, they’re putting lots of money into options, and let’s not forget that most options expire worthless,” she pointed out. Hold an option for too long, she went on, and “something that is worth tons of money right now can evaporate overnight.” A Redditor could lose everything he sunk into his dream of sticking it to the man. Unlike Melvin Capital, he won’t get a bailout.

N001b001 isn’t the only person thinking about 2008, either. So is Goldstein. The political significance of Reddit’s raid on Wall Street may be determined largely by regulators, which does not necessarily inspire confidence. Goldstein recalled the example of Abacus, the only bank prosecuted in connection with the financial crisis. Abacus was small and family-owned; The Manhattan District Attorney’s Office led by Cy Vance and the Department of Justice paraded employees out in handcuffs. The Chinatown-based bank and its executives were eventually acquitted of all charges, and bigger, guiltier banks sallied forth unscathed. “I think one concern is that there could be regulatory scrutiny that goes after smaller players and not bigger players,” Goldstein said.

Barring potential regulation, what has r/wallstreetbets accomplished? A few Redditors may make good money. Leon Cooperman might cry again. Melvin Capital’s founder, Gabe Plotkin, is having a very bad week. Perhaps more importantly, it is difficult to sustain certain fictions about the pure rationality of the market. The invisible hand looks shaky, but it was never all that steady.

Try describing a short sale to someone, Henwood challenged in a recent piece for Jacobin magazine. It’s a bet, which is not strictly gambling, though you wouldn’t be insane for thinking it’s close. You have concluded that a stock will soon fall in price, which could be an opportunity for profit. But standing between you and your profit are the esoteric mysteries of the free market. Before you can make your bet, “you have to borrow the stock from somebody who does own it,” Henwood explained. Because you don’t own it — remember, you’re only borrowing it — you have to pay interest on it. At the same time, you have to hand your broker some collateral. If you’re right, or at least lucky, the stock price will fall just as you expected, and you’ll buy up shares. Your profit, wrote Henwood, is the difference “between the original sale price and the closing purchase price, minus any interest paid on the borrowed asset.”

That’s the bet Gabe Plotkin made with GameStop. That’s how things work, unless something unexpected occurs. The Redditors disrupted business as usual with their short squeeze, and in the process, jeopardized Plotkin’s ability to keep the beautiful Miami homes he recently purchased. But that’s nearly all they did. They did not start an uprising. They are not about to overthrow capitalism. That latter goal doesn’t even seem to appeal to them. It’s certainly not why anyone opens an account with Robinhood — the app promises assimilation, not subversion. Use it and you can be rich, too.

But as Redditors abruptly discovered on Thursday, Robinhood’s promises might not mean much. The company took their toys away and then seemingly reversed course, announcing later in the afternoon that it would allow “limited buys” of GameStop on Friday. New York attorney general Letitia James’s office is “reviewing” Robinhood’s abortive attempt to limit trading, though it’s not altogether clear what that means for the company. This wouldn’t be their first run-in with government officials: The company paid a $65 million fine in 2020 after the Securities and Exchange Commission found that it had misled customers, in part by passing along orders to brokerages regardless of whether those firms offered traders the fairest prices available. The app has been linked to at least one suicide, after a 20-year-old man trading complex options saw a negative $730,000 balance in his account. He didn’t really owe the money, but the app’s slick graphics and interface misled him, relatives said. It all looked like a game, until it didn’t.

But perhaps we can learn something from r/wallstreetbets, if only by accident. Capitalism is a robust entity and strange. The gamers among us may wish to think of it as the final boss. The late critical theorist Mark Fisher, summarizing philosophers Deleuze and Guattari, put it another way, observing that capitalism “is no longer governed by any transcendent law; on the contrary, it dismantles all such codes, only to reinstall them on an ad hoc basis.” Robinhood giveth, then it taketh away. Hurt one hedge fund, and unless you take the entire system down with it, a Citadel Securities will make sure it grows back. They’re all part of the same organism. “This makes capitalism very much like the Thing in John Carpenter’s film of the same name: a monstrous, infinitely plastic entity, capable of metabolizing and absorbing anything with which it comes into contact,” Fisher concluded. What hope does any individual, Redditor or non, stand against that creature? You’ll need something more than Robinhood, that’s for damn sure, and you can’t count on the regulators, either. You need mass movement: anger, an understanding of the stakes, a clear goal. A total reimagining of the world, and the place of profit in it.

What we have instead is a brief, shining moment for the trolls. It’s not nothing, but it’s not enough. “People on the left see a revolution or something. It’s just a bunch of guys having LOLs and fucking things up,” Henwood said. “Which can be entertaining. I don’t deny the comic value. But it’s not a great political moment.”

The Final Boss Is Capitalism