Any hope that America would regain its senses and become collectively sane again following one of the most tumultuous periods for the country in at least five decades went out the window this week.
What should have been a fun, anecdotal story about retail investor camaraderie morphed into a highly contentious, national scandal by Thursday afternoon.
Just days ago, it seemed like a ridiculous stretch to equate the sentiment smoldering among legions of small-time stock traders on Reddit to the Capitol riots. By Thursday, the word “riot” was commonplace in the discussion.
And “discussion” really isn’t the right word. Americans don’t have “discussions” anymore. The drama surrounding this week’s manic price action in shares of GameStop, AMC, and the like, sparked ridiculous vitriol on social media.
Meanwhile, outlets like Bloomberg fanned the flames, publishing dozens upon dozens of stories in rapid succession. The blanket coverage doubtlessly prompted more retail traders to get involved.
At one point, GameStop passed Plug Power to become the most valuable stock in the Russell 2000. Around 10 AM in New York, it was worth almost $40 billion.
At that juncture, the stock’s 2021 rally totaled near 2,000%. As Bloomberg wrote in one of countless articles, it was “bigger than more than half of the companies in the S&P 500.”
The self-referential character of it all was on full display Wednesday afternoon when the financial media cited Jerome Powell’s reluctance to engage and the Biden administration’s “monitoring” of the situation as “proof” of how earth-shattering the story really is. Never mind that the media’s own coverage and questioning was what prompted officials to weigh in. Once one official speaks (or, in Powell’s case, refuses to), others are compelled.
Now, lawmakers are calling for hearings.
“This is unacceptable. We need to know more about Robinhood’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade as they see fit,” Alexandria Ocasio-Cortez seethed, after platforms implemented trading restrictions ostensibly aimed at restoring order. “As a member of the Financial Services Committee, I’d support a hearing if necessary.”
“Absolutely,” Elon Musk responded. “Fully agree,” Ted Cruz chimed in.
My own well-known affinity for Ocasio-Cortez (and her “sisters”) notwithstanding, this is political opportunism at its finest. Effectively sidelined by a Democratic leadership terrified by her potential, Ocasio-Cortez will gladly leverage opportunities to prove her populist bonafides to voters. Recall that she spent part of inauguration day wielding a bullhorn on a picket line with the Teamsters. Taking up the cause of the Reddit traders gets her a lot of “bang for the buck” in terms of political capital with young voters.
Nancy Pelosi was much more reserved, calling the situation “interesting.” “I understand that the administration is taking a look, the SEC is taking a look,” Pelosi remarked. “We’ll all be reviewing it.”
The juxtaposition with Ocasio-Cortez was stark.
“Enemies make strange bedfellows. Lock em’ up,” Dave Portnoy wrote, retweeting Ocasio-Cortez. “The decisions that were made at Robinhood today should land everybody who was involved in those decisions in prison,” he added.
Everything is now “us versus them” in America. Someone always needs to be “locked up.” There’s always a bad guy. Everyone’s always a victim in their own minds.
In reality, nobody (that I’m aware of anyway) was terribly distraught at the prospect of retail investors making some money by turning the tables on people who have plenty of it. That was never an issue. But by Thursday, the situation had spiraled not just beyond GameStop, but beyond markets entirely.
Suddenly, America found something else to argue about. Once the short witches were burned, it was time to haul executives from trading platforms up to Capitol Hill. Meanwhile, regulators are probably looking into the who, what, when, where, and why when it comes to how this all got started in the first place.
There are always “good people on both sides.” Or didn’t you hear?
In a statement, Ro Khanna (who represents California’s 17th congressional district, in the heart of Silicon Valley) chided the same disparity in access to markets. “While retail trading in some cases, like on Robinhood, blocked the purchasing of GameStop, hedge funds were still allowed to trade the stock,” he said. Khanna is a member of the Congressional Progressive Caucus.
Edwin Groshans and Hunter Hammond, analysts at Height Capital Markets, underscored the notion that the GameStop saga had become yet another manifestation of the same political dynamics that have gripped the country for nearly a half-decade.
The price action in shares of Bed Bath & Beyond, Build-A-Bear, BlackBerry, Tootsie Roll, Nokia, Express, and AMC (among others) suggests “populism [is] permeating another American institution – the stock market,” they wrote.
“It may be easy to dismiss recent trading as a pump-and-dump, simple momentum, or idiocy – and looking back it may be all of those things – but a review of many threads on the subreddit r/wallstreetbets reveals something deeper,” Groshans and Hammond went on to say. “In many of the posts, Redditors displayed anger at hedge funds, anger at older generations, anger at financial media coverage of the WSB forum, and a desire to punish those in charge.”
On Thursday afternoon, Robinhood found itself named as a defendant in at least two lawsuits (here and here). The platform’s decision to halt trading in some of the names involved in this week’s drama “was to protect institutional investment at the detriment of retail customers,” one Naperville, Illinois, resident alleged, in a suit filed in Chicago.
As The New Yorker put it this month, “the storm might be here.”