The GameStop Saga Is The Ultimate ‘Revenge Of The Nerds’
The GameStop story isn’t complicated or confusing. You don’t need to be financially literate to understand the savory-sweet delight of Cheeto-munching Reddit users’ victory against Wall Street this week; you merely need context.
Washington lawmakers – Republican and Democrat – have spent years raging against a ‘rigged’ and ‘broken’ financial system while simultaneously lining their pockets with donations and insider information from the “fat cats” of Wall Street.
Not that we’re not singling out any specific lawmaker on Capitol Hill, mind you…
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But no one ever expected Washington to made good on its vow to fix the financial system because they’ve been paying lip service to it for years – especially in the wake of the 2008 financial crisis that left American taxpayers holding the bag.
You remember that conversation, don’t you?
Wall Street: “Sorry, you lost your home and retirement savings because of our recklessness, Taxpayers, but could you spare a few trillion to save our ass?”
Taxpayers: “Screw you, Wall Street!”
Washington Lawmakers: “No worries, Wall Street! The taxpayers can afford to pay the bill. Here ya go! Now, remember, we have to pretend to hate you and call you some mean names, but it’s all in good fun, okay? Hey, let’s do lunch!”
That was more than a decade ago. How’s the repair work on the financial system going, Washington?
Flash forward to 2021…
GameStop, a company largely made of brick-and-mortar stores, has been in trouble due to a global pandemic and the fact that they haven’t evolved with the times.
Hedge funds on Wall Street ‘know’ GameStop is a loser, so they place bets on the value of the stock going down by ‘shorting’ it.
Enter the nerds of Reddit…
A Redditt group called “WallStreetBets” used publicly available information to see that the number of GameStop shorts in the market is massive and some hedge funds are overleveraged. They decide to “stick it to Wall Street,” ultimately working together to buy a massive number of Gamestop shares and drive the price higher.
Hedge funds have to buy shares at a loss to unwind their ‘bet,’ and that buying drives the price even higher.
Meanwhile, “WallStreetBets” Reddit users aren’t selling their shares to punish the hedge fund.
Supply and demand…
Demand for shares of GameStop is massive and supply is limited. By the time the Reddit users sell their shares, most of them have made a tremendous amount of money from a relatively small investment and destroyed a few ‘fat cats of Wall Street’ in the process.
Reddit users’ Gamestop victory is relatively insignificant when measured against the carnage of the 2008 financial crisis, but it was a victory nonetheless.
Score one for the little guy eating Cheetos in his basement!
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