The GameStop Squeeze

benfell

See updates through February 2, 2021, at end of post.

So a curious thing happened when a bunch of Reddit users got together and counteracted a move by hedge funds to “short” stocks in GameStop and a few other companies,[1] essentially doing to hedge funds what those same funds routinely do to ordinary investors[2] and forcing the funds to cover their positions at an estimated cost approaching $71 billion.[3] Robinhood, an app that apparently enables users to trade in fractions of shares, and other platforms clamped down, restricting the trades and sparking howls about hypocrisy.[4] (Robinhood has now partly rescinded its freeze, claiming, unconvincingly to some, that its actions were necessary to comply with federal requirements.[5])

Animus toward Wall Street seems in part to have sparked what[6] I’m calling, for lack of a better label, the “GameStop Squeeze.” That animus, as seen on my Twitter feed, is partly in response to condescending advice the privileged rich have offered the poor:

I have previously addressed the “learn how to code” advice.[7]

Iman Sheikh refutes the earlier form of this particular advice, although her article addresses taking Uber rides rather than driving for Uber, in her takedown of a privileged explanation for why millenials can’t afford to buy homes.[8]

I’ve repeatedly pointed out that whenever one hears the word “free,” they should immediately ask, for whom, to do what, to whom?[9] It’s apparent that, as with disparities between rich and poor in criminal injustice,[10] and as in the labor market,[11] “free trade” on the stock markets means something entirely different for the rich than it does for the poor.[12]

“Fair” is another one of those words. George Lakoff has picked apart both,[13] but as with “free,” we need to ask of “fair,” for whom, in what way, against whom?

So now Leon Cooperman is getting a bit—only a bit—of a bum rap for telling CNBC in the wake of the GameStop squeeze, “This fair share is a bullshit concept. It’s just a way of attacking wealthy people, and I think it’s inappropriate.” To be fair (to him, acknowledging context, against simplistic detractors), he’s responding to Elizabeth Warren’s tax proposal, says he’s willing to accept a 50 percent marginal tax rate, and further that he thinks taxes will have to go up to address the national debt. But he claims that “[w]e’ve all got to work together and pull together.”[14]

The trouble, Mr. Cooperman, is certainly not that workers haven’t been “work[ing] together” or that, with the GameStop squeeze,[15] “people are sitting at home, getting their checks from the government, basically trading for no commissions and no interest rates.”[16] It’s that, even if one accepts the notion that executives really deserve hundreds of times the income of workers,[17] we have not seen a “fair share” of the rewards from our work (figure 1):[18]


Fig. 1. Productivity and wage growth chart by Economic Policy Institute, July 2019, permission implicit with an embed button.[19]

It’s that, as seen with the restrictions Robinhood and other platforms imposed on trading on GameStop and other targeted stocks[20] in the wake of that squeeze,[21] the rules that apply to the poor don’t apply to the rich, indeed that conduct seen as “smart” when hedge fund traders do it is suddenly a problem when a bunch of retail investors collude to do it at the expense of those hedge funds.[22]

And it’s that people thrown out of work, facing poverty and homelessness, are repeatedly left to twist on the vine[23] while corporate welfare[24] is a given. That even in a pandemic, health care is, in significant part, a privilege attached to employment with an employer who offers benefits. That even with the existential climate crisis, a green new deal is out of the question.

It takes a pretty strained definition of ‘fair’ to rationalize this.

Update, January 30, 2021: It should be no surprise that while hedge funds shorting GameStop and some other targeted stocks took a bath, indeed to the tune of nearly $71 billion,[25] as “retail investors” motivated by the unfairness of capitalism[26] colluded to try to beat Wall Street at its own game,[27] a lot of other big Wall Street players have done quite well,[28] undermining the utility of this strategy as some sort of insurrection against the rich. But it might be interesting to see how they manage to realize their gains by selling without precipitating a crash in what are now likely[29] to be wildly overvalued shares.

Update, January 31, 2021: This is something I should have looked at earlier, though I don’t think it changes anything I’ve written. Cory Doctorow does yeoman’s work of explaining how the GameStop Squeeze worked.[30] This explanation is more elementary, indeed more useful for the rest of us, than Chris Arnade’s in Eric Levitz’ article.[31]

Update, February 2, 2021: GameStop stock has plunged, wiping out many[32] who followed, among others, Elon Musk’s siren call.[33] From the description, the Reddit /r/wallstreetbets forum is a weird place, where many take pride in “loss porn,” screenshots of their losses.[34]

  1. [1]Matt Phillips and Taylor Lorenz, “‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game,” New York Times, January 27, 2021, https://www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html↩
  2. [2]Eric Levitz, “Robinhood Banning GameStop Proves the Free Market Is a Lie,” New York, January 28, 2020, https://nymag.com/intelligencer/2021/01/robinhood-ban-gamestop-share-price-explained.html↩
  3. [3]Sujata Rao, “Losses on short positions in U.S. firms top $70 billion – Ortex data,” Reuters, January 28, 2021, https://www.reuters.com/article/us-retail-trading-shortbets-idUSKBN29X1SW↩
  4. [4]Eric Levitz, “Robinhood Banning GameStop Proves the Free Market Is a Lie,” New York, January 28, 2020, https://nymag.com/intelligencer/2021/01/robinhood-ban-gamestop-share-price-explained.html; Hamza Shaban, “GameStop stock roars back after Robinhood lifts trading freeze,” Washington Post, January 29, 2021, https://www.washingtonpost.com/business/2021/01/29/gamestop-stocks-robinhood-reddit/↩
  5. [5]Hamza Shaban, “GameStop stock roars back after Robinhood lifts trading freeze,” Washington Post, January 29, 2021, https://www.washingtonpost.com/business/2021/01/29/gamestop-stocks-robinhood-reddit/↩
  6. [6]Matt Phillips and Taylor Lorenz, “‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game,” New York Times, January 27, 2021, https://www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html↩
  7. [7]David Benfell, “No, not everyone should learn to code,” Not Housebroken, December 31, 2019, https://disunitedstates.org/2019/12/31/no-not-everyone-should-learn-to-code/↩
  8. [8]Iman Sheikh, “The real reason millennials can’t afford to buy a home,” Yahoo! Finance, September 25, 2017, https://finance.yahoo.com/news/real-reason-millennials-cant-afford-buy-home-183228440.html↩
  9. [9]David Benfell, “On ‘freedom,’” Not Housebroken, September 13, 2020, https://disunitedstates.org/2020/09/13/on-freedom/↩
  10. [10]Jeffrey Reiman, The Rich Get Richer and the Poor Get Prison, 7th ed. (Boston: Allyn and Bacon, 2004).↩
  11. [11]David Benfell, “A piper needs paying,” Not Housebroken, December 30, 2020, https://disunitedstates.org/2020/12/19/a-piper-needs-paying/↩
  12. [12]Eric Levitz, “Robinhood Banning GameStop Proves the Free Market Is a Lie,” New York, January 28, 2020, https://nymag.com/intelligencer/2021/01/robinhood-ban-gamestop-share-price-explained.html↩
  13. [13]George Lakoff, Moral Politics, 2nd ed. (Chicago: University of Chicago, 2002); George Lakoff, Whose Freedom? (New York: Farrar, Staus and Giroux, 2006).↩
  14. [14]Kevin Stankiewicz, “Leon Cooperman on GameStop Reddit speculators: ‘I’m not damning them’ but it will ‘end in tears,’” CNBC, January 28, 2021, https://www.cnbc.com/2021/01/28/leon-cooperman-on-gamestop-reddit-speculators-im-not-damning-them-but-it-will-end-in-tears.html↩
  15. [15]Matt Phillips and Taylor Lorenz, “‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game,” New York Times, January 27, 2021, https://www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html↩
  16. [16]Leon Cooperman, quoted in Kevin Stankiewicz, “Leon Cooperman on GameStop Reddit speculators: ‘I’m not damning them’ but it will ‘end in tears,’” CNBC, January 28, 2021, https://www.cnbc.com/2021/01/28/leon-cooperman-on-gamestop-reddit-speculators-im-not-damning-them-but-it-will-end-in-tears.html↩
  17. [17]Lawrence Mishel and Julia Wolfe, “CEO compensation has grown 940% since 1978,” Economic Policy Institute, August 14, 2019, https://www.epi.org/publication/ceo-compensation-2018/↩
  18. [18]Economic Policy Institute, “The Productivity–Pay Gap,” July 2019, https://www.epi.org/productivity-pay-gap/↩
  19. [19]Economic Policy Institute, “The Productivity–Pay Gap,” July 2019, https://www.epi.org/productivity-pay-gap/↩
  20. [20]Eric Levitz, “Robinhood Banning GameStop Proves the Free Market Is a Lie,” New York, January 28, 2020, https://nymag.com/intelligencer/2021/01/robinhood-ban-gamestop-share-price-explained.html; Hamza Shaban, “GameStop stock roars back after Robinhood lifts trading freeze,” Washington Post, January 29, 2021, https://www.washingtonpost.com/business/2021/01/29/gamestop-stocks-robinhood-reddit/↩
  21. [21]Matt Phillips and Taylor Lorenz, “‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game,” New York Times, January 27, 2021, https://www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html↩
  22. [22]Eric Levitz, “Robinhood Banning GameStop Proves the Free Market Is a Lie,” New York, January 28, 2020, https://nymag.com/intelligencer/2021/01/robinhood-ban-gamestop-share-price-explained.html↩
  23. [23]David Benfell, “Dickens redux,” Not Housebroken, August 3, 2011, https://disunitedstates.org/2011/08/03/dickens-redux/; David Benfell, “The mysterious expectation that elites give a damn,” Not Housebroken, December 30, 2020, https://disunitedstates.org/2020/08/01/the-mysterious-expectation-that-elites-give-a-damn/↩
  24. [24]Robert Reich, “How Corporate Welfare Hurts You,” American Prospect, July 23, 2019, https://prospect.org/economy/corporate-welfare-hurts/↩
  25. [25]Sujata Rao, “Losses on short positions in U.S. firms top $70 billion – Ortex data,” Reuters, January 28, 2021, https://www.reuters.com/article/us-retail-trading-shortbets-idUSKBN29X1SW↩
  26. [26]David Benfell, “The GameStop Squeeze,” Not Housebroken, January 29, 2021, https://disunitedstates.org/2021/01/29/the-gamestop-squeeze/↩
  27. [27]Matt Phillips and Taylor Lorenz, “‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game,” New York Times, January 27, 2021, https://www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html↩
  28. [28]Ross Kerber, “Analysis: How Wall Street gains from ‘populist’ trading movement,” Reuters, January 29, 2021, https://www.reuters.com/article/us-retail-trading-funds-analysis-idUSKBN29Y0I4↩
  29. [29]Kevin Stankiewicz, “Leon Cooperman on GameStop Reddit speculators: ‘I’m not damning them’ but it will ‘end in tears,’” CNBC, January 28, 2021, https://www.cnbc.com/2021/01/28/leon-cooperman-on-gamestop-reddit-speculators-im-not-damning-them-but-it-will-end-in-tears.html↩
  30. [30]Cory Doctorow, “Understanding /r/wallstreetbets,” Pluralistic, January 28, 2021, https://pluralistic.net/2021/01/28/payment-for-order-flow/#wallstreetbets↩
  31. [31]Eric Levitz, “Robinhood Banning GameStop Proves the Free Market Is a Lie,” New York, January 28, 2021, https://nymag.com/intelligencer/2021/01/robinhood-ban-gamestop-share-price-explained.html↩
  32. [32]Drew Harwell, “As GameStop stock crumbles, newbie traders reckon with heavy losses,” Washington Post, February 2, 2021, https://www.washingtonpost.com/technology/2021/02/02/gamestop-stock-plunge-losers/↩
  33. [33]Cory Doctorow, “Understanding /r/wallstreetbets,” Pluralistic, January 28, 2021, https://pluralistic.net/2021/01/28/payment-for-order-flow/#wallstreetbets; Matt Phillips and Taylor Lorenz, “‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game,” New York Times, January 27, 2021, https://www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html↩
  34. [34]Drew Harwell, “As GameStop stock crumbles, newbie traders reckon with heavy losses,” Washington Post, February 2, 2021, https://www.washingtonpost.com/technology/2021/02/02/gamestop-stock-plunge-losers/↩