The Big Short 2.0—Crushing the Little Guy

Wall Street steps all over the average American investor by gaming the stock market for the whole world to see
January 30, 2021 Updated: January 30, 2021

Commentary

Populism investing is here in a very big way, and Wall Street is not happy about it.

What happened?

Gaming GameStop

Hedge funds have been heavily shorting GameStop (GME) stock this month. That means that they believed GME would fall in price. Savvy hedge fund managers at Melvin Capital and other Wall Street money managers just knew that the stock was over-valued.

Only it wasn’t. The hedgies were very, very wrong—about $70 billion-worth of wrong overall this year so far.

Instead, GME rose by over 1,600 percent since early January, driven by retail investors’ rampant buying of the popular gaming app security. Evidently, small investors realized that GME was actually under-valued.

And why wouldn’t they? What else has there been to do month after month of lockdowns and work-from-home orders but binge watch Netflix and play video games?

Granted, not everyone did so, but millions of Americans have and continue to do so.

Nonetheless, investors who bought and held GME saw their positions dramatically rise in value over the past few weeks. Many small investors have become multi-millionaires almost overnight.

Saved From the Short Squeeze

Suddenly, Melvin Capital hedge fund (and perhaps others) was forced to cover their massive short positions by buying GME stock at prices several hundred times higher than just a few days earlier. Melvin was under huge pressure from the short squeeze.

But, lucky for the potentially exposed investment firms, Robinhood, a retail trading app, informed its holders of GME that they could no longer buy the stock; they could only sell it.

And it wasn’t just the Robinhood trading platform that prevented retail investors from buying GME stock. TD Ameritrade did too, as did Interactive Brokers. And it wasn’t just GME stock that was suddenly and inexplicably restricted to account holders.

Imagine, retail investors were suddenly barred from buying stock in Blackberry (BB), Bed, Bath & Beyond (BBBY), and other rapidly appreciating equities.

But not Wall Street firms. No, they were allowed to buy those restricted equities in sufficient quantities to make up for some of their losses.

So far, the White House isn’t commenting on GameStop, but rather, is referring inquiries to the Securities and Exchange Commission.

Alleged Corruption

Whether the White House told Robinhood to stop GME trading or not, as a viral Reddit post alleges, investors were denied their right to participate in the stock market. That did happen.

We and the world saw what looked like the elite playing their power card against the average Americans out there who are just trying to make a buck.

As you might expect, the fallout is already in play. The first of many lawsuits has already been filed against Robinhood. More will certainly come against other brokerages as well.

But that’s not all. Congress may be getting involved. Democrat Rep. Alexandria Ocasio-Cortez of New York and Republican Sen. Ted Cruz of Texas have spoken out against Robinhood for its behavior.

What happens next from Congress is unclear and remains to be seen.

But what is clear is that people—retail investors—lost big money due to the intervention and manipulation of the stock market allegedly in favor of Wall Street. And it was done overtly, via the de-platforming of specific stocks from retail trading platforms, while the big players were given free rein to do as they please.

The Takeaway

What’s the takeaway for Americans?

There are at least two, but maybe three.

First, once again, Wall Street hedge funds are bailed out of a financial crisis of their own making at the expense of the little guy. That’s undeniable.

Second, the stock market just showed the entire world that it’s anything but a market. It’s a fixed game, an asset mainly for Wall Street and the politically connected.

Three, the message couldn’t be clearer: Middle America has no business getting rich in the stock market—that money belongs to the elite. Many Americans who have their lost jobs and even perhaps their houses, are looking to make it up in the market.

And if nothing happens, if no one is punished, if none of the retail investors are made whole for their losses, then the fourth takeaway is that corruption and graft now unashamedly occupy the highest places in the nation.

James R. Gorrie is the author of “The China Crisis” (Wiley, 2013) and writes on his blog, TheBananaRepublican.com. He is based in Southern California.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.