The stock exchange – I know nothing about it, you know nothing about it, and to the both of us, those words likely represent a dreadful and boring facet of the money-centred, vain adult life. To speak the truth, I used to revel in my ignorance about the topic, proud of my rejection of what seemed to me just another invention of the laissez-faire capitalism1 I so wholly despise. I took pride in my puzzlement when other people brought it up, as though my naivete were proof of wiser delegation of time and a form of rebellion against anyone who might prospect for prospering. But over the past week, in between bouts of existential dread and dulling TikTok scrolling marathons, I’ve learned of a far better way to „stick it to the man“ (‚man‘, referring to the real-life DiCaprios2 of Wall Street3). It involves Reddit, GME4 and a stock market manipulation technique colloquially known as „Short Squeezing“.
The bourse might appear at first like a fictional marketplace where rich people gather to exchange one fictional currency for another, indefinitely inflating their own worths at the ultimate expense of the working class. Granted, there is a lot of truth in that perception. But there is also a way to fight back the fat cats5 – Marx and Engels6 themselves were avid readers of the Economist’s7 investment columns. The bottom line is, every Lev delivered to your pocket from the stock market is a Lev taken away from multi-millionaire investors, readily employing shady schemes to multiply their riches. Though I might be getting ahead of myself – before we delve deeper, it’s best to look closer at what the bourse actually is and at the role it plays in our society.
In essence, the stock exchange is a place to buy and sell small ownership rights, or shares, of various public domain companies. What does that mean? If you’ll forgive the banality, assume I ran a small business, say, for instance, an electronic newspaper. I make modest revenues from AdSense8, which is enough to pay my bills, but far too little for me to expand my industry. Banks won’t give me a large enough loan, since they’d be venturing a considerable risk by lending me money. So what do I do? One option is to go public and allow investors to purchase small bits of my company. They become shareholders of my newspaper and I acquire enough funds to produce printed issues and expand my staff. Under my pristine leadership, we quickly grow to become one of the biggest periodicals in Sofia and my shareholders regularly receive monetary incentives in the form of dividends. This attracts the attention of more investors. Since the number of shares in my company is finite, the new investors decide to approach and negotiate with the old ones, hoping to be able to buy their shares at a higher price. Why would they do that? To then again resell those shares to future investors for even more money. That’s the stock market.
Or the very basics of it anyway. I decided to spare you some of the less commonsensical niceties. Next to private investors, the stock market is also roamed by various organizations and investment funds, and companies are listed in indexes which influence the flow of cash. If you’re interested, I suggest you take a look at my annotated bibliography in the annexe of this article and continue on your own from there.
It’s time we reached the crux of the matter: how a mob of Redditors led a crusade against Wall Street and robbed hedge funds of tenths of billions of US Dollars. The movement sprouted from a meme published on the subreddit r/wallstreetbets, which urged people to buy into GameStop, a video game retail company that had been vanishing into obscurity and on the brink of bankruptcy. The price has been wildly fluctuating since, reaching a peak of 1,700% of its initial value. The reason this has been so devastating to many big-time investors is because of the practice of short-selling. If I expect a stock to decrease in value, I can “borrow” a large amount of it, sell it now, while its price is still high, and buy it back to return to the original stakeholder at a later point in time. The difference in price between the moment I sold it and the time at which I bought it back is the profit I’ve made from the transaction. You might have been able to pick up on several problems introduced by this method. The first one is that even after a share has been sold short, the temporary shareholders can still choose to lend it out to other investors. This can create long chains of short sold and borrowed shares that exceed the number of real shares in circulation. The second issue is that of infinite risk. While short-selling can seem like a fool-proof way to make profits, the risk that comes with it is immense. If I’ve wrongly bet on a business declining when its value is in fact growing, I lose money. And since the price of any stock can theoretically grow indefinitely, I am at risk of losing an indefinite sum of money. Should I choose to cut my losses early and pull out, I would be contributing to the growth of the share and thus compounding the issue for other short-sellers. That’s Short Squeezing. By artificially inflating the value of a dying stock, the Reddit day traders have succeeded in hollowing out the pockets of giant Wall Street investors. So is this the conclusion to the David and Goliath-esque9 clash of titans? Have ordinary memers been able to triumph over the bourgeois Wall Street knaves?
Not entirely. Some brokers10, most notably Robinhood, have attempted to restrict and illegally kill the growth of GME, to serve their own goals. The trade freeze has since been lifted, but the reverberations are still palpable. The US Treasury Secretary and the Securities and Exchange Commission are currently observing and determining ways to restrict further inflation of GME. Specialists are describing the occurrence as an “open pump-and-dump”11 and, seeing as we’ve already passed the “pump” phase, are anticipating the bursting of the bubble. The saga might soon be over, but it might yet continue.
By the time you’re reading this many things will have changed. Literally, the last source I read was from 30 minutes ago. Despite this, we can learn a lot from what’s already happened. And the damage that’s been done to Wall Street isn’t going to go away. If there should be one single, concrete takeaway from the whole ordeal, it’s that, much in the spirit of Sun Tzu12, to defeat capitalists, you must know capitalists.
Dieser Artikel wurde in englischer Sprache von Yasen Yanev von 11 b verfasst und wird derzeit in Deutsch und Bulgarisch übersetzt. Wir danken Ihnen für Ihr Verständnis.
Статията бе написана от Ясен Янев от 11. клас на английски език. Към момента бива преведена на немски и български. Благодарим за разбирането.
Annotated bibliography for further reading:
- „Laissez-faire is an economic philosophy of free-market capitalism that opposes government intervention.“ – Investopedia.com
- Leonardo DiCaprio plays the lead role in the 2013 film „The Wolf of Wall Street“. IMDb synopsis: „Based on the true story of Jordan Belfort, from his rise to a wealthy stock-broker living the high life to his fall involving crime, corruption and the federal government.“
- „Wall Street is a street located in the lower Manhattan section of New York City that is the home of the New York Stock Exchange or NYSE. Wall Street has also been the historic headquarters of some of the largest U.S. brokerages and investment banks. Today, Wall Street is used as an umbrella term to describe the financial markets and the companies that trade publicly on exchanges throughout the U.S.“ – Investopedia.com
- GME is the New York Stock Exchange abbreviation for GameStop Corp.
- „fat cat; noun [ C often plural ] disapproving; someone who has a lot of money, especially someone in charge of a company who has the power to increase their own pay“ – dictionary.cambridge.org
- Marx and Engels are often regarded as the fathers of communism, a sociopolitical model opposed to capitalism.
- „The Economist […] offers authoritative insight and opinion on international news, politics, business, finance, science and technology.“ – economist.com
- AdSense is a service offered by Google that places ads on your website.
- David and Goliath references a Bible parable in which David, a human, manages to defeat Goliath, a giant.
- „A stockbroker or broker buys and sells stocks at the direction of clients. Most buy and sell orders are now made through online discount brokers. This automated process reduces fees.“ – Investopedia.com
- „Pump-and-dump is an illegal scheme to boost a stock’s price based on false, misleading, or greatly exaggerated statements. Pump-and-dump schemes usually target micro- and small-cap stocks.“ – Investopedia.com.
- Sun Tzu was a Chinese strategist and philosopher who lived in the 6th century BC.