Trying to Understand the Game Stop Drama

 

This week a small number of companies who are not doing well now -- Game Stop, AMC theaters, and Blackberry among them -- found their stocks shorted. That is, a group of investors bet large amounts of money that the stock for those companies would decline. The problem is that a group of individuals, organized through Reddit and other online forums, decided to inflate the value of those stocks which costs the original groups of investors who shorted the stock a tremendous amount of money.

Kevin Roose has a good explainer on this in today's New York Times. Here is an excerpt, but his whole article is worth reading.

Depending on who you ask, the GameStop saga is either a cautionary story about a bunch of reckless nerds destabilizing the stock market for laughs in a way that is likely to backfire on them spectacularly, or a David-and-Goliath morality tale about a fearless band of retail investors cleverly putting one over on corrupt financial elites. (The truth is somewhere in the middle. There really is a “revenge of the nerds” angle here, but there are also plenty of rich investors cashing in on GameStop alongside the line cooks and high school students.)

In any reading, the most unusual thing about Wall Street being challenged by a rowdy band of Redditors is that it took so long to happen. This kind of populist revolt — internet-based insurgents gleefully pulling down the pants of the unsuspecting Boomer establishment — has been happening for years, to many powerful institutions.