This past week has been marked with the hollowing out of major hedge funds. This is not some Bonnie and Clyde style heist where these institutions have been held at gunpoint and told to put the money in the bag, but rather have been collectively squeezed by millions of so-called retail investors in their own financial markets. Wall Street corporations, the same that were deemed “too big to fail” in the aftermath of the housing crisis in 2008 and received massive bailouts, are now facing the wrath of an organized attack. The regular people of Main Street who weren’t so fortunate then are now empowered by the means of the internet. Not only do they want their money back, but more importantly they want revenge.
There have been several great tweet threads and articles about what is happening, but I will briefly summarize the sequence of events. Major hedge funds like Melvin Capital and other big players have essentially bet that Gamestop will perform worse as games become increasingly digital and they continually close stores. Not an insane prediction. They do this via a financial mechanism called “shorting.” For these institutions to make their money back off their bets they need the stock price to go down. Some small level investors have noticed this position that these companies were taking and posted about it all over the subreddit, r/wallstreetbets. Through this avenue, other people start to pile on and buy Gamestop stock leading to a massive surge in the price per share. Then as the increase occurred, more people began to take note causing the stock to propel to enormous heights. It has so far increased by over 1700% since last month. This produces massive consequences to the hedge funds who have now lost more than $20 billion and it doesn’t seem as if this will stop anytime soon due to these investors “holding the line” by not selling off their shares. Many of these companies have had to be bailed out because of these massive losses. Meanwhile, random small investors have raked in millions. So you may ask yourself, “so what?”, especially if you don’t happen to own any Gamestop stock yourself. This event is quite unprecedented in financial markets, but more importantly, it is representative of a larger systematic trend.
Internet implications
This is another example of the internet as an engine of revolutionary change. The free flow of information of the digital world continues to shape the composition of the real. It has not just offered information for the layman to understand the stock market, but also provided unprecedented access to financial markets. With free apps like Robinhood, anyone with a bank account and a device connected to the internet can now buy and sell as they please with very low overhead. This synthesis of newly leveraged capital in the hands of the lay investor with grassroots organizing on social media has provided the mechanism for the tightening grip around the necks of these hedge fund managers. This organization isn’t done by some committee calling a meeting to coordinate but rather populated by organic means.
One such way is via user-generated content on websites which permits other people to perceive the message. The most dynamic and prevailing form in the current era is the meme with its high shareability. This property unleashes the so-called “memepower”, a laughable but increasingly legitimate force in the world. It is the production of an online subculture by way of reproduction and mutation of images. These images are screenshotted or downloaded and then shared for a wider audience to see and with this comes the spread of ideas and perhaps even calls to action, but more importantly a formulation of an ecosystem. It is in the vitality of this ecosystem, made up of individuals, where network effects begin to play a role and increase mass participation in a variety of ways, from posting on your feed to sending to a friend. The virtual dissemination of the image is the backbone of what has made the siege of these hedge funds real.
Reformation
The transformational power of the internet partially lies in this device. The ability to reproduce things at a lower cost due to technological innovations has dramatically changed the status quo of yesteryear as well. Such as the time when the Catholic Church had a monopoly on the interpretation of the Bible. What could be made up of the text came from the halls of the Vatican to the Bishops to the Priests to the open ears of the congregation. This strong hierarchy was supported by the scarcity of the Vulgate, the Latin standardized Bible common with the clergy. The books of this time had to be handwritten by copying the text to another book. This expensive and arduous process made sure that books, and more importantly the knowledge within, remained in the coffers of institutional powers of learned classes that occupy the churches, the state, and the universities. This proved to be a fragile state of affairs with the onset of the printing press and its Gutenberg Bibles as the scarcity was met with a new supply. Before its introduction, books in Europe could be counted in the thousands, but 50 years after the fact it was in the range of 10 to 20 million. The proliferation of text due to a lower cost of production enabled a circulation of ideas to occur outside the halls of the Vatican and other nexuses of power. Pandora’s box had been opened. Knowledge had now been translated into new languages and redistributed among newly enfranchised classes. With every book in someone’s hand, came a novel interpretation of the world within and an opportunity to change it. Many historians point out that this is the firmament in which the Protestant Reformation springs forth where new ideas of Christianity get formulated and arranged counter to that of the Church. There was no going back.
What used to require the collection of resources, machinery, and workers to replicate the written word has now been made free. With the click of a button, one can copy and paste whatever they please to be potentially read by anyone in the world. In this instance, this capacity is altering the balance and order of the financial markets. On r/wallstreetbets, the user benaffleks posted a succinct depiction that encapsulates not only the sentiment of the zeitgeist but also a condemnation of the powers that be:
The monopoly of information and access by financial institutions has been eroded by the internet. Where one used to have to have the keys, one can now walk in. This is why this episode is significant to elaborate the persisting saga of implications from the digitized world.
Where we are headed
From media to financial markets, nothing is outside the internet and everything is subject to its transformation. For example, cities like New York and Los Angeles, places to be if one wants to “make it”, are losing their dominance as telecommuting becomes the norm and cities are closed down due to Covid-19. Whereas cities like Miami or Austin, which come with fewer taxes and a more open economy along with other benefits, have become the destinations for those fleeing other states. This is the rapid creative destruction that the internet allows and with it comes an ever-moving, ever-changing landscape.
The Gamestop state of affairs resembles a true populism, not some cult of personality, but rather a decentralized force made up of the “little guy” in disgust of the elites, in this case financial. This targeted coordination is what the ruling class fears. Not only have they become redundant, but they have also lost their hold on power.
This creative destruction when unleashed on the ruling class becomes something worth investigating as seen by the response to the Gamestop rally. The US Treasury Secretary Janet Yellen is “monitoring” the activity, Discord bans wallstreetbets (another platform where this group communes), and Robinhood has stopped the buying of Gamestop and other company stocks. There have even been attempts by some journalists to defame the investors as “alt-right”, which has become more and more a term to describe phenomena that reporters can’t comprehend. It is still yet to be seen what will be the response to this and if there will be an effort to prevent future attempts.
Those in power or the establishments of industry and institutions benefit from the status quo. Anything that disrupts the inertia also disrupts their hold on power which is why after the advent of the printing press came regulatory and censorial structures from the state to repress its potential. It came in the form of requiring a license to operate a printing press as well as lists of banned books. In the same sense, we will see the rise of rhetoric that seeks to manage the internet which will be necessitated by whatever is deemed as a threat by the corporate press that day. This could take form through large centralized firewalls like in China, the bully power of American corporations, the erosion of a free speech culture, or large multinational treaties that standardize laws around technology, either way, the world will see more regulation over human free expression.
There is still a case for hope, however. While the mainstream systems are being slowly coaxed and controlled, there has been a subaltern infrastructure being built. From encrypted messaging to cryptocurrencies, new technologies are being made available for mass adoption. Even in places like China where they have the most draconian regulations, a VPN can still provide you with access to all the information you need. As the state and their ilk continue to censor and excommunicate, all they will do is push people into a new world, one outside their system and thus outside their reach. This is the decentralized revolution that is underway. The battle over shares of Gamestop becomes another thesis among other theses that have been nailed to the cathedral door; a reckoning is in order.