By: Peter Miles Hamilton
Because all the other news is horrifically depressing, today we will be discussing what happened with stock market a couple weeks back. It was the big news story for about a week, largely overshadowing the inauguration of President Joe Biden, which is honestly a better put-down of the current president than any joke I could possibly write about him.
Now, this is a difficult issue to talk about in an engaging way. Even as I was keeping up with the story, a lot of the articles and discussions about it were very dry, and in many ways, largely nonsensical to an outsider. The reason for this is that the stock market is nonsense and should not be treated like something that does make sense (more on that later).
For those who missed it, later last month the stock market price of videogame retailer GameStop (among others) rose dramatically with seemingly no warning. The instigators of this were users of r/WallStreetBets, a forum on Reddit that discusses trading on the stock market. In mid-January, a large portion of the forum’s users decided to buy stocks in GameStop all at once. When many people buy many shares of the same stock, the price of the individual stock goes up. Before this started, the price of GameStop stock was roughly between $15 and $20 per share. In the last week of January, it hit a 52-week-high of $483 per share.
At the same time, a hedge fund (a company that buys and sells stock) named Melvin Capital was attempting to “short-sell” their GameStop stock. A “short-sale” is when an investor borrows many stocks, sells them all at once and then, intends to return the same amount at a later date having made profit off of selling at a high price and buying them back at a lower price.
In order for this to work, the price needs to fall dramatically. If it rises instead, then the investor has to buy at a higher price than they sold. The money they lost in that exchange then has to be covered out-of-pocket. When Melvin Capital sells a lot of stock at below $20, then has to buy them all back at a couple hundred. They lose a very considerable amount of money. Short selling is an incredibly risky tactic, and Melvin Capital lost on it, with their own stocks crashing significantly.
Stock trading is, at the end of the day, gambling. Sure, there are strategies on how to make money on it, but the same is true of any casino game. The difference between stock trading and traditional gambling is what happens when you lose, however. Because stocks are very loosely based on the wealth that a company has, having the stocks fall too much correlates to that company having less money to work with.
This can result in downsizing, laying off employees, bankruptcy or the company closing doors permanently. As a result, the most severe losses on the stock market are often paid for by the livelihoods of the company’s employees.
Hedge funds get the money to gamble on stocks from incredibly wealthy investors, largely millionaires and billionaires, as they have the money to take the hit from a failed investment without it destroying everything they own.
Remember, the key component for tactics like short selling to work is that a company’s stock has to plummet, which as discussed earlier, means that fewer wealthy people not only lose their jobs, but the downsizing of companies means there are fewer total jobs available to take in their place. The money that short-sellers gain goes back to the wealthy investors and the stockbrokers who facilitate these trades. Quite literally, hedge funds make money off of us losing our jobs.
When an attempted short sell blows up in its investors’s faces, like what happened with GameStop, it is very funny. Hilarious, even. If a wealthy investor wants to gamble with the money skimmed from the labor of their workers, while putting other workers up as collateral, then it is the peak of comedy when said investor busts and they have to foot the bill themselves.
Perhaps, instead, they should get a real job making goods or providing services, like the people whose livelihoods they endangered, instead of gambling other people’s money on a ridiculous betting ring where one can sell made-up products that they do not even own. Furthermore, when a handful of rich ghouls looking to escape the consequences of their own actions show up on cable news shows begging the government to use taxpayer money (that is, our money) to cover their losses, we should tell them to go pound sand.
Personally, I hope stories like this happen more often. I hope they become the norm. Sure, the people profiting off of the hedge funds exploding are still rich investors, though less wealthy and more numerous, but so be it. It may not redistribute a whole lot of ill-gotten wealth, but if it starts to break up the stock trading industry that, by nature, preys on working people for money, it will be a decent consolation for now.