The members of the Reddit thread r/WallStreetBets may not be the heroes we deserve, but are the heroes we need, exposing our financial system’s flaws implemented and exploited by shady hedge funds.
The self-proclaimed “apes” of the subreddit group showed they’re stronger together, collectively buying and holding shares of the video game retailer GameStop.
The redditors were throwing hedge funds for a loop and gaining the attention of lawmakers and U.S. regulatory agencies in the process last week.
According to Investopedia, an online financial information index, a hedge fund is a type of investment that caters to high net-worth individuals, institutional investors, and other accredited investors.
r/WallStreetBets have laid bare the predations of Wall Street, drawing bipartisan ire and prompting tweets across the political spectrum.
The rapid rise of GameStop stock or GME at the hands of r/WallStreetBets has publicly shown the loopholes and blind spots in financial law that hedge funds have been taking advantage of secretly for years.
Hedge funds are one of the most active entities in the short-selling game, according to Investopedia. They bet against companies and reap the success when a company fails. This is legal.
However, collectively influencing the market, whether by rumor, misdirection or deception is known as market manipulation and is illegal.
If Wall Street veteran and CNBC’s “Mad Money” host Jim Cramer is to be believed, deception is the most important tool for hedge funds to make money buying short stocks.
In a 2004 interview with TheStreet.com, Cramer said while creating an impression that a stock is down to reap the benefits is illegal market manipulation, it should be done anyway.
This is because it is advantageous for hedge funds and The United States Securities and Exchange Commission (SEC) doesn’t know how to deal with it, Cramer said.
What started as a scheme for short-sellers to make a buck off GameStop’s dying body backfired when savvy members of r/WallStreetBets like Keith Gill, known on Reddit as DeepFuckingValue, caught wind.
Gill noticed professional investors short selling options more than stock actually available, then bought up plenty of GME and encouraged others in r/WallStreetBets to do the same. This skyrocketed GameStop’s value.
The reasons for this upsurge of GME buys are varied. Some members of the subreddit posted they’re in it for the money, for the love of the retailer, or a sheer dislike of Wall Street and the desire to topple the system.
r/WallStreetBets has 7.5 million members and is as chaotic as the internet itself except for buying short sold stocks, holding onto them and riding a proverbial rocket straight to the moon.
Lawmakers now want to take a hard, bipartisan look at Wall Street and the bad actors within it.
When brokerage app Robinhood stopped GameStop stock trading on Wednesday and Thursday, only allowing users of the app to sell shares, it caused a price drop of GME.
Hedge funds had time to recoup their losses and had individual traders artificially lower the value of GME. Novice individual traders like the ones in the subreddit called foul against Robinhood after they were unable to buy GME stock.
This caught the attention of politicians on both sides of the aisle, bringing rare bipartisan agreement on the issue.
Democratic Rep. Alexandria Ocasio-Cortez tweeted that as a member of the Financial Services Committee she would support a hearing on the matter, a sentiment echoed by Republican Sen. Ted Cruz.
The SEC also released a statement about its involvement on Saturday and though it didn’t name Robinhood specifically, the SEC will “...closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”
No one knows how this situation will conclude, but here’s hoping that r/WallStreetBets makes good on their promise to ride the Wall Street middle finger rocket to the moon and beyond.
