WASHINGTON (AP) – They have endured a financial crisis. Two deep recessions. Student debt assemblies. Payment stalled. Expensive health care. Decrease job prospects.
They have seen the uber-rich get rich as a pandemic left tens of millions out of work and left many more isolated and vulnerable people at home.
Now they believe it is recovery time.
Nearly a decade after the Occupy protest movement left Wall Street more or less unscathed, the citadel of financial power faces a new assault.
Day traders, mobilized in a Reddit chat room, have invested all the money they can find in the shares of a troubled video game retailer called GameStop and some other defeated companies. Its purchase has raised the prices of companies ’shares beyond anyone’s imagination and, coincidentally, has caused huge losses to the hedge funds of the super-rich, who had bet on the shares to go down.
His strategy, of course, is fraught with risks. The prices of the shares they have bought now are multiples above any level justified by future income, profits or prospects. The danger is that the shares may collapse at any moment.
Maybe yes. But, as one Reddit user wrote Friday, claiming that hedge fund financiers would drink champagne while watching Occupy Wall Street protesters in 2011:
“I’d rather lose everything than give them what they need to destroy me … I’ll burn everything to upset them.”
Their rage and drive to attract powerful Wall Street financiers have caused shudders through ordinary investors and raised fears about the fragility of markets in general after a prolonged period of earnings on shares fueled by interest rates. very low. These fears caused the S&P 500 index to suffer the worst week of losses since October.
GameStop shares? They fired close to 70% on Friday. Over the past three weeks, they have made an impressive 1,600% gain.
“They figured out how to play Wall Street for a long time,” said Robert Thompson, who has long followed cultural trends as director of the Bleier Center for Television and Popular Culture at Syracuse University. “I’m surprised it hasn’t happened before.”
It has fueled the frenzy of young traders like Zach Weir, 27, who this week bought five shares of GameStop.
“I’m a college student, so it’s basically a hire for me,” said Weir, who is pursuing a master’s degree in marketing.
He did it, he said, because he believes in the cause: protecting a cozy toy store, where he would stay as a teenager on Friday night, from financial moguls who want the company to fail.
What if you lose the investment?
“If my account goes to zero, it will go to zero,” Weir said. “At the moment, it’s not about money. I think it’s bigger than money now. “
Frustration and anger over the spread of financial inequalities in the U.S. economy have been on the rise for years. The richest 1% of Americans collected about 19% of pre-tax revenue in 2019, up from less than 11% four decades earlier, according to the World Inequality Database, led by Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley, along with other researchers.
New York University economist Edward Wolff has found that the richest 10% of Americans own about 85% of the wealth in stocks, a share that has grown steadily over time.
The financial crisis that ignited the Great Recession of 2007-2009 intensified resentment toward bankers who had financed the dodging loans behind the catastrophe and ignored the obvious risks, only to receive bailouts from taxpayers and escape much of the responsibility. Growing outrage fueled the Occupy movement, in which protesters took New York’s Zuccotti Park and other public spaces and demanded far-reaching financial reforms that did not primarily happen.
The coronavirus caused more pain, flattening the economy and causing more than 20 million Americans to lose jobs. This week, a report by the anti-poverty group Oxfam found that the ten richest men in the world have increased their collective wealth by $ 500 billion since the pandemic erupted in March. Meanwhile, about 10 million people who lost their jobs due to the pandemic remain unemployed.
The stock market, the target chosen by Reddit day traders, has long been the main American symbol of consolidated wealth. But technology, including forums like Reddit, has facilitated mobilization, information exchange, and collective strategy for those affected. And e-commerce apps, especially Robinhood, allow amateur traders to buy stocks without commissions with a single click.
They detected a vulnerability in the market: the so-called short squeeze.
When hedge funds and other investors want to bet on falling stock prices, they organize a short-term sale: they lend shares of, say, GameStop. They then sell the borrowed shares, planning to recoup the shares later at a lower price and pocket the profit.
But the short circuit can be triggered disastrously if stocks rise instead of falling. Short-term sellers may then be forced to redeem their bets by buying the target shares. Your purchase, in turn, can send the stock price higher and worse and make things even worse for short sellers in an intensified feedback loop.
GameStop, its dangerous future for e-commerce and a pandemic that has kept customers away, is among the shortest actions. Some of the Reddit rebels are players who want to protect the retailer from Wall Street predation. Or just give a fair blow to hedge funds and financiers who have lived to a great extent that others have struggled.
Not all day traders get angry. They just see the opportunity to make money and pay bills.
“A lot of people have trouble paying rent,” said Alexis Goldstein, a veteran of the Occupy movement. “Many people are at risk of being evicted. A lot of people are very desperate, frankly, for new ways to make money. “
However, Goldstein worries that the revolt will eventually fail.
For one thing, some of the Wall Street companies that target the Redditers actually benefit from the same volatility that has assaulted the Redditers ’assault.
And the most sophisticated professional traders are no doubt figuring out how to take advantage of the chaos. They usually have to work hard and invest a lot to determine what their competitors are doing and reap the benefits of this information. By contrast, Reddit day traders announce their intentions blatantly and publicly.
“I suspect it’s not Robinhood investors and Redditers who make money,” Goldstein said.
He would like to see a different list of reforms: reforms to curb Wall Street excesses while helping those who have been left behind.
“Hopefully, we can ask fundamental questions about whether we want our markets to be based on speculation or whether we want them to create innovation and jobs,” he said. “Stop rushing so much for a dollar and instead rebuild the social safety net.”
Tom Osran, a 59-year-old Chicago lawyer, has been reading the WallStreetBets forum on Reddit for years. But it was only last week that he decided to act for the first time, buying at GameStop. His investment, he said, was up 1,000% from last week, though he declined to disclose the dollar amount.
Osran said he estimates his astronomical stock rise could save GameStop from hedge funds that are betting that a company with 40,000 employees will fail.
“It’s fun to be part of a movement,” Osran said.
He knows he could lose everything he put into GameStop stocks. Still, it is philosophical.
“We’re all adults, we all know stocks can go up and down,” Osran said. “So far it’s been incredibly lucrative, but it could go away tomorrow.”
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Pisani reported from New York.