This article is part of TPM Cafe, TPM’s home for opinion and news analysis.
Like most journalists who cover business and finance regularly, I don’t buy individual stocks. My investments, such as they are, are exclusively limited to vanilla retirement accounts. But when the WallStreetBets furor entered the headlines and forgotten early 2000s stocks — from GameStop to AMC to Nokia — started to surge, I found myself both fascinated and perplexed. Lurking on the Reddit board, it quickly became apparent that the investors there — regular Janes and Joes with dead-end jobs — were going in on these companies for a mix of reasons. Nostalgia. Animus towards big finance during a global crisis. A fundamental belief that without short-selling, these companies could (or should) still have some juice. And definitely some greed as well. If hedge fund managers could get rich using techniques like short squeezes, why not everybody else?
So I tried a little experiment. The chatter on WSB Wednesday morning was that the next stock to pop would be Nokia, which was trading under $6 at the time and had recently had an apparent breakthrough with terabit-per-second data transmission. It checked all of the WSB boxes: It was a classic brand associated with the early 2000s that had fallen on hard times; there was some short-selling action against it; there was at least a little positive news indicating potential fundamental opportunity; and at such a low price per share, there was potential for a retail investor to make real money if it went to the moon (as the WSB Redditors envisioned).
In an attempt to understand what it felt like to be part of the riotous, populist investing surge — and to try and make sense of why suddenly millions of people were cheering on seemingly lackluster companies like Nokia, AMC and GameStop — I set up a brokerage account and put a hair under $97 into Nokia on the assumption that I could, and probably would, lose it all over the course of the experiment. I watched the shares soar 60 percent, then watched trading halt, and then watched its value plummet back to earth. Meanwhile, WSB was swamped with new users, and the scuttlebutt was that many of the accounts touting Nokia, AMC and Blackberry there were actually bots. (I have no idea if it was technically true, only that anonymous people on Reddit were saying that there were loads of bots. The perception that the thread was being hijacked by a bot army had at least been created.)
My Nokia shares, all 18 of them, were worth a grand total $83.66 as of Friday afternoon at $4.64 per share, although they topped $160 ($7.33 per share) at one point midday Wednesday. The short ride on a Finnish telecom I hadn’t thought about in a decade did give me some insights, though. There was an excitement to the moment that I have only ever felt at a horse race with a few dollars riding on a longshot. There was a palpable sense within the crowd that hey, maybe these companies deserved the chance to turn themselves around. And as I thought about GameStop in particular, I began to understand the WSB sentiment that some companies — even if they’re not the greatest businesses on the planet — have emotional value to many people because of what they represent: A more stable time when you purchased something from a real person in the store. They represent nostalgia in a very real way. A trip to GameStop meant chatting with a college stoner who would share their opinions about the latest Grand Theft Auto game, and then going home and experiencing pure escape. It made sense that people were grasping after this past, and financial gain, during a dark and impoverishing time in American history. Purchasing these old school stocks, for a lot of people, was the equivalent of buying vinyl.
But then my thoughts drifted to darker possibilities. Nostalgia made sense. The fundamental investing argument for these stocks was weak. The chatter about bots on WSB was chilling if it was true. Was it possible that the surge in retail interest in these stocks was triggered by a swarm of bots? As we’ve learned from recent American politics, public opinion can be easily swayed by fake news and agitprop. If there really was a bot army on WSB, who deployed it? It’s not hard to imagine a scenario in which a hedge fund decided to beat its competition by leveraging the crowd against heavily shorted stocks, while avoiding all of the risk and the inevitable collapse of the bubble at the same time.
Setting aside that nightmarish and admittedly outlandish scenario, retail brokerages like Robinhood quickly began to halt trading on these stocks, and it became increasingly obvious that the little guy was about to be crushed by the system. (Robinhood is an online broker popular with retail investors and sells its data to hedge funds and high frequency traders.) Just because Reddit users wanted to make money on GameStop with a massive short squeeze against hedge fund Melvin Capital (which was bailed out by another hedge fund that buys data from Robinhood) didn’t mean that Upper and Lower Hedgistan were going to let them. And as the real economy continues to limp along, thousands are sick and dying from COVID-19 and millions remain out of work, the fundamental unfairness of the Titans of the Universe reaping a profit by shorting a moribund chain of video game shops is bleakly apparent.
Because here’s the deal: The American financial system operates on a myth that the market is fundamentally free and open to all. It is — or is supposed to be — regulated. There have always been gatekeepers, and it has always been designed to protect the interests of the wealthy and institutional investors over the hoi polloi. The Great Recession, collapse of the housing market and bailout of the big banks exposed that many of the top firms on Wall Street had behaved incredibly irresponsibly. Yet hedge funds and big banks have continued to rake in profits, particularly during the past year of the pandemic. But as soon as a public high school English teacher (a caller on WNYC’s Thursday edition of the Brian Lehrer Show) started to make money on the market thanks to a short squeeze, Wall Street called foul.
The decision by Robinhood and others to halt trading on stocks like GameStop is proof that the table is stacked against regular people, and it’s no different than if a casino decided to usher out their clientele just because they started winning. Indeed, so blatant is the abuse that it’s made strange bedfellows of Sen. Ted Cruz (R-TX) and Rep. Alexandria Ocasio-Cortez (D-NY), who both publicly objected to the trading freeze. House Financial Services Committee member Rep. Rashida Tlaib has called for a hearing on “Robinhood’s market manipulation.” It may be too little too late, however. The fact that the very same financiers who made a killing in the market while a pandemic tore through our cities are able to simply turn off regular people’s ability to trade speaks to how profoundly broken the rules of the game are today. A hearing isn’t going to restore regular people’s trust in the market so long as Wall Street’s high rollers continue to profit off of financial engineering during a raging pandemic and a recession. But it’s a start, and hopefully lawmakers do the right thing. It’s clear the American people can’t trust many of the nation’s financial institutions. Can they trust their government?