Stocktake: Nothing noble about GameStop short squeeze

Despite the David v Goliath portrayal, Redditors’ moral outrage is misplaced

Spotting that short sellers had bet against GameStop, the Redditors piled into the stock. Photograph: Tannen Maury/EPA/File

Spotting that short sellers had bet against GameStop, the Redditors piled into the stock. Photograph: Tannen Maury/EPA/File

 

“The French revolution of finance” is how Anthony Scaramucci described last week’s crazed goings-on at GameStop, the video game retailer that the financial world is obsessed with right now.

Valued at less than $1 billion last month, GameStop’s market capitalisation topped $30 billion last week following an epic short squeeze driven by users of Reddit’s WallStreetBets forum.

The forum is populated by small traders largely motivated by a mixture of anger and amusement (“Like 4chan found a Bloomberg Terminal” is the forum’s tagline). Spotting that short sellers had bet against GameStop, the Redditors piled into the stock; as the share price soared, shorts were forced to close their losing bets, driving GameStop to ludicrously high levels in the process.

The same strategy is being used against other widely-shorted stocks, causing massive losses for some hedge funds and tidy gains for the Redditors.

Many have focused on the David v Goliath theme and the Redditors’ desire to stick it to the man, to give Wall Street professionals a taste of their own medicine. High-profile Democrat Alexandria Ocasio-Cortez laughed off the matter, as did former labour secretary Robert Reich and left-wing journalist Glenn Greenwald.

However, Redditors’ moral outrage is misplaced. The shorts are a small and unpopular minority on Wall Street. They were the first to spot the mortgage bubble prior to the global financial crisis, the first to protest against the late 1990s dotcom bubble, the first to spot fraud at companies like Wirecard and Enron.

Always a risky practice, shorting is now an increasingly dangerous activity.

Shorting aside, Redditors have made a few quid for themselves, but they’ve also enriched corporate shareholders and fast-money types on Wall Street who saw what was happening and joined the short squeeze.

A noble crusade? Hardly.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.