Game On

Linsey McGoey

‘Try to persuade your friends, monsieur … not to force the people into the streets,’ George Sand told Alexis de Tocqueville at dinner in June 1848. ‘For if it comes to a fight, believe me, you will all be killed.’ He didn’t want to hear it, especially coming from her. ‘I was strongly prejudiced against Madame Sand,’ he wrote in his Recollections, ‘for I loathe women who write.’ She told him that workers were angry, hungry and well-mobilised, describing ‘their numbers, their arms, their preparations’. He wasn’t convinced – ‘I thought the picture overloaded’ – but later admitted he was wrong: ‘It was not, as subsequent events clearly proved.’

After the June revolt was suppressed and Napoleon III took power, Tocqueville appraised the uprising with the benefit of hindsight. Of course, he realised, the workers had ‘their numbers, their arms, their preparations’. Why? He pauses dramatically: because we taught them! ‘Half of the Paris workmen have served in our armies, and they are always glad to take up arms again.’ It’s an enduring problem of any dominant power: to protect itself, it needs to arm low-ranking soldiers with the weapons and skills that could prove to be its undoing.

Tocqueville’s present-day heirs can take some comfort from the fact that modern armies need far fewer recruits. There has been a lot of talk about the military background of some of the insurrectionists at the US Capitol on 6 January, but overall numbers of military personnel have been declining for decades.

Since the United States moved in 1973 to an all-voluntary force, the number of active-duty soldiers has shrunk to less than 0.5 per cent of the population (it’s even lower in the UK). This figure discounts the country’s increasingly militarised police forces (half as many again), but even combined, police and military are still nowhere close to the ‘half of Paris workmen’ who, Tocqueville estimates, served in the French army. And the would-be insurrectionists among them tend to be on the far right, not the left.

So if young workers in an advanced capitalist nation wanted to launch a revolution, what skills do they have? Millennials and Generation Z are routinely disparaged as ‘soft’. No matter how hard they toil in underpaid, insecure service and care jobs, they seem to strike many older people as far less tough than their forebears. But war has many theatres. And today, finance is one of them.

Adam McKay’s movie The Big Short, based on Michael Lewis’s book of the same name, tells the story of Michael Burry, an investor who realised that subprime mortgage markets were the tip of a toxic iceberg of overexposure to worthless stock. He made a fortune in 2008 betting against the housing bubble and catching out others who preferred rosy news over Burry’s own dire predictions of impending market failure.

The GameStop saga that’s been headline news for more than a week is a similar story of smart market shorting. GameStop is a video-game retailer based in the US. In itself, the company is not particularly distinctive: simply another midsized company that was once pegged for demise by large hedge funds such as Melvin Capital, which specialise in short selling – selling borrowed stock then buying it back at a lower value to return to the lender, and pocketing the difference.

This obviously depends on the price going down. The risk with short selling is being caught in a ‘short squeeze’: if, against expectations, the stock price soars, the borrower must take the financial hit. This happened with GameStop. Many large hedge funds had a short position. Then, like a leaking roof that trickles then suddenly gushes, its price began to surge. The surge was hype-based and had little to do with GameStop’s underlying value (but then, market rollercoasters often have very little to do with ‘real’ company value). The share price was driven sky-high by wallstreetbets, a Reddit forum with over two million individual subscribers, who began mass-buying shares and rallying GameStop up – and up and up.

In a few weeks, the stock’s value rose more than 1000 per cent – leading to billions in losses for large hedge funds. Meanwhile, many small-scale Redditors have made small fortunes, enough to pay off student loans many times over.

It may sound like a classic case of David v. Goliath, but that’s not the whole story. The WSB players on Reddit are not all small-scale. One post noted drily that one of the moderators of the forum used to be Martin Shkreli, a notorious ‘pharma bro’ who has drawn rage over the years for price-gouging on lifesaving medicines. According to this version, it isn’t exactly a good guys v. bad guys story. It’s more about less bad guys ripping off worse guys – all the while exposing the most naive investors to heavy losses which they can’t afford.

Yes and no. Behind Shkreli, there are legions of other men and women with different and even noble agendas.

We don’t yet know what the regulatory ramifications of GameStop will be. Nor do we know its emancipatory potential, its capacity to level the market aristocracy. Years ago, old-guard leftists would scoff at the idea of ‘socialist hedge fund’, dedicated to buying up distressed debt and cancelling it, or using the profits for a strike fund. Now such ideas are on the table, embraced by a new generation who know all too well how powerful and rigged the market really is.

When it comes to the great financial ‘casino’, as Susan Strange dubbed it in 1986, today’s young are tired of being manhandled like plastic chips, scattered by ‘invisible hands’ that may be hard to see, but are clearly good at hoarding. It would be prudent not to underestimate the young. The chips have eyes, they can see the market is rigged, and they are taking notes on its vulnerabilities.

For decades, powerful hedge funds have derailed post-Depression financial reforms, while private equity buccaneers dodge the levels of income tax that any mid-level office or health worker pays. The market is not a democracy, it’s feudalism, and the lords expect subservience from well-pampered regulators.

With GameStop, we don’t know, and will probably never know, who threw the first stone. Maybe it was someone like Shkreli, or maybe it was a young girl, pulling an even faster one. And why not?

In 2011, a Kazakh woman in her twenties named Alexandra Elbakyan founded Sci-Hub, a pirate website that springs academic articles from behind proprietary paywalls. She notes offhand on its website: ‘I was able to quickly in three days start Sci-Hub.’ The new online warriors have no singular face, gender or nationality, just open eyes and advanced tech skills.

After Tocqueville spent an evening trying and failing to block out Sand’s warnings, he realised something else about the socialist revolutionaries of 1848: ‘Women took part in it as well as men … and when at last the time had come to surrender, the women were the last to yield.’


  • 2 February 2021 at 8:10pm
    P Eluard says:
    An interesting factor that plays into your argument has been the blatant double standard of treatment when it came to how retail investors (like me, and potentially anyone else with a smartphone and a bank account) were treated relative to the hedge funds and legacy financial institutions. The platforms which are the big new thing in this series of events, like the 'robinhood' app in the US or the 'freetrade' app in the UK (which I piled in on as soon as I heard about what was going on, inveterate redditor here) were forced by their guiding institutions to limit the buying power of their users during the squeeze. They said this was to protect their users from volatility. Robinhood has a stakeholder of some sort in Melvin capital, the hedge fund that lost 53% of its value in January. So people were rather surprised when they finally seemed to have the chance to 'steal from the rich, and give to the poor', and found that actually they were dealing with the sheriff of Nottingham the whole time, the truth being in the small print.

    After sinking a very small sum I could afford to lose into GME stocks on freetrade, I was surprised to wake up on friday and find my trade wouldn't be quite as free as I thought, and I wouldn't be able to buy any more, due to their American partner institution declining to offer any American stocks for buying and selling on Friday. The story is that, due to the massive volume of trading that happened on Thursday when the first peak was reached in the price, the clearing house raised the amount that the platforms would have to put up to process the purchase. The clearing houses being unable to process purchases was a key fact in the 2008 crash, I believe (feel free anyone to correct me.) So that's a justification. But, limiting the buying power of retail investors allowed the institutions, free of limitations, to cover their losses over the next couple of days, as the upwards momentum was drained, and the retail investors left confused as to why their stellar peaks never arrived. Still, seeing billionaires panicking about how much money they were losing and blaming their extremely stupid gambling losses on the poor hating the rich was payment enough for some. I had a blast.

    Another very strange story was the press release (I assume) that someone gave saying that redditors had moved onto silver commodity buying. Everyone on WallStreetBets at Reddit found very strange since, before that, there wasn't a post about silver in sight. That didn't stop the BBC and the Guardian reporting it as fact, something that could have been disproved or offset with the literal minimum of fact checking I would expect... That was disconcerting. Especially since it seems that Melvin Capital benefitted from a surge in silver. Everything here is from secondary sources, so it'll be interesting to see whether anything comes of it.

    Feelings were riding high, and some people are still waiting for their stocks to skyrocket. They probably underestimate the positional advantage of institutional investors in the stock market. But it is definitely interesting to see the meme stock short squeeze be intuitively interpreted in a class framing on Reddit, and across the internet.

  • 2 February 2021 at 8:36pm
    RM says:
    I was surprised about the "silver news" on MSM referring to Reddit without reference. It was odd. I hear the Melvin fella has a large stake in silver. Of course anybody who was nobody was trying to flock something this past week in the name of reddit from stocks to fake jewelry to fried chicken. I kid you not.

  • 2 February 2021 at 10:14pm
    Professor Saiful Islam says:
    Excellent. Did not know about the comment of Tocqueville.

  • 3 February 2021 at 1:46am
    Graucho says:
    The scene in The Big Short when Goldman Sachs et al claimed to have computer failures to give themselves time to dump their positions on unsuspecting clients tells you all you need to know about trusting your financial fate to these financial institutions. It's other people's money and they get a fee win or lose.

  • 5 February 2021 at 8:00am
    Tony Barrett says:
    Such a gormless article. Nothing to learn from age old dump and pump scheme. It’s a meaningless speculative scam. As the economist Paul Krugman writes, stop falling for fake populism.

    • 6 February 2021 at 11:19am
      P Eluard says: @ Tony Barrett
      You're wrong about that, since it was the first time a culture of app driven retail investing forced a short squeeze. Not many people on Reddit believed that it was going to destroy the financial system in a revolution, generally the sentiment was schadenfreude at the massive losses of these hedge funds, & of exposing some of the toxic culture on wall street. In fact, calling this populist is more accurate than usual, given that this was a properly popular event, a viral event. No one was leading the crowd, it led itself. That's how viral events happen. It's why the associated symbols are now called 'meme stocks'.

      Then there's the fact that it organised itself around a videogame related company, which was key for it to go viral on Reddit. The majority there would have had contact with GameStop at some point in their lives, and there was an element of wanting to protect GameStop from bankruptcy, which the massive shorting on its stock might have ensured. This is show by the fact that the GME stock, after its peaks is still at about 250% of its original value. The fundamentals of the business haven't changed. But now millions of people had the ability to express their support on the stock market, and for many of them, this was the first time they realised that was something you could do. I doubt many will forget that.

      To say there is nothing to learn from this just shows you never really looked at it in the first place.

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