Reports of a “populist” revolution in the dauntingly complex story of the GameStop trading frenzy are greatly exaggerated. But, as Mark Twain might have said (but probably didn’t) about history not repeating itself, it often rhymes.
It’s tough to understand how the GameStop stock trading frenzy worked, unless you’re the sort of financial wizard who knows hedge funds from hedge clippers. I’m not.
But I do know enough about political history to frown at the widespread use of the P-word to describe the online campaign by Reddit-driven day traders to thwart the big hedge funds by sending the struggling video game retailer GameStop’s stock price soaring through the roof.
I’m talking about the word “populist.” You can see it in headlines like these:
“Wall Street’s own populist revolt,” said Axios.
“Ignore The Populist GameStop Hype,” said Forbes. “Short Sellers Are Heroes.”
“Republicans in Washington warn Wall Street: The GameStop populists are more powerful than you think,” shouted CNBC’s website.
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Enough. Since populism is most easily defined as “a popular rebellion, organized by the powerless against the powerful,” as Axios does, I can understand why my media colleagues find the word so tempting. Among other advantages, it enables tantalizing metaphorical comparisons to an even bigger story, the Jan. 6 riot at the U.S. Capitol by supporters of now-former President Donald Trump.
But true populists, I would argue, call for broad, sweeping change that favors “the people,” ordinary folks, over wealthy and powerful “elites.” The anti-tax tea party or anti-corporate Occupy Wall Street movements were authentically populist, I would argue. The online rebellion that pumped up GameStop’s price was not trying to change the system or topple the elite “1%,” as real populists might, as much as they were trying to play the system and maybe join the 1%.
Driven by resentment of the big hedge funds, thousands of nonprofessionals banded together on Reddit’s Wall Street Bets forum to target stocks like GameStop’s, which the pros were heavily “shorting” or betting would fall.
Without going into the complexities, think of it as a big game of chicken to determine which side would make the biggest gains before the other lost their shirts. The biggest losers lost billions.
The feedback frenzy ground to a halt on Thursday when online brokerage firms Robinhood Markets Inc. and Interactive Brokers restricted trading in GameStop, AMC Entertainment Holdings and several other companies that the online social media gang launched into soaring stardom as good “buys.”
The sudden halt to normal trading ignited a political backlash that, unlike most Washington news, was notably bipartisan. Rep. Alexandria Ocasio-Cortez, a New York Democrat and genuine populist, called the move “unacceptable” on Twitter, and called for a hearing. In a retweet, Texas Republican Sen. Ted Cruz offered to help, but AOC rejected the offer, noting in a reference to the Jan. 6 uprising that “you almost had me murdered 3 weeks ago.” So much for President Joe Biden’s call for “unity.”
But, as Congress planned hearings into the matter, the Reddit revolt has left our financial system intact — including techniques like short selling that most closely resemble sophisticated casino games. The so-called internet-based “populists” took profits or losses like everyone else, depending on the timing of their investment strategies.
GameStop stock showed new energy by week’s end, shooting up more than 70% in early trading Friday, along with some other companies once left for dead that the online uprising helped, including AMC Entertainment and BlackBerry.
But that doesn’t mean the fundamental dynamics of the market have changed. The biggest change may well be the new respect that the individual online traders have gained, empowered by the internet, just like the populist political movements of recent years.
Other than the mobilization via social media, there’s nothing new about traders doing whatever they can within legal bounds to manipulate the market. What’s new is that the big traders are no longer the only ones who have managed to make money doing it. As with other legal questions regarding internet commerce and content, Washington needs to tread carefully on this new ground to avoid making any perceived problems worse.
Clarence Page, a member of the Tribune Editorial Board, blogs at www.chicagotribune.com/pagespage.