As the crisis of overproduction deepens, opportunities for productive investment become ever more scarce, forcing footloose capital to seek out ever more convoluted forms of speculative investment. In the process, it is increasing volatility on the financial markets to a degree that threatens their fundamental stability.
A startling example of this are the current shenanigans around the share values being registered by a rather staid US company called GameStop.
On the face of it, this string of stores selling video games seems an unlikely focus for a crisis on Wall Street. The 37-year-old GameStop had recently been doing poorly, thanks to competition from its online rivals compounded by the pandemic. At one point there was talk of it having to close 450 of its outlets.
But this troubled business caught the eye of a private investor who bought a tranche of GameStop shares, got himself onto the company board and then took a punt on extending the online side of the business, with heady ambitions to compete with the likes of online retail giant Amazon.
This hubristic adventure in turn caught the attention of the hedge fund vultures. So certain were they that GameStop would fall flat on its face that they indulged in a little share price manipulation, betting on the fall in its share value from its then highs.
This trick, a regular mainstay of the hedge funds’ parasitic existence, is known as ‘shorting stock’. Step one: the vultures borrow shares in the company. Step two: they immediately sell them at the current, higher rate. Step three: they wait until the price goes down. Step four: they buy them back at the lower price, pocketing the difference.
Of course, this trick only works if the shares devalue. And if they go up instead, the hedge funds take a hit. If they climb and climb, the losses can be severe.
What happened in the case of GameStop is that hundreds of small investors came together on a social media platform, the sub-reddit /r/WallStreetBets. There they conspired to rain on the hedge funds’ parade, relentlessly buying up shares and driving the price per share up from about $10 to over $400 in the space of a few days.
One of the hedge funds, Citron, tried to talk down the stock value of GameStop in the face of this counter-attack, ridiculing the company as a “failing mall-based retailer” and predicted on Twitter that shares would fall to $20. (How GameStop found itself at the centre of a groundbreaking battle between Wall Street and small investors by Edward Helmore, The Guardian, 27 January 2021)
When the share value shot up instead Citron threw in its hand, darkly hinting at harassment by the company’s backers. Facing potentially enormous losses, another hedge fund, Melvin Capital, turned for support to fellow vultures Citadel and Point72, who stumped up $3bn to keep Melvin Capital in the game, thus disproving the adage that there is no honour among thieves.
Presumably this generosity was triggered by the fear that, were Melvin Capital left to sink in the morass of its gambling debts, the contagion could bring the whole pack of them down. As it was, the volatility sparked by these events caused the New York stock exchange briefly to suspend trading nine times.
The outrage in the banking community at the hedge funds’ losses would be comical if these vultures didn’t occupy positions of such overwhelming power in the global economy. Their message: market manipulation is fine when we do it, no matter what the real-world cost in jobs, small-scale investments and even whole nations’ economies, but amateurs who take it on themselves to do the same must on no account be allowed to continue.
Meanwhile, tech companies like Robinhood, which were set up to make money from the dreams of a growing community of hopeful ‘retail’ (small-time) investors, quickly fell into line and suspended trading on the most volatile shares while the big players worked out how best to pull their irons out of the fire.
Judging from comments posted on the WallStreetBets sub-reddit, one commentator suggests that the GameStop investors “were not driven by greed but by rage against the financial machine. Instead of greed, this latest bout of speculation, and especially the extraordinary excitement at GameStop, has a different emotional driver: anger.
“The people investing today are driven by righteous anger, about generational injustice, about what they see as the corruption and unfairness of the way banks were bailed out in 2008 without having to pay legal penalties later, and about lacerating poverty and inequality.” (The system is rigged – Episode 4537: Game Stop corp, Moon of Alabama, 28 January 2021)
The imbalance in the two sides’ fortunes on the Wall Street casino was further underlined, to the chagrin of many small-timers, when it was seen that the hedge funds standing on the edge of the abyss were able to get enormous bailouts, although everyday investors regularly lose their shirts when their bets go bad.
As one commentator put it: “We don’t have billionaires to bail us out when we mess up our portfolio risk and a position goes against us. We can’t go on TV and make attempts to manipulate millions to take our side of the trade. If we mess up as bad as they did, we’re wiped out.” (The GameStop stock frenzy, explained by Emily Stewart, Vox, 29 January 2021)
It seems that the American dream is starting to lose its hold over the minds of widening sections of US workers and petty bourgeois, who are waking up into a cold and hard reality: the game is rigged against the little guy and there is no way to win against the monopolies, no matter how well thought out your strategy.
In another twist to the tale, a Wall Street Bets discussion channel on Discord, following pressure from who knows which quarter, was abruptly shut down on the pretext of “hate speech”.
Moderators of the Reddit community pointed out: “You know as well as I do that if you gather 250k people in one spot someone is going to say something that makes you look bad.” (Discord bans r/wallstreetbets server over hate speech as the group drives GameStop shares through the roof by Tyler Sonnemaker, Business Insider, 28 January 2021)
As with all the other areas of public discourse increasingly under the cosh of political correctness, what is really driving this moral panic is the fear lest the untethered anger and hatred of the dispossessed masses should ever learn to concentrate its fire upon the real enemy: the dictatorship of monopoly capital.