On January 27 Twitter and Reddit exploded. Timelines once dominated by memes, shitposts, politics and capital A aesthetics disappeared. In their wake a million amateur day traders emerged to evangelize their quasi-ironic war on Wall Street. In the span of a few days a handful of flailing companies saw retail trading driven growth causing their stock value to rocket. Nokia (NOK), BlackBerry (BB), AMC Entertainment (AMC) are a few of these golden geese but nothing is more representative than GameStop (GME) which saw an 800% surge between market open Friday January 22 and market open the following Wednesday, January 27 from 42.59 USD to 351.49 USD respectively. To the casual observer it would seem odd that an already flailing brick and mortar video game retailer would surge in the midst of global lockdowns. But if current trends continue, this outlandish growth is just beginning.

What we are seeing is a classic example of a short squeeze. A short is when an investor borrows an asset from a lender, in this case stocks, and sells them on the market. At an agreed upon point in the future, the short expires and the borrower must return the stock back to the lender. If the value of the stock is lower than when the borrower purchased the stock, then they have made money and if the stock has appreciated, they lose money. It is a simple transaction and is perhaps most well known outside the trading and finance communities from the 2015 Adam McKay movie “The Big Short” which tells the true story of three funds that shorted the housing market prior to the crash in 2007/8. 

Shorts can be incredibly profitable, as was the case with the housing shorts, but they are also among the riskiest of all investments. This is because the price of a stock can theoretically appreciate infinitely so the exposure of a raw short position is potentially infinite. This is generally why it is not a good idea to overextend a short position, shorting too much of a company’s float (the number of shares available for open trade) exposes the investor to more risk, and that risk compounds due to the possibility of a short squeeze.

A short squeeze is when the value of a stock that has been shorted begins to rise rapidly. Most often this is because of changed market trends in which a shorted stock is likely to increase in value by the expiration date of the shorts, and so the short sellers will begin to cover their position by purchasing stock before it hits a higher price. This triggers a cascade of demand which in turn can rapidly increase the value of a stock, and since that stock is on an upward trend and there is guaranteed demand from the short sellers, other investors begin purchasing the stock and can hold it to drive the price up even further.

The short squeeze that we are seeing with GME, AMC, etc. is an exceptionally profitable one for the holders and has been devastating to the short funds involved. The two main players here are Melvin Capital and Citron Research. They shorted GME when it looked all but certain that GME would go bankrupt relatively soon. However, their position is incredibly exposed. 141% of GME’s outstanding shares were shorted, meaning the number of shares shorted is one and half times the number of shares that exist. If forced to cover, then the short funds will have to purchase back an absurd number of shares and create astronomical demand.

What happened next is where things get fun. A bunch of people on the wallstreetbets subreddit noticed this incredible exposure on the 140% shorted GME. The retail traders noticed that if people started buying GME, which was in the low double digits USD at the time, then they would be able to drive the price of the stock up and force the shorts to cover.

Wallstreetbets is a bit of an oddity in the world of finance. The self-styled “like 4chan found a Bloomberg terminal” is a collection of retail traders, small timers buying and selling using their own savings in the hopes of making a profit. With the emergence of zero commission trading platforms day trading is more accessible to retail traders than ever, and wallstreetbets has taken these platforms and run with them. 

The subreddit is dominated by high-risk speculative traders, mostly dealing in options, making some spectacular profits but more often than not spectacular losses. These gains and losses are celebrated in posts displaying them like an exhibitionist in an Amsterdam window; porn for the salivating community to share the joy and commiserate in the suffering. It is a culture seething with irony, camaraderie, and rivalry; all marked with an underlying resentment of the “hedgies” -- hedge funds that look down on them as dumb money traders to be swindled and suckered out of everything they have.

The age and income of wallstreetbets skews young and low. They are a collection of millennials and zoomers who were thrust into a post 2008 economy. An economy in which prospects are poor, the notion of retirement is a laugh, and precarious work is the norm. In the wake of the GME squeeze, this subreddit is filled with posts celebrating the effort to bankrupt funds. Redditors detail their stories of the Great Recession that defined their adolescence or childhood: family members losing their jobs and collapsing into alcoholism and addiction, young people aspiring to professional careers left in the lurch with nothing but a degree and six figure debt, and anger at the bankers who laughed and spit on Occupy Wall Street protestors.

Wallstreetbets is a social outlet and hobbyist group more than anything. Like all subcultures it is defined by in-group out-group dynamics with its own language and norms. One can see the joy in the hunt for tendies (an ironic reappropriation of being called chicken tender eating basement dwellers) the derision of having paper hands (selling at the slightest dip) or being the bag-holder (taking losses). In an age of hyper politicized interpersonal relationships and self-policed censorship there is revelry in a strict no politics policy and the freedom to say slurs in neither malice nor anger. It is a place of cynical unity for the self-proclaimed “autists” that occupy it, gambling away futures that are as bleak as the present.

The GME squeeze shook everything up. The few hundred thousand wallstreetbets users were joined by millions more like them. People looking for a quick buck and to stick it to the hedgies. Rallying cries of “Hold” and “We Like The Stock” dominated the board. People posted their stories and speculations, mainlining dopamine in the manic frenzy that gripped the nation. After a year of lockdown, that horrible condition that fattened Wall Street while millions lost their jobs, finally there was something that felt like comeuppance.

The reality of this new short squeeze is quite different from the seductive narrative. Yes, it is true that Melvin and Citron got greedy, overextending their short positions on the bet that beloved American entertainment companies would go bankrupt. It is true that many regular people who have suffered both financially and spiritually at the hands of these bankers are winning a huge victory. But the world of finance is not so cut and dry. 

Melvin Capital’s filings show that the biggest investors in their fund includes the pension fund for New York government workers, retirement savings for bureaucrats, teachers, and janitors. If wallstreetbets manages to bankrupt the hedgies in this squeeze, a few finance professionals might lose their jobs, but the people that will be hardest hit are the workers who will lose their entire retirement. The Wallstreetbets gamblers are aware of this, a popular post recently put out a message inviting workers who stand to lose their retirement to come forward for assistance, but a one-time cash transfer is negligible next to a lost retirement.

Moreover, a lot of the money from this squeeze is not even being held by wallstreetbets and retail traders. BlackRock, an asset management company with over 8 trillion in assets is one of the biggest beneficiaries with the latest disclosure showing a 13.2% stake in GME. Ryan Cohen, a billionaire, and founder of ecommerce company Chewy, holds a 12.9% stake and his buy in to GameStop is one of the motivating factors behind this squeeze.

We can consider this squeeze a rupture of brewing frustrations, but it is not the massive redistribution of wealth towards working people that is being suggested. The biggest winners in this story, as is often the case, are hedgies. Reckoning with this reality is a necessary step towards addressing the legitimate grievances so many have.