Okay my (very serious) explanation of the GameStop thingamajig:

Say you are a Very Smart Investor with a lot of [other people's] money and you live in Late Capitalism, the defining feature of which is that...

...there is more investment capital (rich people's money) than there is physical capital (actual stuff to buy).

Companies' stock right now is valued very highly (one might say, overvalued) in comparison to the money they're making: https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart

We're in Bubble Land now; it used to be once a century that rich people blew up the economy over tulip bulbs or whatever but now it's reliably happening every few years because once an asset starts going up everyone piles on cause the cash has nowhere else to go.

What that means is that while you could sink money into, say, tech stocks or real estate and get a nice short-term return, there's likely to be an eventual CORRECTION, which is fancy wall-street-speak for "wait, why the fuck are we paying so much for tulip bulbs?"

And you're a hedge fund which means you're supposed to *hedge* against downturns. So what do you do?

Well if you were a private equity firm you could buy a cash-strapped company and strip it for parts - this works really well (at least until the economy is completely destroyed)

You can't do that - you're the wrong kind of rich asshole - but you can do the next best thing: identify companies that are circling the drain (or are due for a short-term correction) and bet *against* them.

Bet against them? Is that legal? I mean, since the value of all companies are over-inflated, wouldn't publicly betting against them trigger a panic, causing other folks to pull out and the stock price to fall?

That's bald-faced market manipulation, right?

Good news! It's both legal and HIGHLY ENCOURAGED!

The downside is that making the bet is a little like going to a bookie or a loan shark. Lemme explain...

First, you find someone willing to lend you, say, ten thousand shares for a set period of time.

They get a little vig out of it, so as long as the stock doesn't fall too far they're cool with the trade. But what you do is this: you immediately sell the stock you borrowed. Now, in, say, two months you're gonna have to produce 10K shares of that stock you don't have, but

You go and invest the money in other stuff. Stuff that's likely to be profitable.

This is a bet that the value of the original stock will go down because: if you sold it for $100 a share, and when you have to buy it back to return it it's only $10 a share...

You make $90 on each share - $900K total - plus whatever you made in the interim on your investments.

In the meantime you can go on CNBC or whatever and talk shit about the company to encourage people to dump the stock, further driving the price down and making you more $$.

So what the Reddit weirdo day trader crowd did was this: They saw this hedge fund fucking with GameStop, and they found out how much stock they'd borrowed (the answer: A SHIT TON). And they said, "You know what, we're not gonna listen to CNBC."

"We're gonna buy a bunch of this stock."

And big investors - people who pay to basically be embedded in the market so their computers can see trends and place their orders before regular humans (stealing some of the profits - a story for another day) will pick up on it.

As GameStop stock starts to go up, all those computers are going to PILE ON and other investors will too and eventually the stock gets pumped up from $100 to $1000 or higher!

And now your contract has come due.

You owe Vinnie ten thousand shares of GameStop he lent you that you don't have because you sold them.

And him and his two big goons with baseball bats and no necks have come to collect.

If you value your kneecaps, you're gonna need to come up with cash - $10M, maybe more. You're about to take the biggest haircut of your life. You're done in the biz - at best, you'll need a bailout from a larger firm (maybe one of the ones with the fancy computers)

Meanwhile, your panic purchase is going to drive the stock up even higher, and all those weirdo libertarian reddit trolls are going to fuck off with some of that money (probably to use it to screw the next rich asshole who made bad bets with other people's money)

BUT...

Most of the profit is going to go to the big investment firm with the fancy computers. Because as soon as they see the reddit boys starting to sell, they'll cut them in line and dump all of their own stock, making their billionaire and corporate investors a shit ton of money.

So in the end, most of what the reddit boys did was transfer money from a hedge fund to an institutional investor. But a bunch of them are gonna get at least small payouts, and in the process big money is going to learn an important lesson: betting against companies is dangerous.

And that's ultimately good for the economy in the long run, even if it doesn't do a lot in the short term to help average folks or the libertarian bros' ex-wives that they're not paying alimony to because they hide all their spare cash in cryptocurrency.

Because you know what sucks? Working for a company that's struggling but still surviving and paying you a paycheck every month and having some rich asshole come and tank it so he can make a few extra bucks, kicking your ass to the street.

I think it's good to discourage that.

This is why my reaction to all of this is basically laughing watching the world burn and/or glee that a bunch of bad people are beating the shit out of each other for (my) fun and (their) profit.

Fin.

Disclaimer: I am not an economistiatician, so I may have simplified some details (read: gotten them quite wrong).

You can register any complaints with my Jewish ancestors who bequeathed me a deep and abiding love of finance but would be turning in their graves at my language.

There are details that make this specific story even more entertaining, like the fact that the fund borrowed more shares than existed, and doubled down multiple times in a bizarre game of chicken, dragged in multiple other hedge funds, etc: https://twitter.com/MrBrownEyes2020/status/1354517067240771584

Okay so I am getting SLAMMED with notifications over this.

A few things before I mute:
- everyone involved here is kind of terrible
- I definitely wouldn't buy GameStop stock right now
- fuck capitalism in general

u all