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Brian: It's The Brian Lehrer Show on WNYC. Good morning again, everyone. Do you understand the GameStop, Wall Street hysteria yet? I sure don't. We've asked Washington Post business reporter Hannah Denham to come on and explain it to us. Listeners, you can help too or ask any question you have at 646-435-7280. Hi, Hannah. Thanks for joining us for this. Welcome to WNYC.

Hannah: Hi, thank you so much for having me.

Brian: Let's start at the beginning. GameStop, the Brick and Mortar game store chain that's been losing money, and AMC movie theaters at a time when there basically are no movie theaters and also Blackberry. Who even remembers Blackberrys from before the iPhone? All these questionable stocks are surging because of something having to do with the social media website, Reddit. Can you pick it up from there?

Hannah: Yes, definitely. For GameStop, the start of the company's January rally where we've seen most of the games within the past month, that rally can really be traced back to August when a co-founder of Pet supply company, Chewy, disclosed he had a major stake in the company. That picked up the notice of a Wall Street hedge fund and short-sellers who are investors that plan to profit from the company's fall. A message board on Reddit called WallStreetBets took notice and they decided to really propel the GameStop stock and later AMC stock forward.

They view this as a financial democratized rebellion against institutional Wall Street. What happened is that propelled the stock. Now, these original short-sellers on Wall Street are having to purchase even more shares at inflated prices to stay ahead of the losses. That's why we see both stocks as well as now, Blackberry and a couple other companies rising at just incredible rates.

Brian: You quote Anthony Scaramucci. Yes, that Anthony Scaramucci, the former Trump advisor now a Trump critic. In real life, Anthony Scaramucci is a hedge fund manager. You quote him calling this "the French revolution of finance." That makes it sound political. Is it political?

Hannah: I think these day traders who are on Reddit see it that way. I think it's the way that Scaramucci frames that it is really interesting. I think these traders on Reddit, one thing that's important to note here is that Reddit has anonymous message boards. They claim to be inexperienced ordinary investors. There's no way to really verify it. If they are pushing this trend this week in the financial market, I think a lot are comparing to the financial crisis in 2008, this bubble, and this pushback against institutional Wall Street by ordinary investors, ordinary Americans, who have different thoughts about the way they should invest in the market.

Brian: You write that the Redditors brandish an "us against them" rhetoric that echoes the populism of Trump supporters. Can you explain that comparison? Targeting hedge fund billionaires isn't coming from a Trumpy political outlook, is it?

Hannah: No, it's not political in the sense of partisanship. I think it's just political in the sense of, like you said, "Us versus them." "Who has the power here, who doesn't." I think what these investors are pushing back against are these short-sellers who said, "No. We see that AMC, we see that GameStop are struggling. We're going to profit off that struggle. We're going to profit off that fail." What I think these investors see it as is, "Okay. Well, why do these people at the top who are banking off of failure, why do they have so much power? What can we use? What is our power here investment-wise?" I think that's the political play that you're seeing here.

Brian: Listeners, help us report this story. First priority to anyone personally involved. Are you a user of the Reddit message board WallStreetBets or WSB? Call and tell us about your experiences, your gains and losses, and what this is really about for you if you're personally involved. 646-435-7280, 646-435-7280. Anyone else can call too, if you have any questions for Washington Post business reporter Hannah Denham. 646-435-7280. Who's making money from this and who's losing money?

Hannah: Well, currently if you have stock in GameStop or AMC, you're making money, as of yesterday. This morning, the shares are definitely dipping in the red. That's the nature of the volatility. The case here is currently these short sellers, like I mentioned, the ones who were banking off profit loss, they're struggling and they're having to fork over even more funds to purchase these inflated prices, as I said. They're really making a lot of losses. These hedge fund managers are losing here in this case. That's the outcome I think that a lot of these ordinary investors were hoping for.

Brian: Can you explain when you say short-sellers, what shorting a stock is? I realized that it's a little bit of Wall Street 101, but a lot of people couldn't explain it. I'm sure maybe non-investors have a basic sense from the movie, The Big Short, or somewhere else. In this case, the hedge funds had been shorting GameStop which is a way of betting that a stock will go down, if I even have that much right. How do you make money on a stock going down?

Hannah: What's happening here is, part of GameStop's unbelievable rights, like we said, is tied to the belief that its shares were expected to fall. This company has struggled through the pandemic. It's posted multiple consecutive quarters of losses. At the beginning of this year, GameStop was among the most targeted by these hedge funds, these companies specifically use short selling tactics. They target specific companies. That means investors in these companies bet against a company like GameStop or AMC. They expect that they'll make money when the stock price falls by selling off those shares.

To short a company, the seller will borrow the stock in it, and then they'll sell it with the intention of buying it back later, once the price drops. Then that seller will return the share to whoever they borrowed the share from and they'll profit from the difference in the price. That's how this process works, but it fails if those stock prices, like in the case of GameStop, AMC, Blackberry if those stock prices start to rise. That's what we're seeing here in this case.

Brian: They didn't count on the rush of individual investors generated by Reddit or anywhere else buying up so much of the stock. It's hard to feel bad for these hedge fund managers because nobody has sympathy for hedge fund managers and the way they manipulate the economy for their own ends.

Hannah: I think that's a lot of what we're seeing here in terms of the sentiment that's driving this. Hedge fund managers, the short-selling tactic, the strategy is something that profits off of failure. These ordinary investors, ordinary Reddit users, view it as a form of bottom-feeding. It's something that it's typical in the financial world, but I think a lot of people are questioning the ethics of this. This is the case where we're seeing this idea flipped

Brian: Kyle in Brooklyn, you're on WNYC. Hi, Kyle.

Kyle: Hey, Brian. Thanks for taking my call. Hannah, like a lot of other people, I was reading about this story yesterday and last night decided to try to purchase some of the stock to get in on this as an investment, also potentially as a political statement. I use the app Robinhood, which a lot of the people on Reddit used to trade stocks with. When I woke up this morning, the headlines were saying Robinhood has blocked the purchase of certain stocks, GameStop being one of them, AMC, Blackberry, Nokia, all the other ones that have gotten swept up in this whole thing. They're only allowing users who currently own those stocks to sell them to, not purchase anymore. I'm just wondering, that to me seems like market manipulation. I'm a little confused as to how that is considered or maybe it's not considered legal. I'm just curious to get your feedback on that.

Brian: Hannah.

Hannah: That's something that we're working on covering today. Both Robinhood and interactive brokers have placed restrictions on GameStop and AMC trading. Not only are they disallowing additional purchases of shares. They're also increasing the margin requirement to purchase these different kinds of stocks. That's what we're seeing here. The thing is, with these brokerage firms, they have current policies in place that say

"If we have high volatility," is what they're citing, "Then we have the ability to place these restrictions." But it's something that I think hopefully the SEC will be monitoring. I think a lot of investors, like you, are frustrated with this process and see a lack of transparency here. It's definitely something, an additional update that we're working on covering because it's a definite piece of this.

Brian: We have to take a break, but we'll continue in 60 seconds. When we do, Chris in Rockaway, stay there, I see you're a participant and you want to explain to people who don't get it yet the anger at the hedge funds and what role that plays. Hunter in Princeton, stay there. I see you told our screener you bought $10,000 of AMC stock last week and you made $50,000 yesterday and you've got context as well. We'll get to those calls and more with Hannah Denham, Washington Post business reporter, right after this.

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Brian: Brian Lehrer on WNYC. Quick reminder that I will be back tonight at eight o'clock for this week's edition of America Are We Ready? Our live national calling series every Thursday night through the first 100 days of the Biden administration. Tonight America, are we ready to really defeat the coronavirus? I'm happy to be joined as a co-host by Rose Scott from WABE public radio in Atlanta. Rose Scott and me and callers from around the country on Biden and the pandemic tonight at 8:00 here on WNYC.

Right now we continue with Hannah Denham, Washington Post business reporter on the GameStop Wall Street hysteria. Chris in Rockaway, you're on WNYC. Thanks for calling in Chris. Hey there.

Chris: Hi Brian. Thanks for taking my call. I've been listening to this back and forth here, and so I just want to say I've been following WallStreetBets for a long time. One thing that your guest mentioned that I just think has been left out of the conversation is that WallStreetBets is not a unified force for anything. You know what I mean? These are a lot of individual investors who are sifting through whatever banter or discourse is going on and all banded, not together in a traditional sense, but just followed advice that seemed to be working, and this all happened at one time.

I think that speaks a lot more to people's innate disadvantaged place in the investing world because the deck is stacked against retail investors. I think it also it's telling that this is the first time that a big market swing has happened via individual investors who've been newly really able to get into this market because of, like the last caller mentioned, Robinhood taking away fees on trades, making options trading really simple. This is a real democratization of investing in ways that institutional players have been able to use for ages.

Finally, I guess the last thing I'd say is that, as the last caller mentioned, when halting trading on the volatility, it's like Brian, you had mentioned just a moment ago, that really, the only people who are suffering a downside here are these institutional firms. I think it's telling that, at the end of the day, this is just one time that this has happened to them and they are screaming foul, "This is market manipulation. This is terrible." I liquidated my GameStop shares this morning. I'm a high school teacher. I have a meager income and meager living situation and WallStreetBets has, among other sources, helped me out a lot. The fact that I had to cash out because I saw basically the deck was getting stacked against us again, was telling.

Brian: It's a great explanation. For people who don't know the reference, WallStreetBets that he's referring to, is a message board on Reddit where people talk to each other a lot about stocks. Let me just ask you one follow-up question and then we'll also get Hannah's take. Is it your sense that the community on WallStreetBets came to the conclusion that these stocks were undervalued that game stock-- I did it again. GameStop, really, really actually-

Hannah: Everyone is saying that.

Brian: -everybody's doing that, I'm sure, really has the potential to make money in AMC movie theaters and Blackberry, or is it some kind of manipulation in a sense of seeing that the hedge funds shorted these stocks and so trying to artificially, if that's a fair word, inflate the price of them so that you can take your profits, even though the futures of the companies themselves are not that bright?

Chris: What I would, I guess, say in response to that-- and granted, I'm not a professional here, I'm an English teacher. What I would say to that is simply that you're talking about a collection of individuals making individual decisions with individual amounts of money, not like a firm. When you do that, I don't think it really matters what the underlying play on the company is. I think what matters is some people started making a bit of money, other people started making a bit of money. Some people are doing it from a fundamentals perspective, I'm sure, of saying like, "Yes, I've done the analysis and I think this is a good investment for me."

When other people start making a little bit of money too, you're not talking about a unified force so much as just sentiment just happened to trend in one direction at one time. Hedge funds are the business of doing this. I just think this "us versus them" narrative is a little bit misleading because it makes a forum on Reddit sound like a much more unified belief system than it really is. There are plenty of defenders.

Brian: Really clear. Thank you. We really appreciate the call. Hannah, maybe it doesn't matter at all if they really think AMC or GameStop have bright futures as companies. I have no idea if they have bright futures as companies and maybe these folks on Reddit don't either, and what they're seeing is hedge funds undervaluing them and they can make money off the hedge funds.

Hannah: Thank you so much for offering that perspective. I think you're right, that this is not a unified take, but it is the choices of individual investors and that's what differentiates this from hedge funds. I think the nuance that's important to point out here is that this is something that we'll continue to watch it. It's not predictable. The past couple of days have not been predictable. This is speculative and I personally can not speak for the intent of these brokerage firms, making these decisions. All I can report on is what they say and what investors are saying. I think, either way, you're right about what the impact is on Robinhood users, on investment broker users-- Interactive Brokers users, excuse me. This is something that we're continuing to watch play out.

Brian: Let's take another one. Hunter in Princeton, you're on WNYC. Hi Hunter. Thanks so much for calling in.

Hunter: Hi, Brian. Thank you. I love your show.

Brian: Thank you.

Hunter: My story is, I guess about a week ago AMC went up 10% one day because they got a new executive. Then they also got a billion-dollar loan. A few days ago, I actually thought investing in AMC was not a bad idea, so I put in $10,000. Then that investment, multiplied by a factor of six in about five days, and I sold it yesterday and to my surprise made a profit of about $50,000 on that. Because it affected me, I was reading the articles, and something that I read about yesterday that I haven't seen mentioned is that Nasdaq marketplace is apparently taking some kinds of [unintelligible 00:18:42]. Sorry. Nasdaq is taking some kinds of efforts to detect and prevent this from happening in the first place. I just thought it was interesting that the market is turning to somehow using kind of algorithmic process detect irrational exuberance or non-rational buying, which characterizes the stock market in a lot of ways, especially right now. I have no idea how they're going to do that or fairly enforced it. I think it's an interesting question and a little bit chilling.

Hannah: That's something to look into. The bit about the Nasdaq monitoring this for future change, that's not something that I've reported on or looked into, but something definitely to look at in terms more broadly. President Biden's economic team is monitoring this, the SEC has said they're monitoring this. I'm not sure if there will be any sort of regulatory changes, but it's something we're watching as it develops.

Brian: Is that another sign of the potential unfairness? When the market is unfair and it's benefiting hedge funds, they don't do anything, but when the market is unfair and it's benefiting all these individuals at the expense of hedge funds, then,

"Oh my God. We have to put a rule in place to stop this insanity."

Hanna: Right. That does seem to be a key frustration among these investors, for sure.

Brian: Silk in Brooklyn. You're on WNYC. Hello, Silk.

Silk: Hey, how are you? Can you hear me?

Brian: Can hear you fine. Yes.

Silk: Awesome. Hey. I'm so glad that you got me. I love your show I’m listening to it now. I had to pull over on the side of the road. I'm a nurse. I work in the field. I just wanted to preface that, that I'm a registered nurse. I'm a frontline field nurse providing hospice care in really different franchise neighborhoods. I got home yesterday from this crazy day in COVID land. My boyfriend was so pumped up about this breaking GameStop story. He was so full of glee and just experiencing a schadenfreude about the bankrupting of these really devious hedges. My understanding of the market is paltry compared to his. He really gets all these little nuance pieces to it. I get the idea of what happened. I felt it for a moment too, this schadenfreude about watching these guys just squabbling and running and scurrying.

I really started getting angry. Also, I felt really profound sadness at the heart of this matter, which is that we are in a horrible, horrible time. This COVID is really decimating communities. Schadenfreude aside, yes, the GameStop bubble, it shows us what unregulated, rudderless casino, this financial system we have is. Right now, we dumped trillions of dollars into this derailed financial system. There's no place for it to go. Meanwhile, ICUs are jammed up at capacity. We have 24 million people who are having trouble getting enough to eat. I'm running around like a loon in the night wearing busted up PPE. People don't want to wear masks. There's such poverty and such dysfunction. Meanwhile, back at the ranch, these guys are all having a game, both of them, the hedges and the guys betting against them. There's a huge problem that we have to face every day, and I'm on the road dealing with it. This is just so pathetic and so angry-making. I just had to put that out there, that there's a bunch of us who fight a different fight, and this is just garbage, as far as I'm concerned.

Brian: Thank you for that.

Silk: Thank you for listening.

Brian: Thank you for that.

Silk: It's my venting moment, and I appreciate you here having me. Thank you so much, Brian.

Brian: Call and vent any time. Thank you for that profound really perspective. Related to that, Hannah, let's end on this. Your article raises a larger issue that the roughly 0% interest rates that the Federal Reserve Board has preserved during the pandemic, is fueling a stock market bubble that goes way beyond any French revolution gamesmanship that Reddit users might be engaging in. What's the relationship between that and the GameStop craziness?

Hannah: I think that this GameStop frenzy just builds upon this bubble that we've seen in the stock market. I echo this caller’s concerns in terms of, it is pretty jarring to go from covering a story on the immense poverty and food insecurity and need in this country, to writing about how well the stock market is doing each day. I think it is this dichotomy, this juxtaposition of two different American economies that are really part of the same. I think it's important to remember here that the stock market, as exciting and wild as it can be, as speculative and risky, it is not a true marker of how the average American household is fairing financially. It's definitely something to keep in mind as we keep up with both new stories.

Brian: Hannah Denham, business reporter for the Washington Post. Great job. Thank you so much for joining us today. We really appreciate it.

Hannah: Thank you so much for having me, Brian.

Brian: Callers, thank you all so much for chiming in.

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