Tanzina Vega: This is The Takeaway. I'm Tanzina Vega. Wall Street investors have become a target for a group of amateur traders from a web forum called Reddit. Users on that site managed to disrupt the plans of stock market insiders and hedge fund managers by betting against them on struggling companies like Blackberry, AMC theaters, and the video game retailer GameStop, whose stock price surged from $40-a-share to almost $350-a-share this week alone. Helaine Olen is here to tell us why this matters. She's an opinion writer at the Washington Post and the author of Pound Foolish: Exposing the Dark Side of the Personal Finance Industry. Helaine, welcome to the show.
Helaine Olen: Thank you for having me on.
Tanzina Vega: This is complicated, but GameStop went up in stock price this week because a bunch of folks on Reddit decided to do what, exactly?
Helaine Olen: This is, as you said, a slightly complicated story, but essentially, GameStop, which is one of those companies that turns up on retail expected retail apocalypse lists all the time suddenly became attractive to a group of people hanging around a Reddit board called WallStreetBets because short sellers, like some of the hedge funds, like a place called Melvin Capital, which I'll get to in a minute, were betting that the stock was going to continue to fall.
This group of people on Reddit who appear to be young guys of the type that are usually on internet boards decided that GameStop was going to go up in price, and they started talking up the stock. The next thing we all knew, the thing had just taken off. Over the past couple of days, it has gone from opening at a little over $18 and change at the beginning of the year, it closed yesterday at just under $350. In futures trading, overnight, it went up to just under $500, at which point, Robinhood, which is one of the places they are trading this like crazy, because it's a free trading platform, decided to basically delist the stock as of this morning. We don't know if that's temporary or permanent at this point, by the way. It's probably temporary.
Tanzina Vega: Let's talk about the goal of this. What's the goal here? Was it to make money? Was it to disrupt Wall Street? Was it to prove a point?
Helaine Olen: That's a good question. It appears to be all of the above. The people on this board clearly want to make money. Everybody wants to make money, but at the same time, there seems to be a huge wave of anger towards Wall Street, towards baby boomers, towards people they see as having money. It's very much openly stated that, "We're going to get these Wall Street guys." "We're going to make money at their expense." People are talking openly about using their profits to pay off student loans. People are putting stimulus money into this.
There's definitely a wave of anger, and it's worth noting that it appears that this is, again, young guys, millennials, older gen Z years, and that the economic prospects for this group are nowhere near what the economic prospects were for, say, baby boomers at the same age. The amount of net worth they have is much lower. The amount of debt they have, mostly in the form of student debt, but also in the form of car debt and whatnot, is much higher.
Tanzina Vega: Helaine, how much money are the members of WallStreetBets making from their investments in these companies, like GameStop and AMC and Blackberry, and has Wall Street really lost anything?
Helaine Olen: This again gets complicated. In the short run, yes, we know some of these people have made a significant amount of money. In fact, I've seen people post about paying off student loan bills in the tens of thousands of dollars recently from what they claim are trades in this stock or buying options in the stock. In the long run, the chances are incredible most people are going to lose out. The thing about buying into manias like this, and make no mistake, this is a mania, is that it's not going to last. A lot of people are going to get stuck holding the bag, and it feels like, right now, if you go on these boards, nobody is convinced they're going to be the one stuck holding the hot potato here.
The other group that has lost money right now is definitely some of the short sellers on Wall Street, some of the hedge funds, and I mentioned a place called Melvin Capital before. Melvin Capital actually needed to get a bailout of several billion dollars from a couple of other hedge funds this week and ultimately close out its short positions.
Tanzina Vega: Helaine, that was the point, right? These Redditors wanted to hurt hedge funds and Wall Street. When I say "hurt," I mean that in the [chuckles] grand scheme of the tens-of-thousands of millions of dollars that a lot of us can't even compute.
Helaine Olen: That was the point, but what nobody is realizing yet is that the hedge fund did get a bailout, and the typical investor, if they lose money on this is not going to get a bailout. Obviously, they know that, but it doesn't occur to them that that might be their position at some point, I think. [crosstalk] [unintelligible 00:05:16] issue. It helps to have rich friends in this world.
Tanzina Vega: It does. It definitely does. I think, in general, it might. What's interesting is that this has already gotten to the point where the treasury secretary, Janet Yellen, is monitoring the situation, and she said in a statement, and Senator Elizabeth Warren called for the SEC to "Wake up and do their jobs." What are they worried about?
Helaine Olen: I think there's a couple of different things. I think the primary is, actually, people are quite concerned that a number of investors are going to get very badly hurt here. That's something to be concerned about, but I think, also, it is concerning that you're this targeted going after various hedge funds and various stock positions, and nobody quite knows why and how it's happening. I think that's frightening to people on Wall Street. Is it a revolution? I'm old enough to remember the day traders. I think it has a lot of similarities to the day trading mania, and so I think this is going to pass.
Tanzina Vega: Helaine, isn't it time, I guess, some folks would say that Wall Street get disrupted, that hedge funds get disrupted, that the inequities and imbalance in wealth in the United States in particular be shook up a little bit, or not?
Helaine Olen: I don't think this is the way to do it. Keep in mind, for all the "disruption" going on here and the run-up and the price of GameStock and a few other of the targeted stocks yesterday, the market itself was down quite a bit. It would take a lot of doing to really make a difference here, in the overall market and in the overall Wall Street. I think there is a level of panic on one side and over-celebration on the other.
Second, I do think, for the most part, this is temporary. I do think this is going to end as these manias often do. Keep in mind, some of this is also flat out being driven by the fact a lot of people are at home because of the pandemic right now, and they don't have a lot else to do with their time. That's also a factor again to this.
Tanzina Vega: [chuckles] Right. Helaine Olen is an opinion writer at the Washington Post and the author of Pound Foolish: Exposing the Dark Side of the Personal Finance Industry. Thank you so much for being with us.
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