The GameStop fiasco

02/02/2021

The GameStop Bubble Is a Lesson in the Absurdity and Uselessness of the Stock Market

By Doug Henwood Jan.27, 2021 Who knew GameStop would itself become such a game? Last summer, the video game retailer was seen as a fading brick-and-mortar operation. It was losing money, sales had been shrinking for years, and the stock was trading for around $4 a share. As I’m writing this on the afternoon of Wednesday, January 27, its stock is trading at $339 a share. At the close of trading on Tuesday, it was a mere $148. Not a bad overnight return, 129 percent. Three days earlier, it was at $38. It was up nearly tenfold in less than a week. Why? To answer that requires explaining the concept of short selling, which most civilians find nearly incomprehensible. A short sale is a bet that a stock (or any other speculative asset, like bonds or gold) is going to decline in price. But to make that bet, you have to sell something you don’t already own, which is not normal behavior. To accomplish this, you have to borrow the stock from somebody who does own it. As with any loan, you have to pay interest on the borrowed asset. And you also have to keep some collateral on deposit with your broker as an assurance you’re good for the money. The hope is that the price will fall, and you can buy the shares — cover the short, in the jargon — at a lower price. Your profit would be the difference between the original sale price and the closing purchase price, minus any interest paid on the borrowed asset.

The GameStop Fiasco Exposes the Fantasy That Capitalism Can Be Democratic

By Luke Savage
Jan.30, 2021
Among its many successes, the neoliberal revolution’s greatest triumph may have been convincing people that capitalism could be democratic. With the tyrannical fetters of taxes and state regulation removed, neoliberalism’s ideological advocates claimed, the individual would be free to realize their authentic self. The forum in which that flourishing would take place, of course, was the market — a naturally efficient and self-correcting mechanism in which everyone could compete, own property, and ultimately become a capitalist in their own right.
Ridiculous as it always was, particularly after the crash of 2008, this rhetoric has taken on a whole new life in the age of apps, consumer reviews, and e-commerce. Robinhood, one of the companies at the center of the ongoing GameStop fiasco, is a case in point, having been founded in 2011 on a promise to “democratize access to the financial markets,” an ethos its founders say was inspired by none other than Occupy Wall Street. One obvious irony of this claim is that Robinhood’s business model is actually premised on the sale of its users’ trading information to larger firms — their “freemium” investment tool in effect a kind of direct market research that allows companies like Citadel Securities (which boasted $6.7 billion in revenue last year) to generate more profit for themselves.
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