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This time, it might really be different

A remarkable series of events culminated in at least one major Wall Street hedge fund on the verge of insolvency and widespread anxiety and even panic from the titans of the financial system.
— Glenn Greenwald


Silver here.  Claire asked me to comment on the GameStop short squeeze debacle.

It’s early, what’s happening is complex, and there are multiple players and multiple levels. These are my first impressions, but the rebellion of small investors against hedge fund billionaires could be a milestone in the rebirth of freedom.

I’m not going to hash out the whole mess; if you haven’t read the basic background, Glenn Greenwald and Matt Taibbi have good articles on Substack.

Tl;dr: An online Reddit group of up to two million day traders decided to invest in an ailing brick-and-mortar company called GameStop.  A number of hedge funds had decided that GameStop was in deep trouble and shorted their stock on a huge scale. Their intention was to drive the stock to zero. The day traders bought it up anyway, driving the price from $6 per share to over $300.  This caused multiple billions of dollars of losses to the short-selling hedge funds.

This was less about GameStop and more about ordinary Americans mounting a powerful, and at least temporarily effective, attack against the forces they perceive as destroying the economy.

This isn’t a left/right phenomena.  The day traders aren’t Trumpists, or racists, or progressives, or Antifa.  There may be some from each of those groups in among the hundreds of thousands, but those ideologies are not what is driving this.

It’s closer to a have/have-not divide. Most of the day traders appear to be relatively young, and don’t have a lot of money to invest. Their typical stock purchases are from $500 to $2,500. Many are using their latest stimulus checks, which may be all the spare cash they have. I saw several comments bemoaning the $25k required to become “qualified investors.”

It’s quite possible that large investors noticed what was happening and plunged in.  We don’t know now, but the sums are so large that it would be amazing if some big players hadn’t also jumped into this pool.

The day traders are the tip of a much larger iceberg.  People are very, very angry.  They were angry long before the election and they are still angry.  They remember 2008.  They — or their parents — lost jobs, businesses, homes, pensions, and in some cases lives.  As they did they watched the biggest and wealthiest banks and investment firms get bailed out. They watched Congress pass a trillion dollar bailout, after initially voting it down, despite overwhelming, highly vocal opposition from their supposed constituents.

Most of the people devastated by the events of 2008 never recovered.  Not even close.  An entire generation, and arguably two, has been robbed of opportunity. The gig economy, with its complete lack of any semblance of security, good pay, and benefits, is not a substitute.  We’ve all read about millennials living in their parents’ basements.  That doesn’t make them happy. Seeing their parents’ misery makes them angry, and seeing the grotesque inequalities in both wealth and the application of law makes them angrier still.

Some insurgent redditors said they didn’t care if they lost their entire investment, as long as they made the oligarchs pay for the ruin of their families and futures.

Wealth and power have been concentrating in this country for a long time, and the trend accelerated after the 2008 bailouts.  But the same concentration of wealth and power that makes the oligarchy so real and so dangerous also means they are hopelessly outnumbered. They maintain their control by dividing the deplorables and other little people, pitting them against one another in all manner of ways.

It will be much harder for the powers to divide the have-nots.  Even if the Fed, the SEC, and Congress eventually combine to smash the upstart investors this mob punishment of the hedge funds shows that the power dynamic has changed.

Before, the oligarchs could isolate any few who got out of line and crush them. But they crushed too many people in 2008, carelessly, needlessly, and quite deliberately. Those people remember. Their kids remember.  Their friends and families remember. Relentlessly grinding Americans under the heels of the crony class makes it hard to forget.

We have the best government money can buy.  My guess is that the hedge fund sharks will get the Fed, the SEC, Congress, and probably some others to ban this tactic, crush the upstarts, and put more curbs on the internet. Glenn Greenwald speculates that Congress may pass something to bail out or protect the hedge funds even before they pass the supposedly imperative stimulus bill. But the redditors and tens of millions of others are mad as hell and they will find other ways to attack.

The Fed is the driver of the giant money pump that steals from the poorest and gives to the richest.  The massive money creation from thin air went into overdrive in 2008 and never really stopped.  In 2020 it went into hyperdrive.  It’s no coincidence that most of the world’s billionaires did so very, very well last year.  It’s not a bug, it is the main feature of the system.

I’m not very optimistic about people seeing the true nature of the Fed. That requires thought, and most people don’t like thinking at all. But they know they are angry, that they are getting screwed, and that it isn’t going to stop. It’s sort of what happens in hyperinflation; when everyone finally realizes the prices are going to keep rapidly rising, the financial system collapses.

In this case it isn’t just prices, but the whole rotten system.  Wall Street was once admired, a place where price discovery and investments helped America grow.  Now it is almost universally reviled, seen as a rigged game that has destroyed the economic future of tens or hundreds of millions of people while providing grotesque amounts of wealth to a very few well-connected and powerful people.

The masters are very, very afraid.  They were already afraid.  Mordor-on-the-Potomac is surrounded by razor wire and filled with uniformed troops.  For decades, standing orders forbade most military members from wearing their uniforms in DC lest everyone see the Imperial Capital for what it really is. Now they no longer hide it.

The oligarchs and their servants are very dangerous, and their terror makes them even more so. But if enough people get angry and withdraw consent, they grow ungovernable and the jig is up.

The nature of this attack is that unless they shut down the entire internet, it is easy to find countless new targets of opportunity. At the core of all big tech are masses of millions of people who are products, not customers.  But the same tools that can aggregate billions of mouse clicks and eyeball views are available to like-minded people to congregate and organize.  The GameStop debacle provides a blueprint for a new variety of guerilla war – with literally millions of have-nots taking on the few and powerful.

The next targets will not be limited to stocks – expect all manner of monkeywrenching on a grand scale.


  1. Comrade X
    Comrade X January 29, 2021 12:20 pm

    Invaluable insight as always Professor Silver!

  2. Simon Templar
    Simon Templar January 29, 2021 12:45 pm

    Some time ago I read something about the increasing wealth disparity in the US. I do not remember the source, or even the numbers exactly, but I do remember the gist of the data, which is the important part. If anyone has the actual data, or a link, please post it, and correct me if I am remembering this incorrectly.

    The article said that in the 1950’s (or maybe 1960’s or 1970’s?) the income of the highest earners was about 39 times greater than the income of the lowest earners. At the time the article was written, just a few years ago, the income of the highest earners had increased to more than 900 times greater (yes, nine hundred!) than the income of the lowest earners.

    The specifics of the dates, numbers, and just who constitutes the highest or lowest earners (top / bottom 1% or top / bottom 5% or whatever) are not crucial to understanding the problem. It is the disparity, and the accelerating rate of increase in this disparity, that is the important part. The inevitable result is generally disastrous for everyone involved, as was demonstrated rather spectacularly in France in the late 1700’s.

    I am not sure just what all it will take to right this capsizing financial ship, but abolishing the Fed would probably be a very good place to start. In any case, a successful figurative guerrilla war would surely be preferable to the literal alternative.

  3. Myself
    Myself January 29, 2021 1:41 pm

    @The Saint (Simon Templar)

    Is this what you’re referring to?

  4. Simon Templar
    Simon Templar January 29, 2021 2:24 pm

    @Myself, that isn’t what I read, but thanks for finding it. The article that I read was text only, and I think it was about income, rather than wealth. But the concept is definitely the same, and the graphical presentation of what you found is awesome! It is appropriately dramatic and much easier to understand than just numbers on a page. I also like that the Youtube video has links to source material in the description.

    This paragraph, from the link, is similar to what I was trying to remember:

    “In 1980, CEOs at the largest companies received 42 times the pay of the average worker, according to the union. In 2000 the gap hit a high, with CEOs making 525 times the average worker. ”

    While it is not exactly what I was trying to remember, it is close enough to tell me that my memory is probably not too far off.

    I look forward to trying to spread that video around!

  5. Claire
    Claire January 29, 2021 4:16 pm

    Definitely impressive. And (gulp) that was more than eight years ago. Just the COVID year alone will have skewed those numbers tremendously. Depressingly good find, Myself.

    And thank you, Silver, for the great piece. I hope it gets a lot of circulation. Heaven knows what will come of the efforts of the redditors and the regulators, but I for one am thoroughly enjoying listening to all the cronies weeping and wailing about how unfair it is for the peasants to use the stock market against their betters. My favorites are the vulture capitalists who look into the news cameras and swear with straight face that the stock market should never, ever be used for mere gambling, but solely to help businesses raise capital and to determine market valuation through free and open processes.

    With that degree of hypocrisy, I think quite a few broke hedge fund managers could have a stellar future as televangelists.

    But you’re right; without the Fed pumping all trillions to the cronies none of this would be happening.

  6. E. Garrett Perry
    E. Garrett Perry January 29, 2021 11:04 pm

    I’ve seen this entire incident described as “If Occupy Wall Street and the Ron Paul Revolution had a baby…” Also shades of Voltaire rigging the lottery, one of my favourite historical monkeywrenches.

  7. Toirdhealbheach Beucail
    Toirdhealbheach Beucail January 30, 2021 7:47 am

    Thank you for the post. I have tangentially understood it only; this is very helpful.

    I have already calls for “preventing” this sort of thing from happening again – but there is always a way, if the will is enough. I do think this really may be the beginnings of throwing sand in the system.

    One question: If the Our Political and Financial Superiors react poorly (as they seem to be doing), is it likely this will push the adoption of alternative currencies/ Not asking as an investment question, but as a “If they block all roads, let us go over the wall” sort of question.

  8. Silver
    Silver February 1, 2021 3:36 am

    The NYT published this graph summarizing the long-term trend towards ever great gains for the richest, and ever less for the poor in 2017; the data is from 2014. This trend has certainly accelerated since then, and the difference exploded last year.

    Six years ago, the differences between richest and poorest were growing rapidly.

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