Reserving judgment on r/wallstreetbets users

Photo courtesy of Gage Skidmore, Wikimedia Commons

The New York-based investment firm Melvin Capital had bet billions of dollars that the share prices of companies like GameStop and AMC Entertainment would fall because of COVID-19’s effect on the economy. 

Traders on sites like Reddit crowdsourced information on Melvin Capital’s plans; they used trading platforms like Robinhood and Interactive Brokers to purchase shares of the stocks for declining entertainment companies. GameStop’s share price jumped by 1,700%. 

The hedge funds cried foul. Robinhood and Interactive Brokers then imposed restrictions on buying shares of entertainment stocks. Shares in GameStop decreased by 55%.  

The ongoing pandemic has highlighted worsening socio-economic disparities. The recent controversy over who can manipulate the stock market has gone further to lend credence to the notion that there is a Manichaean order to the world. Commentators on social media are inclined to empathize with r/wallstreetbets and believe that it is the common folk versus the hedge funds that hedge funds are coddled by a system of corporate welfare, that hedge funds abide by the code, “rules for thee, not for me.”

This past Friday, Senator Elizabeth Warren sent an open letter to the United States Securities and Exchange Commission (S.E.C.) demanding that it ascertain the causes of shifts in GameStop’s share prices; whether these shifts reflected changes in the company’s fundamental value; and whether the practices of Melvin Capital or the actions of r/wallstreetbets violated existing securities laws. 

This last point drove some of Senator Warren’s staunchest allies to cast aspersions on her loyalty to the American working class. I contend that Senator Warren’s letter to the S.E.C. was objective. Commenting on the GameStop controversy requires objectivity because little is known about the actors involved or the ramifications of their making a seesaw out of the market.  

People have taken to the comments sections of social media posts on this matter, assuming that Reddit users are just like them. This is questionable. Reddit users are anonymous. Who is to say that those whom many of us have come to fancy as Robin Hoods are not, in fact, “scam artists executing a ‘pump-and-dump’ stock scheme”?  Pending the S.E.C.’s determination of the facts, we should hold our tongues.  

Does Robinhood or Interactive Broker’s decision to cap trade in GameStop stock prove that these platforms bend at the whim of hedge funds, or does it indicate their concern for the best interests of all future investors?  Is this development a sign of more Orwellian days to come?  To borrow from the meme that misquotes a stop-motion short about pirates: “Well, yes, but actually, no.”  Since we don’t know the situation well enough, we ought to wait until we do, lest we presuppose that class warfare is on the horizon.  

Introducing guilty and innocent parties in the court of public opinion is fraught with biases, which preclude the formation of reasonable judgments. I grant that r/wallstreetbets’ manipulation of the market may have saved entertainment companies from ruin. I also grant that r/wallstreetbets may have highlighted—at the very least for Senator Warren—how the stock market fails to reflect economic conditions “on the ground” or the real value of companies. 

But it does not follow from these results that all individuals who frequented r/wallstreetbets invested the way they did with the realization of these results in mind.  Some just want to watch the world burn, and it is indeed burning.