I expect a lot of Redditors will be very disappointed when they realize just how much money hedge funds made, on average, out of this episode.
The WSB moderators really did everyone a disservice by letting obvious misinformation flood the subreddit. It’s hard to view the later stages of the GameStop phenomenon as anything other than a Reddit-fueled pump and dump scheme.
The past few days they've shared not only the largest long holders of these stocks, but also the pension funds that were boosted as well. A few teacher pension funds got a good uptick and they were sharing that around.
The cats at wsb might be self proclaimed retards, but they're not that stupid. They know lots of other folks are going to make money off of them. You know, if you actually visit the sub, you'd know that.
>The cats at wsb might be self proclaimed retards, but they're not that stupid. They know lots of other folks are going to make money off of them. You know, if you actually visit the sub, you'd know that.
The sub you seem to like so much died last week. Whatever is left of it has been diluted when literally millions of people flooded it. "Eternal September" hit them hard.
Right now it's filled with Q-level conspiracy theories, they parrot each other's talking point without understanding any of it ("short ladder" being the most funny and telling example of this). I can assure you that the vast majority of these people are wildly clueless about what's happening right now, they just keep telling each other that they're going to be rich.
So much this. /r/wallstreetbets is going to struggle to recover. It's absolutely Eternal September.
I've been subbed to WSB for about 5 years, ever since someone at work (prop trading) mentioned it as basically being a bunch of 25-30 yo finance people hanging out and doing dumb shit in their personal accounts for fun. I'll admit, I did some dumb stuff myself, trying to time UVXY/TVIX plays. (Basically netted 0 of course). But it was fun to shitpost about it. This is astrology for finance bros.
And it'd been going a bit down-hill already, but most people were still that same description: young blood, day job in finance, knows what they're doing at both a mechanical and risk level, etc. And the content reflected it.
Then somehow, one of those internet things happened. WSB became a hit, people flooded in, the mod team was overwhelmed, media attention flooded in making everything worse, etc. I feel like this is what a lot of /r/the_donald people ended up now that they're looking for a new cause. So much of the rhetoric I saw once the WSB Old Guard had been overwhelmed mirrored the kind of stuff you saw out of the_donald back in 2016.
Seems the daily thread grows so big so fast that it becomes dog slow to even browse.
But yeah, a lot of the comments are just one liner garbage memes: HODL! TO THE MOOOOOON! FISTS ON CHEST NO FEAR! TO VALHALLA! DIAMOND HANDS! As well as echo chamber "encouragement" to HODL! until $1000/$9000/the moon because Mark Cuban is on our side!
I struggle to see the political claim that these people are being flooded with Trumpers. This event was and has been pretty bipartisan.
From what I’ve seen thus far is the media trying to use the Q / Trumper angle against this community to tarnish its public perception and recent novelty.
I am happy to be proven wrong though, I just don’t see it.
There are some elements of something The_Donald-like, but it's true that it's
not (yet?) the same thing.
They push a lot of very strong and completely unsubstantiated conspiracy claims
in particular, and they'll quickly accuse anybody dissenting of being a shill or
having an ulterior purpose.
This is good OG WSB content, written by one of the users that was in on the play
from the very start.
But there's the problem: since he knew what he was doing, he managed to sell at
the right moment and make huge benefits. That doesn't fit the narrative nu-WSB
wants to push. So this very good old-school WSB post can't even get half a
thousand upvotes.
Meanwhile post some vaguely conspirationist anti-wall street article and skyrocket
to the top of the frontpage.
So yeah, it's not The_Donald, but there's definitely this strong anti-system, populist, "everybody is out to get me" conspirationist, fact-adverse mindset that you find in these types of communities.
Note in particular that, somewhat ironically, WSB calls itself "4chan with a bloomberg terminal", so it seems fitting that it's following a similar trajectory of ironic edgyness turning genuine as new people get in and take it at face value.
While gp is right about the influx of users (Ive only been around wsb for 4 years or so), which I will address later, I agree with you on the tarnishing tactic being used. What I saw was very open "fuck the big money people" that transcended party lines, often explicitly.
That said, there are sure to be a large portion of "the right", on the sub, as the fact of the matter is that a significant percentage of the US is!
As for what caused the influx, I think you can blame reddit for getting rid of all the edgier communities, and lots of people like that sort of thing, so over the years as a wsb post hit /all the numbers would jump because people would say " hey, I like this place, its edgy and self-deprecating" and over time it changed the demographics. I think back then though people mostly lurked, this influx has caused a lot more mime-posting.
Aren't "the right" typically pro big business people? That's been the big joke. Trailer park white trash right wingers defending big business. Why would you assume they're all right wingers when they're all "fuck the big money people". Aren't leftists the first ones to say, "fuck the big money people"?
Why would any part of the media even want to do that? This is a classic man-bites-dog story, and is being treated as such everywhere I look.
I'm seeing it implied fairly regularly here and on Reddit that journalists are somehow anti-WSB, but I just don't see it, and I don't know why it would ever be the case.
Maybe people are mixing up market analysts (who work for financial institutions) with finance journalists (who work for news organisations)?
Maybe people think journalists are afraid of losing valuable sources in big banks if they don't denigrate the day traders (even though all those big firms also made a fortune in this mess)?
I'm necessarily saying it's "Trumpers", just that lots of the rhetoric, especially stuff that gets to the front page of r/all, seems to be the kind of all-caps, hyper-reductionist, chest-beating "SO MUCH WINNING" kind of rhetoric we saw in 2016. I do think this is bipartisan, in that there's no one side of the political spectrum that's flooding in here, but I think we're seeing the kind of hype devices that were used to (apparently) great effect in 2016.
And that's always step #1. This type of content (DIAMOND HANDS HODL TO THE MOON APE STRONGS!!!!) is easy to spam everywhere, so more reasonable people are driven away or drowned in the noise.
Even if the userbase is bipartisan these extreme, emotional takes are guaranteed to take over by sheer volume unless the moderation steps in hard. I can't really blame the mods for failing to do that at the moment though, if I were them I'd probably have closed the sub temporarily...
This is entirely true, and easily verified by checking subreddit user overlap. WSB overlaps heavily with a number of right-wing subreddits, and, naturally, /r/unemployment.
The amount of misinformation being propagated in the subreddit has reached absurd levels. I wonder where the voices of reason will migrate to once this fiasco dies down further.
There are plenty of "Average people" that entered near the top, and since not everyone can sell simultaneously, that means a ton of people are losing the life savings they dumped into this out of excitement as it crashed back down.
I think the point being made here is that the whole narrative of "average people beating wall street" is pretty naive and quite bullshit. All in on, maybe a few handful of people got 10x or even 100x their money, but most of the gains were most likely made by hedge funds and with the exception of one or two hedge funds who were squeezed, the majority of losses will probably be by average people.
Lurking the wsb threads now it's clear that none of these people have exit strategies, or even strategies at all.
Even if that fabled squeeze was to take place I'm sure many of them would still be left holding the bags because they wouldn't know when to sell. And again, at this point I'm really not sold on that squeeze theory at all, it seems very plausible that it ended last week and now we're just seeing a good old pump-and-dump taking place.
In the end some people are going to be very lucky and some others are going to learn a very expensive lesson about the dangers of gambling.
Well in fairness to WSB, it was really built around loss porn, not sticking it to the hedge funds. So even those people losing their life savings are contributing the to the WSB cause so long as they show off all the red.
> The Reddit poster Volkswagens1, who declined to give his name but said he lives in the Pacific Northwest, showed The Washington Post an image indicating roughly $400,000 in potential GameStop losses from the day but insisted he would not sell.
> He said he’s poured most of his saving and checking accounts into the stocks and spent the last week “doing as much research as possible,” including sacrificing sleep and calling in sick to work, to make sure he was staying on top of the market’s moves.
(There's also a quote about him doing this because he's been poor for too long, but my take is that if you have enough assets to face a $400k loss, you weren't poor before you entered that position, even if you may now be).
> if you have enough assets to face a $400k loss, you weren't poor
It’s not clear to me this has sunk in w ‘Volkswagens1 nor the loss has really been faced. I’d bet the sober second thought will come after this article was published
$400K is 1/2 the average cost of a house in Seattle. I'd suggest there's an argument that if you can't own (no mortgage) a house in your area, you're still 'poor'.
Still not a great move to dump your entire worth into meme stocks.
You cannot cite the average cost of a house while dismissing the idea of buying a house using a mortgage. Mortgages are a part of the housing market and are part of the reason prices are what they are. If there were no mortgages prices would be lower, and the market would be structured completely differently.
I suspect the stories will emerge once the GME price truly tanks. No, I don't think it'll be millions of people, but reading the level of delusion in that sub I don't think it's going to be tens of people either.
It doesn't even have to be big sums. Just someone who only had say $2,000 trying to make a quick play at the peak but ended up with less than $2,000 after all is settled. That'll turn some away from stocks for a good while.
> “I have $6k in $AMC that’s like 90% of my money.”
That could be a lot of money to him, but it is not a lot of money compared to what an average worker earns in a year. A probably-young guy losing $6k on a risky stock bet is not life-destroying.
Also, depending on when he bought he could actually be up. And even if he bought at the top, it would still be worth something like 40% of that.
The thing that kills me is the handful of responses of people defending it by basically saying "people will go to the movies after covid", without the context of where AMC was at before covid. Even during it's best years, AMC wasn't worth what people think it will be. It's just a complete lack of reasoning.
So strange that YOLO has come to mean the opposite of what one would do if worried about the fact one only lives once. But I guess that's true for much slang.
YOLO has always meant, you only live once, gotta try everything. Not you only live once, make it last as long as possible and never do anything dangerous or with possible (probable even) negative repercussions.
There is this example [0]. Maybe not their whole life savings, but still a sizeable chunk. I'm sure there are a LOT of other people in similar scenarios now, who may not have fared much better.
I definitely saw someone bragging about using their $20,000 line of credit from dental school (I assume this is intended for living expenses) to buy GME stock.
That's kind of worse than YOLOing your life savings, because if this prevents them from continuing their education, it just fucked their life.
> There are plenty of "Average people" that entered near the top, and since not everyone can sell simultaneously, that means a ton of people are losing the life savings they dumped into this out of excitement as it crashed back down.
Most of "average people" entered at or near the top. The ones that did not were so engaged in gambling that they did not sell when it did 20x return. Call it what it is: fear of missing out.
Even DeepFuckingValue, who sold at least some of this position and netted a lot of money after taxes was not smart enough to say that 20x return in a few months is a time to pack the toys and go home so he could fight another day, leaving millions on a table in a futile hope that it would do much, much better.
I think DeepFuckingValue is smarter than you give him credit for. It's worth leaving $20M on the table if it lets you tell the SEC "look, I'm clearly an idiot, there's no way I could have been deliberately engineering a pump and dump scheme".
Better to take $15M of profit than to gamble $35M on the SEC deciding not to prosecute.
My point is that the sub didn't take him and GME seriously until December or something. You can't be a laughing stock and a pump and dump mastermind at the same time.
I'm not so sure about that. Spending 2 years trying to pump the stock and failing doesn't change what happened later. You can't escape a murder charge by saying "I spent two years trying and failing to kill the victim"!
If he did offload his entire position at the "top", and became seen as a symbolic catalyst of a subsequent drop, I reckon it's randomers on the internet that took a loss that he'd be more worried about.
Especially when the newspapers decided to plaster his real identity all over the place.
It's completely possible that DFV has a second account that he doesn't share screenshots of, that bought puts on the stock near the peak just to hedge.
Any uptick a pension fund would have had was lost once GME reverted back.
Pension funds are buy and hold, so they could care less about short term fluctuations in 0.05% of their portfolio.
Just because a fund’s normal MO is to buy and hold doesn’t mean they’re asleep at the wheel and won’t react if their value hypothesis is (more than) realized overnight.
NB: They sold 25M shares at ~$20/share. That's probably much more than what they paid for these shares but it's nowhere near where GME was over the past few days.
Without knowing when they entered their position. It was hovering around $4 for a long time last year.
Even if they bought in at $5, selling at $20 is absolutely a win. Yes, they could have gambled and HODL'd, but there's no reason to gamble after seeing a 4x increase on a stock very few people expected would ever break $10.
Just to clarify from the article - the Ontario Pension Fund was invested and cashed out stock in a commercial real estate company called Macerich that was getting associated with Gamestop on /r/wsb, not Gamestop itself.
Not that they had any way of knowing what would happen. $20 could have been the peak for all anyone knew, and by the end of next week selling at $20 might look like a smart move.
Pension funds are not buy and hold as a rule. They also invest in a variety of other vehicles, including hedge funds with different strategies. I guess you could say they buy and hold in the hedge fund, but that's different. Very conceivable that a pension fund had a meaningful uptick because one of the funds it invests in timed GME's crash well.
GME didn't fully revert back yet, and I'm sure a lot of them realized their gains around the peak and sold.
Pensions dont make short term investments, they already had GME shares since a long time ago. They do sell when extraordinary circumstances happen and buy other stocks to hold long term again.
13Fs (reports that show what certain funds are holding) are filed quarterly. While you can see who owned GME as of 12/31/2020 the flows of the past few weeks is not public knowledge yet.
> A few teacher pension funds got a good uptick and they were sharing that around.
The Ontario Teachers Pension Plan, who was holding GME, is one of the largest hedge funds in existence, worth over 200 billion dollars. For comparison, Maverick Capital is worth only $15 billion. That is not a case of some little guy teachers making out well, it is the rich (if not the richest) hedge funds getting richer.
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction and risk management techniques to improve performance, such as short selling, leverage, and derivatives.
That is what the OTPP does. That the hedge fund exists to fund pensions is irrelevant. If you dig into the investors behind other funds, you are likely to find that they are also investing to help fund their own retirement.
"Additionally, we complement our efforts by using external hedge fund managers, which gives us access to unique approaches that both add performance and diversify risk."
Hedge fund isn't a technical term, despite having "hedge" in the name. It just means an actively managed fund that anyone finds interesting in some way.
Hedge funds generally have LPs, which they recruit. You can theoretically buy into a hedge fund. You can't buy into a pension fund directly. The incentive structures are different.
I highly doubt anyone is against pension funds making money - even if they are run as a hedge fund.
The political opposition to hedge funds has to do with the fact that they often cater (or are assumed to cater) to the 1%. Who cares if it is 200B? It probably represents the financial interests of tens-of-thousands of teachers.
Depending on how you think the fund should be divided for wealth purposes, if we assume an equal division, the fund alone puts many Ontario teachers into the top 1%. Never mind what other wealth they may have.
They are the 1% you are talking about. I expect what you're really saying is that the political opposition opposes strangers who are perceived as being different, whereas the top 1% comprised of teachers are relatable and maybe even your close friends so you can be happy for their success.
No - this isn't close to true. I'm saying (at least in the US) you need a net-worth of 10M to be in the top 1%. Or, in terms of income, make 500k a year household income.
The Ontario Teacher's Pension Fund averages member 600k per member in assets (200B divided by 330k members). I don't know the Canadian stats but having around 1M in assets as a 60 year old places them around the top 20% or 10% cut-off - not the top 1%.
Regardless, I don't care if people get rich but it is clear that occupy Wall Street was a movement against the perceived notion that billionaires were exploiting the rules - not that teacher's pensions funds were gaining 2% per year more than an index fund.
This isn't some teachers trying to eek out a retirement. It is one of the most prolific hedge funds in existence. They are literally what the movement was against, but the movement only served to help them.
Not that I expect anyone thought that they were buying up shares from retail investors to put the movement in motion. They had to know they would help other funds to hurt the one fund being targeted. It shouldn't surprise anyone that hedge funds have made out like bandits in this.
A personal investor wouldn't be appropriately called a hedge fund, though. A hedge fund is, by definition, funded by a pool of investors. We are talking about hedge funds here.
Op was surely referring to [Jim] Simons' medallion fund and those like it - where it's closed except to family/friends, and in Simon's case fellow colleagues', personal funds, where often a single founder holds a bulk of the interest.
uh yeah there are also a ton of people losing a lot bc they got convinced to buy in at 300+. the OGs maybe, but the sub has basically quadrupled in size and brought a lot of new people who don't know anything + people looking to capitalize on that.
> The WSB moderators really did everyone a disservice by letting obvious misinformation flood the subreddit.
Well, on the flip side a lot of redditors learned from the school of hard knocks, which is the best teacher in a lot of ways. Moderators suppressing posts won't teach a lesson you can only learn by losing money.
WSB moderators were (and still are) actively suppressing posts that don’t toe the line. I had a seasoned Reddit account that had been in WSB for a long time. As soon as I started commenting about how the short squeeze wasn’t a sure thing, my posts stopped showing up. They’ve been dismissing any comments that aren’t about GME going to the moon as hedge fund shills or bots.
It’s extremely difficult to find any posts or comments critical of GameStop in the sub right now. If you sort by new, the critical comments are quickly removed.
Moderators aren’t just letting Redditors figure it out. They’re shaping the conversation into the illusion of a consensus.
I had to unsub (having been a member for years) because my homepage was full of, "WE ARE HOLDING:diamond: :hands:!!!!I :diamond: LOVE :hands: THIS :diamond: STOCK :rocket::rocket::rocket::rocket::rocket::rocket:" posts with 50k upvotes and a list of gold a mile long.
Same here. I used to love talking shit on WSB. Unfortunately that can’t happen anymore since the culture has changed completely.
Long time members know just how awesome that community was, and I think it’ll never be the same.
This is exactly the problem. Every thread has 1000s of comments and it's very hard to find the good ones since 90%, including many of the most upvoted ones, are garbage. Cannot blame them given the 7M members who joined the sub in 2 weeks. For now I stick to r/stocks.
> WSB moderators were (and still are) actively suppressing posts that don’t toe the line.
We remove far more pro-"meme stock" content than anti-"meme stock". Your anecdote is just that, a single data point. All you need to do is pull the data yourself and you would see that, but instead you are taking personal offence to your content being removed.
At this point, almost all content that is removed, is done automatically, either using Reddit's crowd control algorithm, or using our (countless) content flags.
We also revised posting requirements countless times. You may very well have been cleared to post yesterday, but not today.
If you are willing to post your username, I can look into it for you.
Prior to January it was quite easy. It just takes an hour or two each day to improve the bots and handle the manual stuff.
The past two weeks were very difficult but the entire moderator team has stepped up to the challenge, in particular u/zjz.
Unfortunately, the stress of moderation continues even away from reddit. Even during social events at work, WSB comes up frequently. Personally, I took a few days off.
I disagree. Just this morning I saw a number of posts warning people that they could lose their shirts over this and to be sure that they weren't investing anything they couldn't afford to lose.
Sure, there's a large contingent that denies this and holds onto their wishful thinking of a $10,000/share price, but you can't fix stupid.
its bleeding on to HN as well. Just take a look at my comments that criticize their conspiracy theory.
They seem to monitor this threads on HN and downvote anything that doesn't fit their HF "deep state" narrative.
OR its likely that "smart" HN users bought into the hype and they are fully bought into the narrative that blames external factors than their own due diligence.
I suggest you start to treat the hn community a little less defiantly: to me your attitude seems contemptuous and condescending. If you humbly listen to downvotes then perhaps you will start to see good reasons for reader’s reactions to your comments.
I skimmed your comment history. Many of your comments are creating narrative from thin air - no different from the worst Qanon offender where there might be some fact but your spin is not. Tying in political arguments (like I just did) is also poor form IMHO. Many of your comments mention downvoting, which is a seriously bad smell to me. At the level of an individual comment, mentioning voting is usually an automatic downvote from me, and I presume others. Relevant HN guidelines: “Please don't comment about the voting on comments. It never does any good, and it makes boring reading.”, “Please don't post insinuations about astroturfing, shilling, brigading, foreign agents and the like. It degrades discussion and is usually mistaken. If you're worried about abuse, email hn@ycombinator.com and we'll look at the data.”
Edit: I am not saying your comments lack truth, I am just saying that it matters how you write it down.
It’s already turning into a conspiracy theory. The popular narrative is that GME would have continued going up, but RobinHood colluded with hedge funds to stop it. It doesn’t make any sense and ignores the incentives that RobinHood had to continue allowing people to buy.
However, when to they’ve become completely invested (some times literally) in the narrative that GME was going to make them all rich while the hedge funds went bankrupt, it’s difficult to admit that they were wrong.
The path to building wealth using boring old index funds is often paid for by day trading losses. At least, that's why I switched from individual stocks to index funds.
Some people learn not to touch fire by reading a book or learning from the mistakes of others. For others, the only way they learn not to touch fire is by touching it.
Its funny how people don't see the $100,000+ portfolio losses (and much less often, gains) all over that subreddit and don't immediately realize that a ton of the people who visit it are Wall Street finance people. That's seriously the meme among the people only secondarily connected with WSB; its not "autists" or "the vox populi", its wall street bros (WSB?) who have to spend all day being super serious at their job, and WSB is their way of letting off steam.
And if you think that these firms weren't already feeding every single post and comment on reddit into their HFT algorithms, you better at least believe that after this whole thing, they're gonna be doing that, and adding some extra weight to `if subreddit === "wallstreetbets"`.
From that point of view, WSB is rather icky; its people who know what they're doing (most of the time) subtly and anonymously impersonating an idiot to influence the actual idiots.
Whereas Hacker News is just a bunch of people who don't know what they're doing pretending to be experts to influence the actual idiots. You can find charlatans pretty much anywhere money or people with money congregate.
The difference is the HN hype train might cause you some headaches from picking an immature tech stack. Whereas the WSB echo chamber has literally ruined thousands of people's lives and retirements.
If someone is going to ruin their life or retirement based proximately to posts in a Reddit forum, it’s very hard for me to assign root cause to the Reddit forum.
At most that’s the first or second “Why?” but there is surely a deeper issue.
Many people were prudent blue-chip investors whose retirement was ruined by the housing crisis. There doesn't seem to be any 'smart money', just 'big money'.
Blue chips were down around 40% in 2008. If you left your money in, you were back even by 2012. Even if you were slowly withdrawing some starting in December 2008 (the worst of it), you were even by 2013.
I have no doubt there exists someone who was ruined by 2008, but most prudent blue chip investors were not.
There seems to be the narrative that WSB ruined the retirement accounts of thousands of people. Why do we not hold the person responsible for their actions? Why is it never the fault of the person, but instead "the ephemeral entity" who is to blame?
I think you see that pattern in a lot of subcultures that glorify destructive and reckless behavior. Look at hard drug subreddits, like /r/stims, or binge drinking fraternity culture, or that Facebook group where everyone points loaded guns at their crotch.
Participants will willingly acknowledge that the behavior is destructive or reckless. But they do so in a way that glorifies it. "Woah, I totally blacked out again last night. So crazy. High Five". When the most self-destructive member receives the most attention that acts as a pretty powerful incentive.
Humans are social animals. And the way most of us avoid bad decisions day-to-day is to look at our peer group and think "would this be something that a normal, respectable person would do". When you create a subculture filled with self-destructive people, it normalizes and encourages self-destructive behavior, even when people rationally know they shouldn't be engaging in it.
I've been visiting WSB for couple of years now, and generally the mods have been really hands off, so them letting misinformation flood the subreddit is par for the course. Good or bad, that's how it is.
Honestly lots of investing communities are like this - do your own due diligence, etc. It is surprising how _much_ misinformation is being spread in WSB as of late, and feels like a weird cult more than ever, but WSB was never about heavy moderation.
I suspect they didn't do a disservice to their own bank accounts. Random internet strangers care as much about you as do politicians and hedge fund owners.
This is my experience as well. Many put their whole stimulus in it, and I can’t escape the idea that Wall Street knew all this would happen and they just found a way to get a large chunk of that other stimulus money that went to the people and not to corporations. An artificial movement that they may have created themselves that had an ethos of “bankrupting Wall Street”. Lol. A taxpayer funded pump and dump of epic proportions enabled by new tech sockpuppeting abilities and control. Before Cambridge Analytica I would say take your tinfoil hat off, but now I don’t know anymore. I consider nothing real online and go from there.
As if "Wall St." is one giant conspiracy. What happened to criticizing "Wall St." for treating the economy like a casino and driving the stock market into a giant bubble? Where are all those complaints about how "Wall St." is recklessly risking our retirement accounts? The contradictory conspiracy theories are astonishing.
Game theory inevitably takes over; I better sell before the next guy does and lowers the price even further. The only people with diamond anything are the ones who bailed and took their profits early.
The people with "diamond hands" are the ones who opened short positions when the stock was trading in the $300+ range. They are probably to busy looking up which sports cars to buy with all the money they made to bother looking at WSB right now.
I mean, that’s one take. Another take is a hedge fund who bailed out AMC with debt for shares was richly rewarded, and some of the public short selling hedge funds like Melvin still lost their shirts.
I wouldn't be surprised if hedge funds overall made a profit and retail investors overall made a loss in the GME fiasco. More likely than not, even.
My pet conspiracy theory is that WSB is just a cat's paw for another hedge fund that saw an opportunity to make money and wanted to try out a new approach.
It is a near certainty that hedge funds fleeced retail investors who bought GME above $100/share. The real problem with WSB is not the people who post there, it is the large crowd of unsophisticated lurkers who overestimate their own knowledge and abilities. The media did not help by hyping this story and making it sound like "Wall St." was terrified by a mob of Redditors. Two hedge funds lost some money, but as many have pointed out, those funds will probably still turn a profit on the year. Meanwhile, a bunch of hedge funds, algos, and prop traders are raking in cash from the spike in volatility, and a bunch of HFTs took advantage of the spike in volume. I expect a small bump in sports car and yacht sales in the NYC region as a bunch of "Wall St. bros" spend the giant bonuses they are taking home from this whole episode.
As to the scam aspect, I give it a 50/50 chance that someone saw an opportunity to pump-and-dump some symbols with very high short interest. I doubt it was a hedge fund, it was probably an individual, probably someone living outside the reach of US law enforcement. The alternative is that a bunch of idiots actually came up with the idea that they could take on "Wall St." and managed to trigger a short squeeze, many of whom have yet to realize that the party's over.
On the bright side, though, at least it was a zero sum game (well, it will have been by the time the stock is back to where it started). Money was transferred from the early shorts and late longs to the early longs and late shorts; with the market makers taking a bit of a cut.
Many other scams (or, for example, theft and robbery) destroy value (as, for example, a stolen wallet is a much bigger loss to the owner than it is a gain for the thief). Or, say, the 2008 GFC made a few people extremely rich (unscrupulous mortgage peddlers, investment bankers creating "complex, highly leveraged, exotic trades [...] without necessarily understanding all of the implications of those monstrosities", etc.), while wreaking havoc orders of magnitude greater on the entire world.
I don't see why everyone is against pump and dump schemes yet the system is literally designed for them to happen. It's an inevitable fact that they will happen when you set up a free market and a bunch of (stupid) humans from the general public, as also clearly demonstrated in the crypto scene.
If people don't want them to occur, the short-term incentives, market, and exchanges themselves need to be re-structured in a way such that takes into account what a group of humans with free communication would do.
First of all, there is no such thing as a free market, certainly not in the capital markets. There are mountains of regulations covering stock, options, futures, and debt trades. Trading is routinely halted on various securities in extreme circumstances. Insider trading is restricted, and the restrictions become more significant for higher level management. Companies are required to report certain information to the public.
Markets exist to solve problems of valuation and capital allocation. Pump-and-dump schemes distort valuations in very extreme ways and work against the purpose of equity markets. That is a basic reason why they should be banned. Another reason is that scams introduce unnecessary risk to someone making an investment decision; ideally investors should only focus on risks related to a company's business, not the risk that the information they were given about that company is false. The extra risk will drive away investors and the result will be less capital available to otherwise promising ventures, which again works against the goals of capital markets.
It is not really possible to restructure markets in a way that would avoid pump-and-dump schemes, because the problem with a pump-and-dump scheme is not actually related to the rules governing the market. The problem is that the pump-and-dump scheme involves deliberately spreading false information; yet it is equally possible that investors hear true information and rush to buy, and the market should allow for that situation.
I guess my main question is, why does the stock price go up if mountains of people suddenly buy a stock?
It's because we base pricing based on a simple free market order book algorithm.
If the markets enforced a pricing algorithm that included certain time-based functions instead of basing it purely out of the order book, and mandate that all transactions happen at the algorithm's determined price (instead of the free market price), a lot of problems including pump-and-dump schemes and insider trading could be theoretically eliminated. We could completely legalize insider trading, for example, if we technologically mandated that large orders took weeks to execute while single shares traded in milliseconds.
(I'm an engineer, not a financial expert; I view this problem as very similar to e.g. API limits and firewalls that implement rules to prevent abuse.)
"The price" is just a convenient way to talk about the theoretical "value" of a company. Brokers use it to determine whether or not margin maintenance requires are being met, but in reality there is no single price at any given time. There are always two prices, the highest bid and the lowest ask, and those two prices are only meaningful for the size of the bid/ask in the order book.
How would an algorithm determine the price? The whole point of the equity markets is price discovery. The price should rise when people rush to buy, and it should fall when people rush to sell. In many cases that is the "right thing," in the sense that the rush to buy/sell is in response to a real change in a company's circumstances (e.g. an outstanding earnings report, a natural disaster that harms the business, etc.).
Limiting the execution of a large order would not stop insider trading, because you do not need to go to equity markets to buy/sell stock -- you can enter into a private agreement with someone to transfer shares in exchange for money. Limiting large order executions would also make index funds impossible -- index funds have to trade the stocks that make up the underlying index when customers buy or sell, and a large fund may have many individual customers buying or selling on any given day.
Money was made by fools at the expense of greater fools. Short-term trading is a zero-sum game, always has been, always will be.
Except for the HFT firms and market makers, who basically own the Robinhood flow and who thrive in foolish volatility. Guess who's paying so that r/WSB bros pay zero commisions? It's not the Red Cross.
The subreddit surged from 1 to 8 mil redditors in less than two weeks. I think the mods couldn't have stopped the disinformation even if they tried, just due to sheer increase in volume of posts.
Nobody removed the ability to sell stocks. Some brokers removed the ability to buy stocks (because they were near broke and couldn't afford it), which probably saved some potential buyers some money and brought this train wreck to a halt a bit earlier.
The WSB moderators really did everyone a disservice by letting obvious misinformation flood the subreddit. It’s hard to view the later stages of the GameStop phenomenon as anything other than a Reddit-fueled pump and dump scheme.