We've seen this before: The current GameStop drama has grassroots in the 2008 housing crash
- Main Street played by the rules, but Wall Street changed them mid-game.
- Retail traders on Reddit’s r/wallstreetbets had a simple buy-and-hold strategy for an overleveraged short position on GameStop held by Melvin Capital — until Wall Street shut it down.
- The game has been rigged all along and now it’s out in the open for all to see.
- This is an opinion column. The thoughts expressed are those of the author.
- Visit Business Insider’s homepage for more stories.
It’s been only a few days since news about the feud between Main Street and Wall Street entered the public’s awareness and the internet is already filled with more articles and stories about it than one could realistically hope to keep up with.
As a retail investor who bought a long position in GameStop (I am not a financial advisor, I just like the stock) only hours before its historic ascent, I only have my limited perspective and experience to offer. But, as a millennial who came of age during the subprime mortgage crisis of 2008 — and decided to study finance and accounting specifically because of it — I believe I have a somewhat unique, but relatable viewpoint.
For many retail traders, GameStop was a chance to get in on the ground floor of an arguably undervalued stock with the added benefit of watching the high and mighty of Wall Street squirm after being caught in an embarrassing position.
We’ve been through this type of thing before.
It is impossible to escape the fact that many of these small-time traders have vivid memories of the financial equivalent of an atomic bomb that Wall Street and government regulators dropped on the world in 2008. In the fallout of the housing crisis, hundreds of millions of people’s lives were upended.
Save for a few, like Lehman Brothers and Bear Stearns, many Wall Street banks came out ahead because of obscure and convoluted financial derivatives that left regular people holding the bag.
Unemployment skyrocketed, families’ houses were foreclosed on, pensions were decimated, and the middle class was suddenly forced to scrape by just to feed their families. To add insult to injury, the federal government awarded these same banks $700 billion dollars of taxpayer money because they were “too big to fail.”
I was only 18 years old then and didn’t understand much about what was happening, but seeing my family suffer motivated me to learn more, and I’ve learned much since then. In many ways I’ve been waiting 13 years to write about it.
I was raised in a working class family in the suburbs of middle America.
My parents both worked hard to provide the best upbringing and educationavailable to us. Both are college educated and have worked in a variety of jobs, with my mother eventually settling into a role working for the county, and my father working in mortgage lending until the subprime mortgage crisis when he was forced to look for work elsewhere which he found at a large manufacturing company.
As the dust of the crisis settled and the recession loomed on the horizon, my dad was eventually let go during one of the multiple rounds of layoffs by his employer. We were fortunate enough to keep our house, but had little more to spend since most of the jobs available at that point were minimum wage. Between meager wages, intermittent unemployment benefits, and trips to the food banks, we managed to make it through one of the deepest recessions in decades.
In October 2008, two months after I began my freshman year at university (only made possible by generous scholarships), the $700 billion Troubled Asset Relief Program, or TARP, was signed into law by Congress, buying up countless junk derivatives from the Wall Street institutions the American public had entrusted their working lives and retirements to.
None of what I was witnessing made any sense to me, so I decided to dedicate the next four years of my life to studying money.
I didn’t want to be caught unaware again. In fact, I wanted to be on the inside to potentially prevent things like this from happening.
I enrolled in the accounting and finance programs hoping to gain an insight into financial markets and how the economy operated overall. I was taught about efficient markets and the five forces of competition, business law and ethics, and the history of monetary theory and banking.
But what I was learning and what I was seeing on the news didn’t seem to line up. It seemed like there were other forces at work.
Additionally, I became disillusioned with institutional finance because of direct contact with some of the people intimately involved in it. I remember thinking that a particular adjunct professor whose day job was as a regional bank president could also do very well selling snake oil. Of course I met plenty of honest, hard working people during my time in school, but there was a distinctly distasteful aspect of what I was seeing overall. I was disturbed by it, but could never explain exactly why.
I graduated in 2013, but never set foot in the industry, opting to start my career in the military instead.
Fast forward to January 2021: The US is on the heels of one of the most hotly contested presidential elections in American history and trust in established institutions is at an all-time low. Income inequality continues to be a growing concern as evidenced by populist candidates on both sides of the political spectrum gaining mainstream acceptance. There is increasing anti-establishment sentiment engendered and compounded not only by years of stagnant wages and ever increasing costs, lack of access to affordable healthcare, education, and housing, but also by callous and duplicitous public health mandates that those in power have been routinely caught breaking over the last year.
It has become too obvious for even the most reclusive to ignore.
There are two sets of rules in this country — an unquestionable double standard.
The decades-long routing of the middle class and blatant displays of elitism by those in power have come to a head during the still ongoing GameStop short squeeze.
Millions of regular working Americans across all demographics found some solace in learning that they could potentially take on and beat Wall Street at their own game. What started as a bunch of motley internet retail traders YOLO-ing calls on a meme stock, became de facto class warfare. Melvin Capital became Wall Street in effigy. The common man, battered by years of exploitation and told to simply suck it up, had finally pinned their bully.
However, instead of taking their lumps and being told “better luck next time”, the elites pulled the rug out from under their competition mid-game. They would not allow themselves to be beat and would pull out every dirty trick they could imagine.
What we’ve witnessed over the past few days is both good and bad for the public at-large.
It is good in the sense that millions of everyday Americans have been disillusioned, just as I was in school over a decade ago. The curtain has been pulled back to reveal that the system is an oversized carnival game with all of the decks undeniably stacked in the favor of the select few at the top.
Over the years, well-meaning people on both sides of the aisle have petitioned Congress to further regulate the Wall Street casino, possibly not realizing just how cozy our government is with it. Further regulations have created higher barriers to entry that have squeezed out smaller banks and institutions. Dozens of large banks have been consolidated into only a handful of major players. The game has been rigged all along and now it’s out in the open for all to see. An uncomfortable truth is better than a comfortable lie.
This leads me to the bad.
It may be that Melvin, Citron, Citadel, Point72, Robinhood, and all the others involved so brazenly flaunted the trading halt of GameStop and the other meme stocks because they knew whatever penalties and fines they’d receive would be less severe than the public backlash.
They knew the potential regulatory repercussions would be preferable to playing by the rules and taking their losses. “Rules for thee, not for me.” The recent revelation that our newest Treasury Secretary, Janet Yellen, has taken over $800,000 in speaking fees from Citadel alone does not bode well for an unbiased assessment by our representatives in government.
Do retail traders, and by extension the American people, have any advocates with teeth? If we are left holding the bag once again, are we willing to openly admit that we no longer have a government by and for the people, but rather by and for the banks and special interests?
Unfortunately, we’ve seen lately that those in power believe might makes right and they will wield it as they see fit. I believe this is yet another wake-up call America has so desperately needed. I am happy the truth has been made known.
To retail traders, I understand your frustration.
I am in the same position. We have seen the incredibly damaging effects that Wall Street and their friends in government have wreaked on the American public for years and it may be right to be indignant.
But we are at risk of perpetuating some of the worst of the human condition. Schadenfreude and the desire to see those on Wall Street suffer loss will not bring the satisfaction you may be looking for.
After all, we are all prone to error and selfishness and hope to be forgiven and to receive mercy.
I urge you, if only for your own well-being, to forgive those you feel wronged by in this situation. Yes, we should expect and even call for accountability because it is right, but only with the right motivation.
Finally, to those who are in positions of power, financial, governmental, and otherwise:
I urge you to wield your power cautiously as you would want others to exercise it over you. You may one day realize the deck that is now so carefully stacked in your favor may actually be a house of cards.
Liam O’Hara has a B.S. in finance and accounting and is a military veteran with experience as an entrepreneur, investigator, business manager, and retail trader and investor. After growing up in Colorado and Oklahoma, he now calls the Los Angeles Area home. You can connect with him on Linkedin and Instagram.
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