The stock market has been chaotic, to say the least, these last couple of weeks.  

On January 11 a poster on r/WallStreetBets, a subreddit on the website Reddit noticed that the stock for GameStop had hedge funds short selling the stock. So they went on a buying frenzy they jacked up GameStop’s value 1600% and the stock price has skyrocketed because of that, GameStop stock was $483 for one share of the stock compared to its $18 stock last month, a massive leap.  

The hedge funds like Melvin Capital got bankrupted by having such a drastic and unpredictable change in the stock market. 

So how did all of this happen, and how did Reddit bankrupt billion-dollar hedge funds like Melvin Capital and other Wall Street powerhouses? 

Well to start hedge funds and investors don’t always buy a stock hoping it goes up, they also bet on the stock going down, this is called a short. Investors borrow a share and sell it for what it’s worth at the time. Then, when it’s time to give the share back they buy it back hopefully at a lower price and gain money in the difference.  

Hedge funds saw GameStop, a company being phased out by digital downloads of games, in the middle of the pandemic, and better-competing companies like BestBuy and Amazon. But, shorting a stock presents an opportunity. 

r/WallStreetBets noticed that since so many people were shorting GameStop, they had the opportunity to perform a short squeeze. As the price of the stock rises, the hedge funds who shorted then stock must buy back the stock to offset the cost, so as long as the price goes up the short sellers will continue to drive up the price, as they lose money. 

GameStop was shorted at about 150% meaning the same share of the stock they borrowed was more than the actual stock available. So the hedge funds were completely folded once stock exploded in value. 

“The hedge funds are wildly irresponsible,” says Chase Magnett, a teacher here at Omaha North and one of the many people who bought GameStop stock. 

Magnett wasn’t early to GameStop when its price was rising towards the peak, but bought into it after hearing about all the online traction about it.  

“We’re retail investors, meaning I have $300 on Robin Hood and it’s less of an investment form for me, and more like me going to the casino,” says Magnett  

And this what happened with r/WallStreetBets and so many other people who joined the process of buying into GameStop, while each person lacked the billions of dollars hedge funds have they all moved in unity to buy this stock all at once. 

“It was not an investment….but I hate hedge funds” says Magnett 

And he’s not the only one, as the movement of buying up stocks like AMC, Blackberry, and GameStop hit their peaks the focus of maximizing profits was now in the back door, it was about “holding the line” and holding on to your stocks of company’s being shorted for as a long as possible. Hedge funds are infamously responsible for the 2008 recession, by shorting the housing market and making millions of Americans lose jobs, insurance, and homes, and the movement became less about market manipulation and more about holding those hedge funds accountable. 

“The most important lesson of this story is what it reveals, it’s not the story of (GameStop stocks rising) but what it exposes.” Says Magnett 

Wall Street, the federal government, and stock trading services like Robin Hood started blocking trading, selling and capitalizing on the stocks surge as a way to block further losses for hedge funds, after the backlash the stocks became accessible again, but actions like these were heavily criticized for market manipulation. To Magnett, it limits the power of the average person outside of Wall Street and that compounds unfairness in the stock market and income quality. 

“The hedge funds made risky bets, and risked their own money, and when they’re going to lose that money Wall Street and the federal government to protect them in a way they don’t for regular investors.” Says Magnett. 

As of February 8th GameStop’s stock price $60, a huge difference from the gargantuan $483 peak. Other “meme stocks” like AMC and Blackberry have also lost a lot of value quickly. But the damage has been done, with hedge funds that shorted too many hemorrhaging losses and the conversion with some politicians like Ted Cruz, Bernie Sanders, and others about how free are the market has arisen. 

The Wall Street and stock market may be on its way to stabilizing, but the impact of r/WallStreetBets economic and social implications will be heavy on Wall Streets’ mind.