One of the familiar themes of ‘Rebel Economics’ is that the wealth gap in America has reached extreme levels, with the top 1% owning 15 times more wealth than the bottom 50%. Largely asset prices and stock prices have driven this huge inequality in wealth.
The pandemic has seen the wealth gap become even more stretched. Job losses have risen, the poor and those at the lower end of the wealth spectrum have seen incomes fall. Those at the top end of the wealth gap have benefited from further asset price inflation as money pumped into the system has found its way into real estate and the stock market keeping asset prices high.
Now, one segment of the super rich, the hedge funds, are being openly attacked. The collective action of investors, following social media page ‘WallStreetBets’ on Reddit, are making great gains.
Hedge funds have made billions over the years, not because they build anything positive such as: businesses, jobs, vaccines or help the environment. Hedge funds bet against struggling businesses and hope to profit from the demise of the share price of these ailing businesses.
Now the collective action of the ‘WallStreetBets’ investors is large enough to take on the vast wealth of the hedge funds. There are a number of very informed investors on WallStreetBets and some very influential and wealthy investors including: Elon Musk, Mark Cuban and Chamath Palihapitiya. They have seen success with a number of stocks including: Gamestop, AMC, Blackberry, Bed Bath and Beyond amongst others.
In the case of Gamestop, hedge funds were betting against the survival of Gamestop, which has an old fashioned business model with retail stores selling gaming products. The hedge funds took large short positions on Gamestop, hoping to benefit from the fall in the share price.
But a co-ordinated response led by the Reddit page ‘WallStreetBets’, saw investors buy Gamestop shares in volume. Hedge funds had got into a dangerous short position leading to a short squeeze and GameStop shares soaring by an incredible 1,700%. Hedge funds amassed losses of over US$ 5bn as they had to reverse their bets and buy back GameStop shares.
To take US$ 5bn from the super wealthy is an unusual event and something the hedge funds are not used to experiencing. The dissemination of knowledge to a collective group of investors is allowing the wealth gap to be dramatically redressed using the stock market. Hedge funds now have a very strong opponent in ‘WallStreetBets’.
Reddit is using the classic ‘crowd theory’ outlined by the psychologist Gustav Le Bon. He looked at crowd behaviour and how and why they would work collectively. He identified the need for a common goal for the greater good. In this case I think we can say the redistribution of wealth from the minority would be for the greater good. He identified the need for a common enemy, in this case the hedge funds. He identified a common behaviour to achieve the goal and this would be buying shares in the stock market. Le Bon’s work has been influential throughout history, as being able to mobilise the crowd has had huge consequences. We are now seeing this behaviour in the digital world.
Rebel Economics 