The GameStop Mess Shows That the Internet Is Rigged Too - The Atlantic
par Zeynep Tufekci
As of January 10, nine brokerages had set the one-year target stock price for GameStop at about $10.
But that’s not where it would stay—at least for a while. It climbed in price because a subreddit, r/WallStreetBets, engineered a short squeeze.
That kicked off a wild ride, revealing many things not just about how digital technologies are transforming our world, but also about how they are not. It was yet another stark demonstration that technology is not simply a tool—neutral on all possible outcomes, good or bad—but something more dynamic, messy and complicated. It’s a complex system where the workings of both the technology and our society, and crucially, how they interact with each other matter greatly.
This is how the squeeze worked: A few large hedge funds had “shorted” GameStop. That means that they had borrowed the stock, with the intention of returning it when the share price moved lower, as they expected it would, leaving them with a profit. Obviously, this works only if the future price of the stock is indeed lower. If the share price rises, the hedge funds would have to buy the stock at the new, higher price, leading to losses. Investors on r/WallStreetBets had noticed that this particular short position was especially vulnerable because a large portion of its existing shares was tied up in the short betting. They explained to others in the forum that if the price went up and up, the hedge funds would eventually be forced to cover those short positions by purchasing the stock back at a much higher price—from them.
They started buying. The stock started rising.
The attempted squeeze and the ensuing rise in GameStop’s stock price was a media sensation.
Self-organized groups have been using the web to act on the physical world for a while. The tech companies that enable this behavior are themselves old. Facebook turned 17 on February 4. Google is already 22, Reddit is 15, and Apple’s iPhone—which ushered in the era of smartphones—is 13. We’ve had many years to think smarter about what digital connectivity means. And yet, we still face this idea that the internet is a game, that the virtual world is something distinct from the real one. This condescension is even embedded in the phrase IRL—“in real life,” meaning not online.
But the internet isn’t a game. It’s real. And it’s not just a neutral mirror that passively reflects society. One hears that notion from tech elites who’d like to deflect blame from their own creations, which have both empowered and enriched them. “It’s just a tool,” they say. This same mentality is what made Mark Zuckerberg say that it was a “pretty crazy idea” that Facebook had anything to do with Donald Trump’s election—a statement he had to walk back, in part, because it contradicted everything that Facebook usually claims: that its software matters; that it influences people; that it changes, rather than merely reflects, the world.
Robinhood is particularly important to this saga because it was the platform of choice for r/WallStreetBets. It drove the retail (meaning small investors rather than big institutions) trade boom because individuals could buy and sell as much as they wanted without a fee. But as with social media, Robinhood’s users were about to find out that the intermediary platform’s business model mattered greatly.
Unlike traditional brokerages, which charge a fee for buying and selling, Robinhood offers these seemingly free trades because it makes its money in large part by selling the trades to big buyers, many of them other hedge funds. It’s those players that will make the real money—and in turn pay Robinhood for the privilege.
The restrictions came because, under its business model, Robinhood could not put up the kind of capital required for all of these trades in the clearinghouses where they are eventually settled, the company wrote in a blog post. So it wasn’t that Robinhood had an interest in kneecapping the short squeeze. Rather, it was never a suitable platform for engineering a squeeze of this scale—based on “free” trades by retail investors precisely because those investors were never its true customers.
These dynamics play out across many digital platforms. Similar to how Robinhood makes money not from individual traders, who are its users, but from its hedge-fund customers, Facebook, Twitter, YouTube, Reddit, and the rest make money by selling our attention to advertisers or anyone looking to influence people. This business model also fuels surveillance because paid influence operations work better if they have more data to improve their targeting; data allow them to better find ways to “engage” us. And if there is one thing we know about a social species like humans, it is that in-group versus out-group dynamics (us versus them) are very engaging. Similarly, novelty and misinformation are often attractive, and the truth boring and unengaging. Thus, even though the engineers at these companies don’t set out to amplify tribalism and polarization, the algorithms they let loose on us inevitably do, as a corollary of their optimization target.
On February 2, GameStop closed at $90, less than 20 percent of its all-time high, which it had reached just a few days earlier. Like many internet stories, the narrative may start with the “little guy” winning—David against Goliath—but they rarely end that way. The little guy loses, not because he is irrational and too emotional, but because of his relative power in society.
Similarly, Facebook was first celebrated for empowering dissidents during the Arab Spring, but just a few years later it was a key tool in helping Donald Trump win the presidency—and then, later, in clipping his wings, when it joined with other major social-media companies to deplatform him following the insurrection at the Capitol. The reality is that Facebook and Twitter and YouTube are not for or against the little guy: They make money with a business model that requires optimizing for engagement through surveillance. That explains a lot more than the “for or against” narrative. As historian Melvin Kranzberg’s famous aphorism goes: “Technology is neither good nor bad; nor is it neutral.”
The pattern is persistent, and it’s not even concealed. The higher echelons of the corporate world play together with the government and Wall Street to enrich themselves. For example, major US airlines have spent nearly all its extra cash on stock buybacks for the past decade, thereby inflating its stock price—and thus executive pay, which is often tied to stock price—and the stock market. And when the tough times came with the pandemic? The industry got a $25 billion bailout from the government, as one does. Boeing, too, spent most of its cash on stock buybacks, and its CEO was fired with a $62 million exit package not long after the Boeing 737 Max crisis—which resulted in two crashes and 346 dead. A 2013 report found that the average “golden parachute” for the top-paid CEO who was fired was $47.7 million. On it goes.
The social contract is broken, and that’s why the game feels rigged. Right now, especially in countries like the United States, many of the largest, most profitable companies play the legal-tax-evasion game to the point that they are sitting on hundreds of billions of dollars in cash. (Apple alone has cash reserves that hover around $200 billion. Similarly, both Microsoft and Alphabet/Google have more than $100 billion in their cash pile.) These stockpiles are humongous and the companies are not productively investing them—by building something, or by paying people—so the money all goes back into the stock market. When there is such concentrated wealth, many assets—from stocks to Picasso paintings—appreciate. Such disproportionate investment in speculative or nonproductive assets, coupled with the lack of investment in things that make society work better for more people, like education and health care, further break the social contract.
On February 7, during the Super Bowl, Reddit used the r/WallStreetBets incident for a feel-good ad. “Powerful things happen when people rally around something they really care about. And there’s a place for that. It’s called Reddit,” the ad flashed. It went on to celebrate the underdog: “One thing we learned from our communities last week is that underdogs can accomplish just about anything when we come together around a common idea.” It was all warm and fuzzy.
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