IE 11 is not supported. For an optimal experience visit our site on another browser.

Reddit is winning with GameStop. Wall Street is winning the long game.

There's no reason it has to be this complicated. And yet!
Image: Signage on a GameStop store with a red overlay on one half
Shady trades and complex financial instruments are just part of what makes Wall Street inscrutable.Getty; MSNBC

If you've been online at all this week, congrats: You've been recruited as a spectator in a game of financial Calvinball.

For a quick recap: GameStop, a mostly brick-and-mortar store chain that has been hit hard in the pandemic, became the target of a bunch of people coordinating on Reddit, which drove up the price of the company's stock. This, in turn, angered hedge funds that had bet good money that GameStop's stock would stay low, in a process called "shorting" the stock, forcing them to spend more money to cover their losses. Their anger delighted the Redditors, leading them to go on more buying sprees. Eventually, the app they used for trading — Robinhood — opted to freeze transactions on certain stocks, making an entirely new set of people mad.

The financial wizards who cast their spells over the market want to keep close hold on their secrets, lest it be revealed that behind the curtain just normal, basic white men are pulling levers.

I like to think I'm a relatively smart person, but I confess that the drama between the established Wall Street players and the chaoticians of Reddit has mostly gone over my head.

In grappling with why that is, I was reminded that this confusion is entirely purposeful. There's no reason for the sort of complex securities and maneuvering that go on in the stock market except to give the process a patina of magic. The financial wizards who cast their spells over the market want to keep close hold on their secrets, lest it be revealed that behind the curtain just normal, basic white men are pulling levers.

In theory, stocks are simple: People who have capital invest money in a company, which then uses that money to improve it, making it more valuable in the eyes of other capitalists. This continues until the company stops doing well, at which point the stock price falls or — as we've seen before — the price keeps going up infinitely because nobody wants to bet against the Big Thing. (Looking at you, Tesla.)

I say "betting" because that's what it is. Every investment on the stock market is a gamble. Over the years, this has evolved from gambling with your own money on businesses to gambling with other people's money on businesses to gambling with other people's money to fund complex financial instruments that serve no purpose except to give the illusion of profit.

This dark allure of easy money is partly why founders like Thomas Jefferson were skeptical of "speculation" as an economic cornerstone, compared to good, old-fashioned slave labor. And things have only gotten more Byzantine since then — I dare you to try to read this 2012 article about "exchange-traded funds" and tell me differently.

The only answer is that the shroud over Wall Street is a feature, not a bug.

Right away in the GameStop story, we run into the complexities of the markets, as questions that seem like they should be simple really aren't: What, for example, does a hedge fund like those that bet against GameStop's price rising actually ... do on a day-to-day basis? How does someone trade after hours if the market is closed? How is "shorting" a stock legal? Why can the uberwealthy play in this sandbox filled with both traps and treasures but normal Americans can't? How can it be that more than a decade after the 2008 financial collapse, after the Dodd-Frank Act theoretically reined in the corporate bankers, after "The Big Short" won an Oscar and "The Wolf of Wall Street" popularized the "pump and dump" scheme, the actual workings of Wall Street are still opaque to most Americans?

The only answer is that the shroud over Wall Street is a feature, not a bug. The stock market's continuing rise is almost entirely divorced from economic reality. (See the almost instantaneous rebound of the Dow Jones Industrial Average from the beginning of the pandemic in March, even as millions of people were filing for unemployment insurance every week.) The idea that "stonks go up," as the meme puts it, depends in part on investors' finding new ways to make imaginary things more valuable than actual products.

The cogs and gears are meant to be obscure and out of reach to most people, which is why you see hedge fund managers railing against the "attacks on wealthy people" that these amateurs' efforts represent. It's also why populists from both parties are cheering on the Reddit crowd for taking on The Man and calling for investigations into Robinhood for locking people out of buying GameStop.

Meanwhile, most of the people throwing money at GameStop hoping to make big bucks before the bottom falls out of the stock price, encouraged through really bad advice on social media, likely don't really get the mechanics of what's going on. Neither can they likely exploit the system nearly as adroitly as the investing class guarding its prerogatives.

Does buying a company's rapidly rising stock matter if you can't then convert those stocks into a package and bundle them with other assets? (Don't try to answer that; it's a jumble of financial words that I've thrown together with no inclination of what they mean.)

This is all to explain why I'm skeptical that we're seeing the democratization of Nasdaq happening in real time. Can I predict where this adventure leads? Absolutely not. But the inequity in equities trading is about more than one app or one sketchy trading practice. Increased scrutiny of shorting stocks would be great. What would be better would be an empowered Securities and Exchange Commission, a tax on the high-volume trading that Wall Street engages in and more regulations of the derivatives that make markets unstable in the long run.

Right now, the financiers are trying to guard the secret of their tricks. The thing about most magic, you see, is that it doesn't work if you watch it up close. Wall Street isn't just mad about losing money — it's mad that Reddit has gone and spoiled its illusion.