How Reddit almost CRASHED the Economy with a meme.

there's been so much conversation around the gamestop situation over the past few weeks i mean even in romania where i live media publications have covered what happened with this insane battle between reddit users and giant wall street hedge funds if you go on a bus it's very likely you'll overhear people talking about it and it's something you've never seen before up to just a few weeks ago you could never even possibly fathom a bunch of regular guys in their underwear banding together and sticking it to the man at such a level it was so insane and so oddly satisfying now over the course of this video as we touch on financial terms and talk about the stock market i have to make it very clear that i'm not a financial advisor and i'm by no means an expert in the matter i'm simply voicing my opinions on a topic that i find really fascinating now if i were to put everything that happened into a single sentence it would be that institutions that have historically manipulated the stock market for hundreds of years got a little too greedy and when reddit users saw a in their armor they put their collective weight to work in a way that literally squeezed the hedge funds against the wall and made them lose billions of dollars in the process here's why and how all of this happened to some extent everybody knows what the stock market is it's not really rocket science it's where public companies share a part of their valuation which investors can buy and sell small pieces of and based on the supply and demand the price of one share goes up and down in value the idea is for people to support companies they believe in and give them money so they can grow their operations while making a profit themselves along the way the stock market should at least in theory represent the epitome of meritocracy because if a company does well its market cap grows if it shows a lack of vision or fails to bring in good results it then tanks but by this point i don't think anyone truly believes this meritocracy that drives the stock market when you have billionaires and hedge funds out there manipulating the market with huge capital i mean if you just google top 10 hedge funds it's right there in plain sight davidson kempner capital management 33 billion dollars in assets under management citadel advisors 29 billion elliott management 73 billion man group i mean talk about a little creativity here these guys literally call themselves the man group they've been on the market since 1784 and they have over 117 billion dollars in assets under management so when you see these mammoths dominating the market for literally hundreds of years it should have the very least put a question mark in your mind as to whether you're really on the same boat as them in terms of influencing the market historically speaking if these guys have not approved of a particular company they've had the leverage to sink its valuation all the way down to the bottom of the ocean the way they do that is by short selling a stock for example tesla is a classic example of this in a world of internal combustion engines where a few select companies have been running the industry for over a century when elon musk sprang on the scene with his electric car it completely turned the automobile market on its head so what did the hedge funds do they weren't just gonna accept some new kid on the block putting a halt to their arrangements they started short selling tesla stock in other words they bet against tesla contrary to buying shares in a company thus driving its price up short selling is like putting a stack of bricks on the price keeping it low and the lower it goes you earn more money as the company values less the only reason it didn't work with tesla is because no matter what you do to postpone it you can't stop innovation but for many other companies short sellers often have the power to keep the stock price exactly where they want it now does that sound fair to you because that doesn't resemble meritocracy to me it just sounds like a bunch of billionaires sitting around with cigars in their mouths deciding who to let in and who to keep out of their fancy exclusive club historically there hasn't been much that you could do about it though until the internet started to get a little wiser [Music] in 2013 this guy right here vlad tenef founded a company called robin hood the mission of the app much like its name indicates was to break barriers and allow the little guy to trade even if all they had was 20 the slogan of robin hood was literally let the people trade much like the character of robin hood you know steal from the rich give to the poor this new platform revolutionized investing by allowing commission free stock trading thus bringing in a huge wave of inexperienced but eager young investors to which the stock market had been inaccessible before and probably one of the most fascinating places on the internet to sprout as a direct result of this was the subreddit r slash wall street bets stepping into that world will plunge you into a real life version of the wolf of wall street except a thousand times crazier if the regular stock market trader takes time to analyze the market researches stocks and invests steadily across decades of their life responsibly planning for their retirement the average wall street bets investor has 100 and wants to turn it into a million fast these guys have nothing to lose they call themselves degenerates and their catchphrase is yolo they don't buy stocks but instead use high leverage tactics in hope of seeing big juicy gains overnight which have a tendency did not pan out granted there's a few success stories on the subreddit such as user snakeperson123 putting in 800 and making a hundred and fifteen thousand but then there's also users like 22 yards who is down 33 000 after bedding in the wrong direction he goes how do i fix this and this other guy responds with take a green sharpie and draw a jagged line towards the upper right hand corner of the screen wall street bets has already had a history of controversial episodes and have often been cited on news stations as irresponsible trolls with no respect for the stock market but what happened in january took their profile to a completely new level so we've talked about the hedge funds about robin hood and the rise of wall street bets but the way they all come together is through gamestop i know a lot of viewers on this channel don't live in the united states so there's a big chance you're not familiar with gamestop but in america for every kid born in the late 80s early 90s gamestop was a big part of their childhood it was the biggest brick and mortar video game retailer eventually spreading even across canada australia and europe but just like netflix killed blockbuster online video game purchases made gamestop pretty irrelevant and seeing how the gamestop business model was losing popularity the wall street hedge funds like the vultures that they are started heavily short selling gamestop on the stock market so one day a reddit user on wall street bets by the name of senior hedgehog pointed out how 84 percent of shares were short meaning there was five times more power driving the stock down than there were people organically supporting the company and mind you this was posted in april of 2020 by january of 2021 the short interest percentage was over 140 percent which means more shares were being shorted than there were actual shares in circulation this was a paradox that showed how greedy the hedge funds had become and by being greedy they had become vulnerable and this time reddit was ready to teach them a lesson [Music] when you short a stock what that means essentially is that you lend someone else one share at the current price let's say ten dollars and when the price goes down let's say to seven dollars you buy it right back keeping the three dollar difference as profit but the risk here is that once you've lent out the share if the stock goes up to say fifteen dollars not only do you not make any profit but you now have to pay the five dollar difference and again 140 of gamestop shares were being lent out which is about 90 million shares so reddit users coordinated to go on the robinhood app and collectively bought gamestop stock at insane volumes driving the price from around 19 at the start of january to a whopping 480 at the highest peak this is called a short squeeze and it's not an uncommon tactic on wall street but never before has it been put into practice by regular people coming together on the internet the hedge funds got a mouthful of their own medicine and it was bitter the 90 million shares they had lent out at five to ten dollars now had to be bought back at 50 to 100 times the original price according to fortune.com by january the 29th the losses had risen to 19.75 billion dollars hedge funds had to be bailed out so as to not go bankrupt investment bank goldman sachs warned that the entire stock market could crash if reddit users didn't sell their shares in order to drive the stock price back to its original spot and as all of this madness was unfolding the biggest promoter of giving power to the people robin hood decided to restrict users from buying more gamestop stock while still allowing them to sell their current shares thus showing a clear bias in favor of the big institutions now of course liquidity played a big role in this decision robin hood themselves requiring a cash injection of 2.4 billion dollars to stay in business but to reddit this gesture was seen as the ultimate betrayal the brand of robin hood was expected to stand exactly for what wall street bets had managed to accomplish stealing from the rich and empowering the little guy instead the app was seemingly siding with the hedge funds and so vlad tenef instantly became a villain in the eyes of the people a lot of people even started wondering if robin hood didn't shut down trading at the behest of the wall street big suits there's currently lawsuits being thrown about in my opinion with high chances of doing serious damage to robin hood and vlad tenneff himself is set to testify before a u.s house committee on the 18th of february in fact by the time you're watching this that may have already happened as of me working on this video there's more confusion than we have any clear answers one thing we know is that gamestop stock seems to have returned back down close to its original price but what happened here is certainly set to change the course of the global financial world once regular people realized that together they wield a considerable amount of power against these billion dollar institutions that's a genie that you can never shove back in the bottle it's a fascinating story that i'm sure people will revisit for years to come and it's very likely that things will never be the same after this in what way exactly i guess we'll have to wait and see but let me know in the comments what your thoughts are on this entire debacle did you take part in the gamestop short squeeze and how do you see everything moving forward from here i'm very curious to read your guys's thoughts down below as always thank you for watching we'll see you again very soon [Music] [Music] [Applause] you

Channel: Andrei Terbea

Views: 2,385,609

Keywords: @andreiterbea, andrei terbea, andrei terbea animation, gamestop, short squeeze, reddit, wallstreetbets, wall street bets, wsb, gamestop short, hedge funds, stock market, animation, explained, animated, andrei and wilfur, wilfur

Id: 5HFehFpU_8M

Length: 10min 20sec (620 seconds)

Published: Wed Feb 24 2021