The largest financial center in the United States and around the world, Wall Street, has recently witnessed a struggle between coordinated small investors in Reddit forums and some stock market giants. Although it has not had much prestige in Europe, on the other side of the Atlantic it has sparked a heated debate on the regulation of the financial market, after its investment funds were on the brink of the precipice.

How is it possible for young people organised in forums to slap economic magnates? The key is the short-selling of previous funds. In fact, under normal circumstances, the price of shares of companies undergoing continuous economic losses could be reduced.

With this secure forecast, many brokers bet, to put it another way, on the loss of the horse to which they give up. What was not expected was that many investors would simultaneously conduct an operation that seems irrational, the acquisition of thousands of shares from a company that is being lost. In this case, the massive purchases of young non-professional investors led to increases in the price of the losing company GameStop, leaving those who wagered on the fall with holes of hundreds of millions of euros. Small investors, moreover, have not broken any rules and have planned their strategy on the basis of information available to all audiences.

Short-term trick

To shed a little more light on this, let’s consider the details of the short-selling financial operation. The stock market is the acquisition of shares of companies, based on forecasts and for profit. Price fluctuations are largely governed by the law of supply and demand, i.e. the more stocks are acquired, the more costly they will become, and vice versa. The hegemonic debate about the stock market is to let the law of the “invisible hand of the market” become its own or the need to regularize it. For many, selling this short should be prohibited, for others it should be “free”.

It means taking a stock on loan for a few days and, during that time, selling the stock once again. If the price is low, the value of the difference between the two values is obtained. If it goes up, it gets lost. Consequently, short-selling operations are unlikely to present a risk, but in case they occur they can cause incalculable damage: they have a limited benefit (up to the total value of the amount lent) but a possible loss is unlimited.

The greatest risk lies in coordinated speculative attacks, i.e. large investors often pay rating agencies to misqualify individual companies or state debt. Then, everyone will start buying stocks in the short term, and both the company and the state will be able to do little in the face of speculative attacks. In some cases, these tricks are also organized against profitable companies in the field of production. Therefore, the financial world is largely based on pure fiction, as it does not respond directly to the value or wealth generated in the material economic circuit, and inflicts giant bubbles, as can be seen in the case of GameStop.

Tiragomas of David

Financial sharks carry out short-term operations to reduce risk, and in this area of profitability it is possible that some companies will suffer huge losses in a few days. However, the opposite effect is almost impossible in such a short time, almost impossible. If you look among the listed companies, it is easy for the big broker to identify those who are going to suffer losses and wager on large amounts of money, such as the GameStop video game store chain. Several young people who participated in the Wall Street Bets forum of the Reddit platform, however, anticipated the play and in a coordinated way bought numerous GameStop shares to achieve an opposite effect. Thus, in just two weeks, the company’s stock price has risen to 1,500%, when cuts have been recorded.

As a result of the rise, the giants that had millions of GameStopen short-selling have suffered losses almost to the bottom, as in this mode of operation the possible losses are endless. Melvin Capital has been one of them and, along with his accomplices, has called for "regulations and fines" to paralyze the action of adolescents who have legally purchased ordinary shares. As if that were not enough, they have also asked for permission to withdraw in advance the short sales they had on GameStopp, so that their losses would not continue to multiply exponentially. After the media released screeches and threats from a new "krak", Wall Street has accepted the petition, in violation of its own rules to save the titans. On the other side of the trench, young people from high school and university have earned a fortune while GameStope’s actions have been rising.

Castle of letters

In short, the Stock Exchange and the current financial system are nothing more than the greatest illusion of a profound social crisis based on capital accumulation. Qualified investors can earn money in specific contexts, at the expense of large investors, as has been seen in recent days. But in the long term, we see that finance fiction is a castle of letters that cannot be maintained. Fewer and fewer economic operators are able to maintain profitability rates in the area of "real" conventional production. That is why they escape from the financial sphere, because it is a simple short-term profit-making mechanism.

At a time when this desertification occurs massively, financial bubbles and crises arise that may undermine the foundations of the productive model. Consequently, the fact that the numbers circulating on the stock market do not find equivalences in social wealth reveals the imbalance of the system itself, representing a social organization that continuously flees from its internal contradictions.