London Daily

Focus on the big picture.
Monday, Aug 11, 2025

The Whole Messy, Ridiculous GameStop Saga in One Sentence

The Whole Messy, Ridiculous GameStop Saga in One Sentence

How to understand what the hell is going on this week

If you want it in a sentence, I guess it goes something like this: The GameStop saga is a ludicrous stock mania born of pandemic boredom and FOMO, piggybacking off of a clever Reddit revenge plot, which targeted hedge funds, who made a reckless bet on a struggling retailer—and it’s going to end with lots of people losing incredible amounts of money.

Got that? Maybe not. So let’s start at the beginning.

This week, the sleepy video-game retailer GameStop went on the ride of its life. The company’s stock rocketed from about $40 to almost $400 in a matter of days, minting day-trader millionaires and extinguishing billions of dollars of bets against the firm placed by institutional investors. Then, this morning, GameStop trading was restricted on the Robinhood platform, where more than half of all users hold shares in the company. The stock lost three-quarters of its value in 85 minutes, plunging from nearly $500 at 10 a.m. to $120 at 11:25 a.m.

To see how the whole thing went down, imagine a kind of misshapen nesting-doll set with four characters: GameStop, hedge funders, Reddit traders, and zillions of retail investors.

At the center is GameStop, which is not a great company. In 2019, the strip-mall fixture lost almost $500 million. In 2020, a pandemic forcibly shut down many of its stores and gutted its revenue.

One layer up, you have institutional investors, such as hedge funds, which “shorted” GameStop, or bet that the value of the stock would decline. Depending on how you look at it, short sellers are heroes of capitalism identifying rotten companies and industries on the verge of collapse, or they’re corrupt worrywarts picking on lovable, vulnerable firms.

Either way, GameStop was one of the more popular targets of these hero-villains. By one metric, the company was the second-most-shorted firm out of more than 6,000 companies listed in the New York Stock Exchange and Nasdaq. If GameStop’s stock continued to fall, as it had consistently since 2013, hedge funds that had bet against the company would have gotten even richer than they already are.

But they didn’t. That’s because, as short sellers were targeting GameStop, online investors were cooking up ways to target the short sellers. A band of Reddit users, led by a trader who goes by the YouTube name “Roaring Kitty,” had for months been eyeing GameStop as a tasty investment. Over the course of several months, they spelled out a detailed plan to buy up GameStop’s stock and push up the price, punishing the hedge funds and forcing them to cover their position by rushing to buy back shares, which would push up the stock’s value even more.

This is called a “short squeeze,” and it seems to have served at least two purposes for the Reddit investors: sticking it to hedge funds and getting a little rich. Both happened. One hedge fund, Melvin Capital Management, has lost at least $2 billion, while Roaring Kitty is now estimated to have made more than $13 million on his GameStop investment.

Encasing all of this is the investor craze of the past few days, as Reddit’s GameStop scheme went viral. Ordinary investors with FOMO have piled into the stock. On most days this week, GameStop was the most exchanged equity in the world, with $20 billion of trading volume daily.

This perfect storm was created by the collision of a tantalizing morality play (Reddit Degenerates versus Wall Street Suits) and an age of commission-free trades on popular platforms such as Robinhood, which have converted the raw material of pandemic boredom into a juggernaut of speculation.

Given the monstrous amounts of money at play, several large institutional investors—rival hedge funds, private-equity firms, billionaire tourist dollars—seem to have jumped in as well, scrambling the most simplistic David-versus-Goliath narratives.

And America’s investor underdogs might already have lost the war as the stock price ticks down. This populist revolt could reveal itself to be a disastrous bubble that offers and then quickly extinguishes the idyllic dream of democratized finance.

Breaking down the GameStop saga into these four components—the company, the short, the Reddit army, and the ensuing FOMO mania—is useful because this helps us disentangle the parts of the story that are surprisingly traditional from the parts that are actually surprising.

“The longer you’ve been around, the more you realize that something like this is less a massive break in the functioning of markets and more a reflection of risks that were always there,” says Michael Cembalest, the chairman of market and investment strategy at JP Morgan Asset Management.

Manias have been parts of markets for centuries. So have short squeezes. And in this case, the hedge funds betting against GameStop might have received just deserts for a really dumb bet.

As a matter of practice, the best strategy for short sellers is typically to identify ostensibly good companies with an Achilles’ heel. You take a position when the firm’s stock is high. Eventually the market finds the weakness you’d identified, and then the stock falls, at which point you make a bunch of money.

But GameStop for the past year has been the opposite of all that. It was a bad company, whose stock had already fallen from $56 a share in 2013 to about $5 in 2019. GameStop’s short sellers were essentially betting that a company publicly valued as “horrendous” should really be valued at a level commensurate with the notion of “truly horrendous.” They risked billions of dollars on the financial equivalent of a qualifying adverb.

It’s really risky to aggressively short a company whose stock, having fallen 95 percent, is floating around $5; there just aren’t a lot of numbers under five. Plus, companies in GameStop’s situation can always try to restructure their operations, or appeal to a white knight, or exit the business and sell off their commercial real estate, or do something else when the cost of capital is basically zilch.

What’s new here is the presence of Reddit and Robinhood. The GameStop trade briefly conquered the world by taking advantage of two things the internet does very effectively. First, the internet is really good at manufacturing upstart sects, for good and for evil. You can despise the Capitol siege of January 6 (I do) and adore the GameStop surge of January 26 (I’m undecided), but still see something in common: two anti-institutional plots conceived in online message boards, amplified on broader platforms such as YouTube, and actualized, chaotically, in the real world. Tens of millions of people in this country who are soaked in the attention economy are, apparently, eager to throw their weight behind some 15-minute-famous cause, and it’s not always straightforward from the onset which ones are safe and virtuous and which ones are not.

Second, the internet democratizes access to information and communication—again, for good and for evil. “Retail investors with the help of technology acting as a union in attacking is a new phenomenon,” Jim Paulsen, an investment strategist, told CNBC. “You combine the power of technology, which allows you through Reddit postings to magnify your individual impact, with some use of leverage and very targeted bets, [and] they can have a significant influence.” That’s right, but the democratization of finance is, like the democratization of everything, a rose with thorns. GameStop’s stock has soared, not in response to its economic fundamentals, but in proportion to the number of people paying attention to it.

Maybe the only long-term outcome of the GameStop fiasco is that hedge funds will be more cautious about establishing enormous short positions in cheap brand-name companies, and investors will learn that stock manias, like memes, disappear as quickly as they go viral. Perhaps all we’ll remember from the past week is that a few hedge funds’ greedy doltishness accidentally helped mint some Robinhood millionaires, while a bunch of latecomers set their money on fire for lolz.

But something tells me that we’re at the dawn of something stranger. For a week, takes have flown wildly around the internet that tried to capture this saga in a tweet. The investor and former Trump White House communications director Anthony Scaramucci compared what we’re seeing now to the “French Revolution of finance,” with an army of scrappy traders engaged in a moral uprising.

Others worried that the GameStop bubble was turning into a collectivized Ponzi scheme, in which innocents were being lured into a ruse that would take all their money after the market corrected. Given that online trading has been restricted and the company’s stock is now in a free fall, both the Mooch and the Debbie Downers might be right. When the French Revolution ended, some of its most eager proponents lost more than an arm and a leg.

Newsletter

Related Articles

0:00
0:00
Close
New Road Safety Measures Proposed in the UK: Focus on Eye Tests and Stricter Drink-Driving Limits
Viktor Orbán Criticizes EU's Financial Support for Ukraine Amid Economic Concerns
South Korea's Military Shrinks by 20% Amid Declining Birthrate
US Postal Service Targets Unregulated Vape Distributors in Crackdown
Duluth International Airport Running on Tech Older Than Your Grandmother's Vinyl Player
RFK Jr. Announces HHS Investigation into Big Pharma Incentives to Doctors
Australia to Recognize the State of Palestine at UN Assembly
The Collapse of the Programmer Dream: AI Experts Now the Real High-Earners
Security flaws in a carmaker’s web portal let one hacker remotely unlock cars from anywhere
Street justice isn’t pretty but how else do you deal with this kind of insanity? Sometimes someone needs to standup and say something
Armenia and Azerbaijan sign U.S.-brokered accord at White House outlining transit link via southern Armenia
Barcelona Resolves Captaincy Issue with Marc-André ter Stegen
US Justice Department Seeks Release of Epstein and Maxwell Grand Jury Exhibits Amid Legal and Victim Challenges
Trump Urges Intel CEO Lip-Bu Tan to Resign Over Alleged Chinese Business Ties
Scotland’s First Minister Meets Trump Amid Visit Highlighting Whisky Tariffs, Gaza Crisis and Heritage Links
Trump Administration Increases Reward for Arrest of Venezuelan President Maduro to Fifty Million Dollars
Armenia and Azerbaijan to Sign US-Brokered Framework Agreement for Nakhchivan Corridor
British Labour Government Utilizes Counter-Terrorism Tools for Social Media Monitoring Against Legitimate Critics
OpenAI Launches GPT‑5, Its Most Advanced AI Model Yet
Embarrassment in Britain: Homelessness Minister Evicted Tenants and Forced to Resign
President Trump nominated Stephen Miran, his top economic adviser and a critic of the Federal Reserve, to temporarily fill an open Fed seat
The AI-Powered Education Revolution: Market Potential and Transformative Impact
Chikungunya Virus Outbreak in Southern China: Over 7,000 Hospitalized
French wine makers have seen catastrophic damage to vines that were almost ready to be harvested after the worst fires in more than 70 years burned through the south of the country
US Lawmaker Probes Intel CEO’s China Ties Amid National Security Concerns
Brazilian President Lula says he’ll contact the leaders of BRICS states to propose a unified response to U.S. tariffs
Trump Open to Meeting Putin as Soon as Next Week, with Possible Trilateral Summit Including Zelenskiy
Katy Perry and Justin Trudeau spark dating rumors, joining high stakes world of celeb-politician romances
US envoy Steve Witkoff arrived in Moscow to seek a breakthrough in the Ukraine war ahead of President Trump’s peace deadline
WhatsApp Deletes 6.8 Million Scam Accounts Amid Rising Global Fraud
Nine people have been hospitalized and dozens of salmonella cases have been reported after an outbreak of infections linked to certain brands of pistachios and pistachio-containing products, according to the Public Health Agency of Canada
Karol Nawrocki Inaugurated as Poland’s President, Setting Stage for Clash with Tusk Government
Trump Signals JD Vance as ‘Most Likely’ MAGA Successor for 2028
US Charges Two Chinese Nationals for Illegal Nvidia AI Chip Exports
Texas Residents Face Water Restrictions While AI Data Centers Consume Millions of Gallons
U.S. Tariff Policy Triggers Market Volatility Amid Growing Global Trade Tensions
Tariffs, AI, and the Shifting U.S. Macro Landscape: Navigating a New Economic Regime
Representative Greene Urges H-1B Visa Cuts Amid U.S.-India Trade Tensions
U.S. House Committee Subpoenas Clintons and Senior Officials in Epstein Investigation
Sydney Sweeney Registered as Republican as Controversial American Eagle Ad Sparks Debate
Trump Accuses Major Banks of Politically Motivated Account Denials and Prepares Executive Order
TikTok Removes Huda Kattan Video Over Anti-Israel Conspiracy Claims
Trump Threatens Tariffs on India Over Russian Oil Imports
German Finance Minister Criticizes Trump’s Attacks on Institutions
U.S. Proposes Visa Bond of Up to $15,000 for Some Applicants
U.S. Farmers Increase Lobbying Amid Immigration Crackdown
Elon Musk Receives $23.7 Billion Tesla Stock Award
Texas House Paralyzed After Democrats Walk Out Over Redistricting
Mexican Cartels Complicate Sheinbaum’s U.S. Security Talks
Mark Zuckerberg Declares War on the iPhone
×