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GME and the Asian Financial Crisis Chickens Coming Home to Roost

Business media is having a meltdown over r/wallstreetbets, but we remember when they cheered on the hedge funds that caused the 1997 Asian Financial Crisis.

6 months ago

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Aidan Jonah is the founder and editor-in-chief of The Canada Files. Join his Patreon, The Canada Files' Patreon, or both.

What’s the deal with Gamestop and r/wallstreetbets?

R/wallstreetbets was founded in July 2012. The platform’s goal was to support a community of “regular Joes” who could invest together and maybe strike it rich. It had attempted to pick stocks and boost them collectively many times over the years. But this year was different.

Melvin Capital, a multi-billion dollar hedge fund, was attempting to short the stocks of retail store Gamestop.

As Vox explained:

“When a hedge fund or investor shorts a stock, they basically speculate that its price will go down.”

The more money that a hedge fund bets against the success of a company, the more quickly they drive down its stock value by scaring shareholders into selling. As Gamestop’s price per share decreased, Melvin Capital profited from the company’s losses.

Redditors disapproved of these actions, so they found a legal loophole to exploit. They realized that if the price of the shorted stock rises — rather than drops, as expected — the hedge fund is compelled to buy back their sold shares at full cost, failing to make any profit and putting them into debt.

Vox detailed the potential result of a short squeeze:

“when the price of the stock being shorted starts to climb, it forces traders betting it will fall to buy it, to try to stem their losses. That drives up the price of the stock even higher, so it’s a bit of a double whammy for shorts. The worst-case scenario is, theoretically, unlimited.”

Unlimited indeed. Rather than complete an easy short with Gamestop as its victim, Melvin Capital has already lost billions. The hedge fund could lose up to $13 billion once the contracts affected by the stock short must be bought back, forcing it into insolvency. This phenomenon has reportedly touched dozens of large financial hedge funds and firms. Other stocks, such as AMC Entertainment and Blackberry, have now been targeted by redditors, causing their prices to spike.

Many people are now realizing that the stock market is simply a casino rigged to benefit the rich. On social media, the official Twitter account for r/wallstreetbets has gained more than 200,000 followers in less than a week.

But there may be another side to this story. On Jan. 27, American Economic Liberties Project economist Matthew Stoller alleged that the efforts of the now famous subreddit were simply cover for Citadel to exploit its close relationship with Robinhood. Stoller argued that Citadel was exploiting the redditors' use of Robinhood by buying market orders from the trading app before redditors can purchase them, which then “sets an arbitrary 'market price' [that allows Citadel] to cash in on options.”

If true, Stoller’s next tweet is devastating to those who view this chaos as a victory against the stock market elites:

“There are likely insiders in the Reddit forums talking up the stock. People like @elonmusk and @chamath may know of the market-rigging and cheer it on. There's a group of insiders seeing overexposed hedge funds shorting GameStop and rigging the market to kill them.”

Former certified financial advisor and current Contributing Editor at Macleans, Andray Domise, indicated his trust in Stoller’s theory:

“Redditors couldn't disrupt a multibillion dollar firm on their own; they triggered a stampede. I didn't imagine this kind of outcome, but I'm still amused it happened bc like I said, none of this is real.”

His last point bears remembering: “The market doesn't index productivity [sales, profit etc.], it tracks naked speculation.”

Institutions block trades & showcase the rigged nature of a capitalist economy

The spiking stock prices pose a severe threat to large hedge funds, to which many banks have deep connections. Institutions such as TD Ameritrade and Robinhood have blocked purchases of Gamestop, AMC and other stocks. Robinhood has even been caught autoselling users’ shares, which implicates its main financial benefactor, Citadel. In response, affected users have launched a class action lawsuit against Robinhood.

Interestingly enough, Robinhood has also been subject to scrutiny for falsely claiming that Nazi Germany was socialist, and smeared numerous other socialist countries in a deranged October 2020 blog post it has since taken down.

Meanwhile, Coindesk reported that Nasdaq CEO Adena Friedman “told CNBC her firm actively monitors social media chatter and will halt stock trading if the content it sees matches with “unusual activity in stocks.” It further detailed how Wells Fargo “also banned its advisers from making stock recommendations on GameStop and AMC Entertainment.” William Galvin, the Secretary of the Commonwealth of Massachusetts, stated the sudden rise in Gamestop stock,

“suggests that there is something systemically wrong with the options trading on this stock.”

This is blatant market manipulation, and absolutely illegal based on the capitalist “rule of law.” Even social democrats such as Alexandria-Ocasio Cortez and Rashida Tlaib have called for a finance committee hearing to investigate the actions of these financial institutions.

The business media meltdown over outsider trading

Over the past few days, the TV screens of CNBC and Bloomberg have been filled with entitled whimpering from hedge fund billionaires and CEOs. There have even been open calls for a ban on discussing the stock market on social media while Wall Street elites scramble to make themselves the victim of the story.

On Wednesday, CNBC claimed that Melvin Capital had closed its shorting positions the day before. Redditors called BS, noting that a Reuters article explained that “Melvin Capital, founded in 2014 by Gabriel Plotkin, said it does not comment on positions and trading.” While the reality of the situation can’t be confirmed, it’s extremely difficult to consider trusting the claims of Western financial institutions, given their collusion in manipulating financial markets. There is a real chance that CNBC and Melvin Capital are flat out lying about closing out.

CNBC host Jim Cramer has been CNBC’s chief Wall Street stenographer, allowing the elites to push their own agendas, make ludicrous claims, and shut down trading of shorted stocks unchallenged.

Business media has publicly exposed itself as a tool of capital which enables wealthy elites to illegally manipulate the stock market for their personal benefit. One can hope that this reality sticks with the millions of Americans watching.

Business media celebrated American hedge funds profiting off the Asian Financial Crisis

While the mainstream business media has melted down over ordinary citizens taking some wealth back from Wall Street, it was happy to cheer on the hedge funds which caused the Asian Financial Crisis, and continues to defend them to this day.

By 1997, Thailand had been going through years of economic struggle driven by a burgeoning US dollar and a weakening Thai baht peg (currency). These two factors provided a vulnerability for Western capitalists to exploit.

Business Insider explains:

“The Asian [Financial] Crisis started in August 1997, only a month after Thai authorities abandoned the US dollar Thai baht peg. The baht had been pegged to the dollar for more than a decade, and the Thai authorities had been encouraging banks and big corporates to borrow US dollars unhedged to fuel domestic lending for much of this period. However, as the US dollar got stronger in the mid-90s, Thailand’s trade and capital accounts deteriorated, firms found it difficult to meet dollar debt obligations and it became apparent the peg was unsustainable.”

American hedge funds swooped in, with George Soros’ Quantum Fund betting $1 billion out of the fund’s total of $12 billion against the baht, while Julian Robertson’s Tiger Fund bet $3 billion against the currency. Courtesy of Andray Domise’s Twitter thread, when massive hedge funds place large shorts against a currency or stock, they create “downward pressure.” This encourages other large investors to also short this currency or stock, thereby creating a self-fulfilling prophecy of a stock crash.

The capitalist media, however, plays defense for Soros, Robertson and other multibillionaire elites. Business Insider instead claims that it was Thailand’s fault for purchasing baht with US dollars in the foreign exchange market, raising interest rates and restricting foreigners' access to baht during the first few months. In simpler terms, they push the narrative that the collapse of the Bank of Thailand was due to its refusal to accept a slow and painful economic collapse, instead introducing capital controls to restrain vulture-like speculators.

Foreign capitalists, faced with reasonable capital controls, fled with their wealth to more exploitable countries and financial systems. As a result, Thailand’s foreign exchange reserves collapsed from $37.2 billion in December 1996 to $30.9 billion in June 1997. Business Insider noted that this was only one of two resultant issues from taking stricter measures. The bank also had to contend with off-balance sheet obligations to deliver $23.4 billion dollars in the forward market over a 12-month period.

By August, the bank lacked the financial reserves to defend itself. According to Business Insider, the “hedge funds, which sens[ed] blood, returned in droves.” Thailand’s currency devalued by more than half, and predatory hedge funds made a killing.

A PBS timeline detailed how similar attacks occurred on Asian currencies around this time. Three countries in the region — Indonesia, South Korea, and Thailand — were forced into accepting multi-billion IMF and World Bank loans on the condition that they adopt drastic austerity policies. Hong Kong’s currency was under attack for years, but suffered the most vicious attacks on it and the region’s stock market in August 1998 amid rumours of China devaluing its currency to protect itself from vulture investors.

It is clear that financial struggles only matter to business news networks when their corporate masters are under threat. When these same corporate entities nearly cause a devastating, decade-long, region-wide recession, that’s the American way.


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Aidan Jonah

Published 6 months ago

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