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What’s Happening With GameStop Stock & Robinhood? Let Margot Robbie Explain

So, you want to know what’s going on with GameStop. As 2015’s The Big Short shows us, there’s a reason that skimming a few headlines isn’t making the situation clear for you: “Wall Street loves to use confusing terms to make you think only they can do what they do” a voice-over notes in this drama about the 2008 financial crisis. But this week, Reddit thread r/WallStreetBets proved that wrong as they decided, en masse, to buy a number of steadily-decreasing stocks like GameStop and AMC (others included Nokia, Naked Brand Corp, and Blackberry). With this increase in demand, stock prices surged overnight — and short-selling hedge funds and investors lost big. Did I lose you again? Don’t worry, that’s where Margot Robbie’s bathtub scene comes in.

While Robbie is technically explaining the shady behavior that led up to the 2008 financial crisis, her description of what it means to short-sell and why it happens serves as an explainer for who lost money when GameStop stock prices went up too. In the movie, she describes former hedge fund manager Michael Burry’s strategy for shorting the housing market, just as hedge funds today have been planning to short-sell GameStop stock and others.

“Mortgage bonds were amazingly profitable for the big banks. They made billions and billions,” Robbie describes. “But then they started running out of mortgages to put in them…so the banks started filling these bonds with riskier and riskier mortgages.”

“Our friend Michael Burry found out that these mortgage bonds that were supposedly 65% AAA were actually just mostly full of shit,” she continues. “So now he’s going to short the bonds which means to bet against.”

In other words, if you suspect that the value of something is going to decrease, you can make money off being correct in that bet. Here’s how it works: First, you borrow stocks while their value is high; then, you wait for the price to drop and buy the stocks back to return to the lender. If you borrowed and sold a stock while it was worth $500, then bought it back when it was worth $400, for example, you’d earn a profit of $100.

When it came to stocks like GameStop and AMC, Reddit’s WallStreetBets knew that both companies had been steadily losing value throughout the pandemic and were considered unlikely to rise again in the immediate future — making them a perfect target for short-sellers. So, they decided to bet against bigger investors’ bets against GameStop doing well, which has seen individual investors yield huge returns while hedge fund short-sellers have lost up to $5 billion, per Markets Insider. 

Short-sellers are losing money because they still need to buy back GameStop, AMC, and other stocks to return what they borrowed, and with the prices to which these stocks have soared, they’ll be buying them back at a huge loss. This is the outcome that Redditors had hoped for, beyond their own gain — but a shocking move by trading app Robinhood and similar platforms has slowed their momentum.

As of Jan. 28, Robinhood blocked users from buying more stocks in GameStop, AMC, Nokia, and any others surging due to conversation in r/WallStreetBets. It didn’t take long to figure out that Citadel, a hedge fund poised to lose billions from short selling GameStop, was a major client of Robinhood’s — and seemingly, the only one they were interested in protecting.

A class action lawsuit has already been filed in New York against Robinhood, accusing them of market manipulation by barring investors from buying in to the surge. Politicians as disparate as Alexandria Ocasio Cortez and Ted Cruz have come down on the app and others that followed suit for this move, which essentially outlaws regular citizens from engaging in a practice that Wall Street traders have long enjoyed. Robinhood, down to its name, has sold itself from day one as the platform to democratize the stock market, and its blatant shutdown of an avenue for its users to profit while protecting the interests of a hedge fund has been a laughable step away from that mission.

As quickly as this became a story of individuals triumphing over a system that had long shut them out, it turned back into a story of how Wall Street will protect its own assets at all costs. Rewatching The Big Short will make you furious all over again about what happened in 2008. But if it’s outrage you’re after, Robinhood and similar apps deserve plenty of it right now.

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