I've been digging through older Reddit posts a bit, and I have a theory on how this really started...
The Redditors look stupid, but they actually had some decent analysis before they took up this position. Gamestop was something like 80% owned by short sellers, and 70% of them bought in when it was around $7. So 70% of them were underwater before GME hit $10. Their cash on hand was worth more than their market cap. At the same time, new consoles were just released, so even if management are a bunch of morons, Reddit knows for a fact that GME aren't going under while people are buying new consoles in a frenzy of hype. Not for the next year or two, at least.
This was economic injustice, and Reddit is capitalizing on that.
The mystery is... why did Wall St set themselves up for this? They have some of the smartest people in the world, so how could they make such a massive mistake? If you look at the climate of the market, short sellers have been losing their shirts left and right for the past year or two. Indexes of the most shorted stocks rose in 2019, and 2020, to the point where short selling is out of fashion. What made them all want to short gamestop at once? This is a massive, obvious error, so how can they all make the same mistake together? (lets assume they don't have a conspiracy)
My ridiculous theory on this is that I blame Bezos. Or Zuckerberg, Nadella, Pichai... take your pick. One of the big FAANG companies caused this. Why?
These big firms all use some version of AI driven technical analysis to make trades, or at least inform their trading decisions. We like to think that they all have rocket scientists on payroll to do this, like the guy in the big short, but they don't (BTW, remember the scientist in the big short who didn't wear shoes and predicted the 2008 crash? He has had a huge long position in GME for the past year).
What hedge funds have, instead of serious data scientists, are computer techs who can use things like AWS or Microsoft Azure... you know, machine learning APIs. Every time you see somebody getting a job as an artificial intelligence specialist after attending an AI bootcamp, those people aren't actually doing all the high level math required to build AIs. They are experts at feeding data to and retrieving data from one or two big AIs, that are on Amazon or Microsoft's cloud. That's a good skill set, and the AIs they use might be excellent. I bet amazon and Microsoft have some of the brightest mathematicians in the world building their AIs. It's still a problem if everybody in the world decides to use the same AI to pick stocks. If everybody agrees that GME is going bankrupt, because they all use the same AI, and the AI said so, then maybe the big investors make the same mistakes at the same time, leading to what we see right now.
So I see all this stupidity as just another result of machines driving humans insane, just like with Q, and flat earth. We always thought we would have to worry about the machines becoming conscious and going insane, but turns out, the reverse is true. When machines grow intelligent, humans are the ones who go insane.
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