Of Wall Street, Reddit, and Total Chaos
Making sense of it all through the eyes of a senior citizen
I am not now, nor have I ever been involved in the stock exchange, the world of high finance, or Wall Street. So anything said here should be taken with a grain of salt as my personal opinion. This is not meant to be a tutorial, a recommendation, or advice about anything at all.
I am one of the older generation, so I’m not up on all the new computer programs, social media, online games, and all that. I know how to navigate the internet enough to purchase things online, do research for my books, check my email, Facebook, Twitter, and Wordpress accounts. I post blogs about my books and other things I find interesting.
I can also format my books for paperback on Amazon, for Kindle, and for Smashwords. So I’m not a complete idiot, though I would never claim to be an expert by any stretch of the imagination.
With that settled, what do you think about the whole debacle between Wall Street and the redditers who screwed up their plan? And what is the whole thing about hackers? What is hacking? And what was actually done?
So what is hacking?
Hacking is when someone illegally breaks into a computer system. It can be a teenager just seeing if it can be done. Or it can be someone who wants to plant a virus in a large company’s system to cause trouble. Perhaps someone breaks into a computer intending to steal or change information.
At any rate, hacking is gaining access to someplace illegally. It’s kind of like the difference between going to someone’s house and being invited in (not hacking) and going to someone’s house, picking the lock, and stealing the family silver. If you have gained access to the system legally and followed the rules while you were there, it isn’t hacking.
Let’s say I want to buy a new TV. I don’t go to the manufacturer. I check the prices at someplace I would normally shop, like Walmart. This is sort of like going to a broker to buy stock.
So If I log in to my Walmart account, and find a good sale price on something, it is not illegal for me to purchase that item, or several of them, and have them shipped to my house.
Nor is it illegal for me to phone our daughter and let her know I found a deal on something she uses as well.
Because I entered the site legally, followed the rules for purchasing the item, and the purchase was approved and finalized.
Hacking would have been gaining access to either Walmart via a fictitious account, or by breaking into someone else’s account, billing the item to their saved payment information, and having the items sent to me instead of their saved address.
I entered the site illegally, fraudulently used someone else’s account, and stole the item, effectively, from Walmart.
Now what is the deal with the bunch from Reddit?
From everything I’ve read, they legally bought the stocks in question through legitimate brokers, paid for those stocks legally, and received notification of ownership. They followed the rules for this purchase.
As far as rules go, I’m not sure how you can sell more of something than you own, but let’s take a simplified view of what happened on the other side of this issue.
Let’s say I bought a nice lawn mower from Home Depot. Same deal. They are the broker here. It is getting near the end of the season, but I needed it now, so I bought it. It is now my mower, for which I paid the asking price.
My neighbor, sneaky devil that he is, hatches a plan. Asking to borrow my mower for two weeks, I agree and allow him to take the mower to his house, expecting it to be returned at the end of that time.
Instead of using the mower, he puts it up for sale on e-bay and sells not one, but two mowers for the going rate.
Because he knows that Home Depot usually has a sale on lawn equipment the first week in October, let’s say. As he borrowed the mower during the last week in September, he should be able to sell my mower, plus the extra imaginary mower, take advantage of the end of season sale to buy the two mowers he needs to fulfill his obligations. He can still return my mower to me on time.
In this way, he can make a little money on the deal, and nobody is any the wiser.
This is sort of what happened with the hedge fund. The Wall Street guys gambled that they could sell 100%+ of the stocks in the fund, buy them back when the price dropped, and make a profit. They would make money, the hedge fund would be back where it should be, and all would be well.
But someone saw they had sold over 100% of the stock in this fund and decided to teach them a lesson. Legally.
They bought a bunch of the stocks, which kept the price from dropping. They told their friends about the deal, what they were doing, and why. So more people joined in. And because those original Wall Street guys, who sold these stocks, had sold more than they had, they needed to be able to buy them back cheaply to restore the stocks to the hedge fund and still make a profit.
When the stocks didn’t drop, they were in deep trouble. Just like my neighbor.
What my imaginary neighbor didn’t know was that Home Depot had been selling quite a few of these mowers, because of a warmer than normal autumn. So they decided to delay their sale by two weeks. So when it came time to return my mower, my neighbor didn’t have it. And he still owed a mower to the guy who bought the one he didn’t have to sell yet. Now he’s faced with having to purchase two mowers instead of one, and it’s all going to have to come out of his pocket.
Now where is the hacking they’re being accused of? There was no insider information. They found the stocks for sale online through a legitimate broker. They bought the stocks legally.
And decided to hang onto them, instead of selling them, which was their legal right.
Why should they be punished for something which was perfectly legal, just so a few fat cats could get away with a shady and risky scheme?
Sorry. I don’t see the problem. If you are going to take risks, you have to be ready to face the consequences if they bomb. Nobody would bail me out if I tried something similar. Why should we cater to the guys on Wall Street?
Maybe we need to stop with the two sets of standards we have working here. What do you say?