GameStop, Reddit, and Robin Hood: How r/WallStreetBets gamed the stock of GameStop

The Verge's Nilay Patel, Dieter Bohn, and Elizabeth Lopatto explain how the users of the subreddit r/WallStreetBets sent GameStop, AMC and other stocks rocketing up through the stock market. A year into coronavirus, we’re still counting the dead Slow certification process keeps some pharmacists from giving COVID-19 vaccines Go read this report about the tech systems behind the US’s vaccine distribution Testing sidelined as health departments focus on vaccination How r/WallStreetBets gamed the stock of GameStop Reddit’s GameStop traders turn their attention to AMC stock Memes have broken the brokerages Robinhood blocks purchase of GameStop, AMC, and BlackBerry stock Discord has turned into a virtual trade floor with memes, stocks, and chaos r/WallStreetBets went private — and now it’s back with a message After buy ban, GameStop hypebeasts are looking for a Robinhood alternative Robinhood denies claims that it sold GameStop shares out from under its traders Robinhood will allow ‘limited buys’ of stocks like GameStop starting Friday Samsung Galaxy S21 review Sony’s creator-focused Xperia Pro arrives in the US priced at $2,499 Tesla unveils redesigned Model S with new interior and 520-mile range option OnePlus co-founder Carl Pei’s next company is literally called Nothing Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Nilay Patel?

  Coming up today on the Vergecast, Liz Lopato joins me and Dieter to talk all about GameStop, Reddit, and what is happening with Robinhood. It is a wild ride. And then Dieter gives us a little update on some gadgets. That's coming up on the Vergecast now.

• 0:14Speaker 01

  This episode is brought to you by On Investing, an original podcast from Charles Schwab. Each week, hosts Lizanne Saunders, Schwab's chief investment strategist, and Colin Martin, head of fixed income research and strategy for the Schwab Center for Financial Research, bring you fresh insights on what's happening in the markets and why, and what the implications might be for your portfolio. Join Colin and Lizanne as they explore questions like, how do you evaluate corporate bonds that look interesting? And what sectors are on the move right now? Download the latest episode and subscribe at schwab.com/oninvesting or wherever you get your podcasts.

• 0:59Speaker 01

  This episode is brought to you by On Investing, an original podcast from Charles Schwab. Each week, hosts Lizanne Saunders, Schwab's chief investment strategist, and Colin Martin, head of fixed income research and strategy for the Schwab Center for Financial Research, bring you fresh insights on what's happening in the markets and why, and what the implications might be for your portfolio. Join Colin and Lizanne as they explore questions like, how do you evaluate corporate bonds that look interesting? And what sectors are on the move right now? Download the latest episode and subscribe at schwab.com/oninvesting or wherever you get your podcasts.

• 1:47Nilay Patel?

  Hello and welcome to the Vergecast, the flagship podcast of high-frequency trading. See? Ooh. Right on the nose this week. I'm your friend Eli. Dieter Bohn is here. I don't have a clever thing. I'm also your friend. Liz Lopato is here. Hi. There's like a lot of stories to talk about this week, but there's only one story, which is GameStop. Gamestock? Gamestock. I can't even say it anymore. GameStop, the troubled video game retailer, which no longer is a video game retailer, but rather a symbol of class warfare in America. This is true. That's actually how I feel about it. So Liz is here to help us talk about all of it. There's a lot of moving parts to this

• 2:28Nilay Patel?

  puzzle. That's a metaphor. And then Dieter and I are maybe gonna maybe run through some gadgets at the end if we have time. But first, as always, the single most important story in the world is the continuing COVID pandemic. I just want to run through what our science team has been doing. On that front, we noted earlier this week, last week, it's been a year since the first coronavirus story was published on The Verge. We're at just an enormous number of people who have died because of it, way above what anybody anticipated. That's a reckoning. So that's a story. Please do that. On the vaccination front, we're still figuring out the logistical challenge of getting vaccines out to people in the United States. In every

• 3:12Nilay Patel?

  layer of that stack, there are issues. A great story this week about certification process for pharmacists, which is slowing down the rollout across the country. All little steps. Liz, like, they changed the dosing out of the vials, right? You have to use a special syringe to get the last dose out of the Pfizer vials. Like, there's like, all these little stories inside the big story.

• 3:35Speaker 02

  I mean, look, there's been a lot of stuff around implementation that has been changing pretty much on the ground as people are figuring out how to do this. And so you may remember that there was that surprise dose in the vials. You may also remember that we bought not by the vial, but by the dose. And so there's a bunch of mechanics now around how to make sure that enough doses are getting to people. So it's weird. It's complicated. I don't know what to tell you about that, except that you should read The Verge, because our reporters have done a really wonderful job of hunting all of this down.

• 4:07Nilay Patel?

  Indeed. And lastly, I think these two things should not be in tension with each other, and yet they are. There was obviously a huge focus on testing in this country in the beginning part of the pandemic. We didn't get it right. I think Vergecast listeners know that I spent weeks counting against a promise that Google would make a testing website. New administration, new focus. Hopefully, they're going to be a little bit more buttoned up. But as health departments across the country have moved their focus to vaccination, the testing infrastructure has fallen by the wayside. So two things that are intention that shouldn't be, but they are, and we got a story about that, too. So go read all that. The science team is doing incredible coverage of COVID.

• 4:47Nilay Patel?

  I think all of us are hopeful that we won't live through another full year of the pandemic, but we got to get it right. And there's a lot of moving parts. Go read that coverage. Like I said, still the biggest story in the world. Okay, let's talk about the biggest story of the week, the silliest, dumbest story of the week. I was on, I was on another call earlier and I was asked for a framework of like things the internet can accomplish. And I was like, well, on the one side, there's really good things, right? Like, I don't know. You can listen to the Vergecast. You can listen to the Vergecast. All of us have careers because of the internet. There are hilarious reddits for like knitting, right? Like that's my go-to example every time. I subscribe to a subreddit that's just about the car that I own.

• 5:31Nilay Patel?

  And it's literally just people posting pictures of the car, of their car, which is the car that everybody else in the Reddit owns. And then people saying, your car looks beautiful. It's just one of the most pleasant places on the entire internet. Somewhere in the middle of the stack, there's a bunch of just like boring stuff, like media organizations like ours publish views on the internet and hopefully you get some truthful views. The Black Lives Matter movement, right? It's an internet movement, people coming together. In general, the awareness of how different people live their lives is something the internet has made much more fluid and potentially better.

• 6:04Nilay Patel?

  Then there's like very bad things, right? Like there's because people can find each other, a lot of racists have found each other. That's not cool. The Capitol was stormed because, right, that's all the way in the other end of the spectrum. In the middle, there's just weird stuff, weird things, insane things that happen when lots and lots of people get together and trade information and all take a big collective action at the same time.

• 6:29Speaker 02

  You're talking memes.

• 6:30Nilay Patel?

  Memes. Memes is one way of thinking about it. Actually, that's probably the best way of thinking about it. Like,

• 6:34Speaker 03

  Well, the reason memes is such a good way of thinking about it is it gestures to this thing that happens where a bunch of people start to joke about something and have a shared in joke, and then all of a sudden, it becomes very real. And I feel like the line between joke and real is often intentionally blurred by people, and sometimes unintentionally blurred, and eventually like it's a distinction of the difference. And I'm thinking specifically of actually a lot of like the racist stuff that comes out of 4chan, you know, like Pepe the Frog, all that stuff. But like, there's a dynamic here, we should just get into it. I'm sorry, I'm jumping way ahead of the story, that memes is right, because you think of a meme as a lighthearted thing, and it starts as a lighthearted thing, but then memes are also a very real thing

• 7:18Speaker 03

  that have real effects on the real world, and that the internet is a real world.

• 7:21Speaker 02

  Right. They're powerful because they organize how people think, right? Like, they give you a framework for a shared framework for thinking about something. And like, the reason Dieter is saying he's jumping ahead is because, I'm just gonna get into it, there is a Reddit, a subreddit, called R Wall Street Bets, where for about a year, there was an ongoing joke that they were going to take over GameStop. GameStop.

• 7:48Nilay Patel?

  We can't even say it anymore.

• 7:50Speaker 03

  We're just gonna call it GameStop. The event is GameStop, like Woodstock, but for Wall Street shenanigans.

• 7:56Speaker 02

  Right. So this was a joke, and then it suddenly wasn't a joke anymore. And the reason we're all like, talking about this is because it is no longer in any way a joke, and a lot of finance people are genuinely freaked out right now.

• 8:10Nilay Patel?

  Yeah, so let's start at the start, Liz. And when it comes to wonky finance stories, I always turn to you. So over the past week, maybe even a little bit longer, we've seen GameStop stock go from normal trading levels, prices and volumes to complete insanity. Then it has been halted in strange ways, not by the markets, not by the New York Stock Exchange or the NASDAQ or whatever, like, but by individual trading apps, which people are incensed about, and rightfully so. And I don't know, AOC is tweeting about it. Ted Cruz is tweeting about it. Mechanically, has a story today that the incoming Senate Banking Committee Chairman,

• 8:51Nilay Patel?

  Senator Sherrod Brown from Ohio, says the committee will be holding a hearing on the state of the stock market. Right? Not just like GameStop, but just like, yo, are the capital markets of the United States cool? We're going to have a hearing about it. Like, that's, it's gone from a meme that percolated for a year to just a full-on crisis. So I want to start at the very start, just the mechanical thing that happened here that caused this waterfall effect. And I think we have to start with GameStop itself. Liz, what is GameStop?

• 9:26Speaker 02

  So the GameStop I'm most familiar with is in this terrible strip mall in Iowa City. But it's a place, a physical place, usually located in a mall of some kind, strip mall or otherwise, that you physically go to buy physical copies of video games. And now, as I think everyone is aware, it is totally possible to buy video games online now, right? And what that means is that the physical businesses at malls have been in trouble for a minute, and then the pandemic happened. And that made things worse, because, you know, people were staying home. Now, GameStop has been shorted pretty consistently for quite some time, because a lot of people think it's going to fail for the reasons I just outlined.

• 10:08Nilay Patel?

  Every time someone says that a stock has been shorted, I nod my head and go, mm, yes, I have, I have heard the explanation of what shorting a stock means. I, it is, it is a complicated thing where you, you buy the stock and then you lend it to somebody and then they, they hang on to it and then you buy it back. And if the stock goes down, then you win. And yes, I, I do understand this. No, I don't, I don't get it. I don't understand how it works.

• 10:31Speaker 02

  So the TLDR explanation is that shorting a stock is betting that it will go down. And the mechanical way that you do this is you you locate somebody who owns a stock. And this is usually an institutional investor because they tend to be pretty buy and hold. They don't do a ton of trades. And when you do this, you are paying that holder a fee in order to borrow. Okay. And so what you do is you pay them the fee and you borrow their stock and then you sell it. And then you wait for it to come down and you buy it back and you give it back to the original people. And the difference between the top and the bottom is basically what you get minus your fee. Right? So

• 11:09Speaker 03

  Yes, I understand. I understand now. Yes.

• 11:13Speaker 02

  I mean, this is like, let me put this in a physical way because that might be easier.

• 11:17Speaker 03

  Okay.

• 11:18Speaker 02

  Let's say that I borrow your iPhone. Okay, it's a brand new iPhone and I borrow it from you and I say, I'll give this back to you in, I don't know, two weeks.

• 11:28Speaker 03

  Okay.

• 11:29Speaker 02

  And during that time, Apple has just a fire sale on that specific kind of iPhone. And so what I do is I I sell your iPhone at the original price and then I go buy the cheaper iPhone and give it back to you.

• 11:44Speaker 03

  Ah, okay. Okay.

• 11:47Speaker 02

  And so

• 11:48Speaker 03

  Yes, I understand.

• 11:48Speaker 02

  And so the difference between those things is my money.

• 11:51Speaker 03

  Got it.

• 11:51Speaker 02

  Right? So that's what they're doing, but with stocks.

• 11:54Speaker 03

  So everyone has been doing this to GameStop because, you know, it's it's gonna, it's it must be a failing business. So there's a bunch of investors shorting the stock.

• 12:04Nilay Patel?

  Wait, I just want to, I want to stop right there.

• 12:08Speaker 03

  Yeah.

• 12:08Nilay Patel?

  And I want to ask two questions, threshold questions. One, do we actually think GameStop is a good business? Right? Like it's, we're now completely untethered from that question on this Thursday afternoon. Like

• 12:23Speaker 02

  We sure are.

• 12:23Nilay Patel?

  It has nothing to do with GameStop as a business anymore. But I don't like, all of us are bound by the Verge's ethics policy. We cannot trade in stocks that we call in companies we cover. We like, we're allowed to own index funds, which is its own. If you read Matt Levine's newsletter Bloomberg, you know that it comes with its own weird problems. But like, that's basically what we are allowed to own is like broad mass market index funds. If you listen to the show, you know, we are always disclosing things. So that's your disclosure for the day. But if I was to be the sort of person who could buy a stock. And I was like betting on the market. I'd be like, man, GameStop. Haven't heard that name in a while. I bet that stock's gonna go down. I shouldn't buy it, right? That would just be like, I buy all my games digitally.

• 13:06Nilay Patel?

  I'm getting a PS5. I'm like the only one who bought a digital edition. That's just who I am. I'll only buy two games a year. So it's not a big deal.

• 13:14Nilay Patel?

  Is it a good business, Liz? Like, is there, is there a case for GameStop to get better?

• 13:17Speaker 02

  Yeah, I mean, there is a case. I don't know enough about the space to be able to tell you whether it's a good case, but there is one. And the case is that GameStop also has an online way of selling games. And it's been growing a lot. And a couple of weeks ago, this guy who used to be the CEO of Chewy joined their board with two other people. And so the, the bull case, the case that this is going to be a good stock is that these people are going to turn it around and they're going to create this wonderful online business for GameStop. And, and then, you know, they'll close maybe some of the mall stores and the turnaround will let GameStop be good again.

• 13:56Nilay Patel?

  Okay. And then here's my other question, and this is really the, the Elon Musk question, I would say. Oh, no. Well, it's, it's fine to say, I think that stock will go down. I'm not going to buy it. Is it appropriate to say that stock is going to get down and I'm going to bet on it such that the stock might actually go down, right? Because Elon hates short sellers. Famously, there's a lot of shorts in Tesla. He sold literal short shorts to make fun of the short sellers of Tesla. Like, he has created a culture of hating short sellers and short positions in stocks. And there are a lot of people on my Twitter timeline saying that shorting stocks is immoral and should be illegal.

• 14:35Speaker 02

  I actually really disagree with that. And I'll tell you why. And I'm probably going to get a bunch of people yelling at me, but whatever. I think this is true. So one of the functions of shorts in the marketplace is to uncover fraud. And so very famously, the shorts were on to Enron before anybody else was on to Enron. And this has happened in a number of stocks where a short seller has looked at the numbers and gone, that can't possibly be right. Shorted the stock, done a bunch of research and triggered an investigation that showed, that showed like, sure enough, there was fraud. So I view them as like a corrective, but not necessarily popular force in the market, if that makes sense. Like, they potentially, you know, can keep us from losing our shirts.

• 15:19Speaker 02

  And the fact that they make money on it is what makes people unhappy, I think.

• 15:23Speaker 03

  The accusation or the thing that's floating around here is that sometimes shorts are more than just, you know, the heroic lone investor who sees the problem in the company that we all see. Sometimes it's like a concerted effort by a cabal of Wall Street bigwigs to bring down a company or to like, if someone shorts a stock, it eventually becomes a self fulfilling prophecy that, oh, well, this person says that is short of that stock, therefore that stock must be bad. And that like eventually like kills the thing. Is that just, there's lots and lots of ways to do terrible things with stocks and shorts just happens to be one of them? Or is there, is there some sort of special, I don't know, vulnerability or concern there? My sense is that shorts are just one way to do shenanigans.

• 16:08Speaker 02

  Yeah, I mean, like, there's an infinite number of ways to do terrible things with stocks. Like, I don't think we've even come close to figuring out what all of them are. All right? The other thing that I will say about short sellers is that they put their money where their mouth is. Because you remember the iPhone like metaphor I just used with you, Dieter?

• 16:23Speaker 03

  Yeah, I'm still wondering where my iPhone is. Like, I haven't logged out of iMessage. It's like a problem.

• 16:28Speaker 02

  So let's say instead of Apple cutting the price, Apple raises the price. I still have to give you your iPhone that I sold back. So I have to go buy it at that more expensive price. Now, the thing about that is that if you're a short seller and this is a stock and not an iPhone, like, your losses are theoretically infinite. Like, the higher the stock goes, the more you lose. So, you know, you can say, like, short sellers maybe are bad for the market, but they're putting their money where their mouth is. Because if they're wrong, they stand to lose really a lot.

• 17:03Speaker 03

  Okay, so this brings us to Wall Street Bets, right? Short sellers potentially losing everything is the underlying mechanic of what is going on with the Verge keyword combo platter of Reddit, like Reddit, Robin Hood, the internet, social media, moderate, like, you pick a Verge keyword, it's in here somewhere. There were a handful of gigantic investment firms, hedge funds, who had shorted GameStop stock massively, right? Like, more so than stock existed.

• 17:36Speaker 02

  That's right. And they had been using it kind of as a cash register, because typically, for the last couple of earnings, whenever GameStop reports its earnings, the stock goes down. Because, you know, the problems with the business we laid out earlier. So, you know, it was like, kind of this like thing where I think people got a little careless and they got a little comfortable with like, oh, this is a reliable way of making money is that this dying company is going to post bad earnings and then I'm going to make money.

• 18:02Nilay Patel?

  Okay, so then there's a group of people on Reddit who see that this is happening and that the short sellers, I think the most important character here is Melvin Capital, right? So there's a short seller called Melvin Capital that's deep, deep, deep, deep into GameStop. Redditors see this in the subreddit Wall Street Bets. What was the inflection point where they went from, we can invest in GameStop and make some money to, we're gonna destroy Melvin Capital?

• 18:32Speaker 02

  That's a really good question. So this is a little bit of a mechanical answer. So you remember how I just explained that if you're a short seller, your losses are potentially infinite? One way to stop that is to buy back the more expensive iPhone before the stock or the, the price continues to rise, right? So if you see that the stock is gonna go up and you think it's gonna go up for a while, you close out your short position, which is called covering your short. You make a loss, but at least it's not the worst possible loss. But because you have to go on the market to buy the stock back, you send the stock up farther. Okay, that's called a short burn, basically. And it creates a sort of a situation where the stock keeps going up and can potentially burn other shorts.

• 19:15Nilay Patel?

  Right.

• 19:16Speaker 02

  There are also a couple of ways that you can work with options trading to ensure that the stock goes up. And this is where it gets a little complicated and I'm gonna walk you guys through it and you can tell me if it makes sense or not. But there's this thing called a call option. So if you're feeling confident in, let's say, GameStop, you can buy a call option, which lets you buy a stock at a specific price on a specific date, okay? And the way that this works is, let's say that I want to buy a call option on a company, Company X, all right? And the shares are trading at, let's say, $10. But I feel really confident about this.

• 20:00Speaker 02

  I'm sure that the stock is gonna go up. I think it's a great business. So I buy options that let me buy 100 shares of Company X stock for, let's say, $25 on March 1st, okay? This contract is a lot cheaper than just buying a share. Um, it's a fraction of what it costs to buy a share. Now, let's say, uh, you know, February, which is coming up, there's like an epic run in the stock. All right. And by February, I don't know, the middle of February, February 14th, it's up to $50 a share. I can do a couple of things. Um, I can sell my options to somebody else, um, for more than I paid for them and realize my gains there.

• 20:40Speaker 02

  Or I can continue to hold on to them until March 1st, at which point I get 100 shares at the price that I, I locked in. Um, and immediately sell them, at which point I make a profit. On the other hand, because this is risky, it's possible that I bet really badly and that the company only gets up to 20, $20 a share. In that case, I lose everything that I paid for my options, right? Because if I bought the shares, I would still have a share. It just wouldn't have gone up as much as I wanted, but because I bought options, I have nothing.

• 21:11Nilay Patel?

  Right. You, you, you had the, you bought yourself the opportunity to buy some stock and the opportunity passed you by, right?

• 21:17Speaker 02

  That's right. Now, the thing to keep in mind about Wall Street is that there always has to be somebody on the other end of the trade. And so whoever sold me the options is going to reduce the risk that my options will hurt them. And the way that they do this is they buy stock in company X, which makes the stock go up. And the further the stock goes up, the more stock my counterparty has to buy in order to cover their risk. And for those of you who do read Matt Levine, you know, this is a gamma trap.

• 21:45Nilay Patel?

  Wait, I'm sorry that, that, um, it sounds like an Avengers plot point. Um, and I don't wanna, I don't wanna, I don't wanna overcomplicate it. But what you're saying is you are the person selling me the option. I buy the option to buy 100 shares from you. You say, oh, man, if he, if he cashes in that option, I'll lose money, right? If the stock is lower than the price that I agreed to buy, you're gonna lose money, right?

• 22:12Speaker 02

  Yeah, if you, if you, you have options to buy the stock. If the stock is higher than the price,

• 22:19Nilay Patel?

  Aha.

• 22:19Speaker 02

  then I lose money on that trade.

• 22:21Nilay Patel?

  Because you have to go out and buy the stock and then sell it to me for a lower price than you paid for it.

• 22:25Speaker 02

  That's right.

• 22:25Speaker 03

  Right.

• 22:25Nilay Patel?

  So you're going to buy stock to make sure the price, to make sure you cover your bet. But that causes the price to go up because

• 22:32Speaker 02

  That's exactly right.

• 22:32Nilay Patel?

  increase demand.

• 22:33Speaker 03

  Right.

• 22:34Nilay Patel?

  Okay.

• 22:34Speaker 03

  So you, you buy the stock before the price goes up to make sure that worst case scenario, you can sell the stock at the lower price because you bought it early, but

• 22:40Nilay Patel?

  MCU phase four has so much more math in it than I anticipated. All right. So we, right. So like, but so these options just have their underlying mechanic, which is when you buy the option, someone buys some stock.

• 22:52Speaker 02

  That's right. And so if you get enough of this going, like, let's say you have a bunch of Redditors who all purchase these options. Suddenly the stock goes up because the counterparties had to purchase stock. And that potentially is trouble for the shorts because the stock is going up. So maybe some of them will cover their shorts and get out of the stock while they can, which then makes the stock go up further and potentially then burns more shorts. And it leads to this sort of weird chain reaction. And that's the theory under which Reddit is currently trading on Kate's stock.

• 23:28Speaker 03

  So the, the, one of the enabling factors here is that buying an option is a relatively inexpensive way to like, start doing something to the stock. If you just buy the stock, you buy the stock, but buying an option is less expensive, but it has this outsized effect on the other side of the market. Is that right?

• 23:47Speaker 02

  Yeah, that's part of it. The other part of it is that until relatively recently, it was sort of difficult to trade options. And now at this point, it's much easier and crucially, free. And so that has to do with, that's where we come to Robin Hood and the other, the other platforms on which people trade shares. There used to be fees for doing this and that changed through something called payment for order flow. And I'm really sorry about all this jargon.

• 24:18Nilay Patel?

  I love it. This is great.

• 24:19Speaker 02

  So basically, what happens is Robin Hood and other, other brokers, because it's not just Robin Hood, are getting paid by market makers like Citadel Securities in order to see what real, real retail investors are doing, right? So that's what payment for order flow is. And the way that this works is that Citadel Securities, that's kind of a mouthful, makes its money by automatically taking the other side of the order and then returning to the market to flip the trade. And then it pockets the arbitrage, basically.

• 24:54Nilay Patel?

  Wait, okay, that one you have to explain. So, well, I just, I'm trying to get my head out of like Billions. Billions is a great show. Everyone should watch Billions. But Billions makes everything seem like literally, you know, Axe is walking around with a pen ordering stuff. The reality is that there's a lot of high frequency trading shops that drive a ton of volume and they rely on data. So if you have a bunch of information about what retail investors on Robin Hood are doing, and you can beat it by literally milliseconds, then you can make a profit on the difference between what happened in, in those milliseconds, right?

• 25:35Speaker 02

  Yeah, in theory. That's, that's part of why this practice is controversial. Because what you're talking about is possibly front running orders by jumping ahead of the customer in order to buy it yourself and then making a small gain when the share price increases. And that is prohibited, by the way. There's no suggestion that Citadel Securities is doing this. All right. I just want to be super clear. Like, that's, it's a theoretical possibility. The more sort of boring way that the money is made here is that rather like most retail investors are not buying chunks of stock, you know, like usually you trade in like, I would say like 100 chunks of 100 stocks, 100 shares, I guess I should say.

• 26:17Speaker 02

  And that's not what retail investors are doing, like they're buying a couple of shares. And so what something like Citadel Securities does is package them all together in order to make a more efficient trade that is theoretically cheaper for the retail investor, which is, you know, that's the argument in favor, basically.

• 26:34Nilay Patel?

  So in that scenario Citadel is looking at the flow coming out of Robin Hood and they say, okay, here's 100 individual investors who are trying to buy one share of Apple stock, which is like 130 bucks or something, 140 bucks, I think, right now. We can just buy 100 shares of Apple stock, get ourselves a discount and then sell it to those investors and make a little profit on the margin.

• 26:59Speaker 02

  Yeah, that's right. Like, the amount of money that is made on this has to do with how much volume is going through, right? So the more people who are trading, the more money that a market maker like Citadel Securities makes. And I want to be clear also here that Citadel Securities is not the only person, like not the only entity that's doing this. There are lots of other ones, but Citadel is sort of the one that seems to have captured people's imagination, let's say.

• 27:26Nilay Patel?

  That's a way of putting it. Citadel has emerged as like the number one villain in this entire, as far as I can tell, they've said nothing, right? They're just like an enigma behind the scenes.

• 27:36Speaker 02

  Yeah, I mean, like theoretically, what they're doing is very boring.

• 27:40Nilay Patel?

  Well, the thing about behind the scenes enigmas is that you can ascribe any motivations to them that you'd like. I think that is very much happening here. We don't know, right? Liz, like that's the, one of the under, the biggest underlying parts of the story is very few of the players are talking because there's a risk that almost anything they say would be securities fraud. So for all I know, for all I know, everyone at Citadel is in a room smoking cigars and cackling about how they've cheated the pores once again, or they're all, you know, at their home offices, just being like, oh crap, if I say anything, I'll go to jail. Like, there's a wide range of potential outcomes here. And we literally just don't know. So that's

• 28:23Nilay Patel?

  just the mechanic here of what's going on. There's, there exists short selling, there exists, I would say, because of, in particular, Elon Musk, a particular animus towards short sellers. There's a large community of people on Reddit who find companies to invest in, given the prevalence of tools like Robinhood, that's democratized trading, particularly options trading. The backend of options trading involves a lot of buying additional stock, which makes the stock goes up, which is bad for short sellers. Something miasma of some intent called Citadel Securities floating over this entire thing. Is that, is that about right?

• 29:00Speaker 02

  Yep.

• 29:00Nilay Patel?

  Plus, everybody's like, at home and bored because of the pandemic and that we need something to do. Oh yeah. Plus, like, just general nationwide freakout at all times.

• 29:07Speaker 02

  Uh, yeah. I mean, like, let's be clear, like, a whole bunch of people got into day trading last year, and there was like, a record amount of volume from retail investors last year. Like, this is like, a new, large force of, like, people doing this, instead of, for instance, watching sports. Because, like, you can't go out, you can't go see your friends. Like, there's like, a real limit on the things that you can do with yourself, and a real limit on the kind of fun that you can have. And so, people are looking at new ways to have fun. And for some group of people, that is day trading.

• 29:38Nilay Patel?

  Yeah. Okay. Let's take a break and come back. And I want to, now that we've got the foundation, which literally took half an hour to get through, let's talk about what happened this week, because it really went sideways this week. We'll be right back.

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• 30:59Nilay Patel?

  Okay, we're back. Liz, I feel like I should have said this to people at the very beginning, but you used to work at Bloomberg. That's where a lot of this knowledge of the market comes from.

• 31:10Speaker 02

  Yeah, I worked at Bloomberg during 2008, the financial crisis. And it turns out that when the entire market crashes and you watch the most powerful editors in the room sweating, you learn a lot about finance real fast.

• 31:28Nilay Patel?

  Well, actually, the 2008 comparison is particularly apt here. So this week, things went completely sideways with GameStop, with Wall Street Bets, with Robinhood, which just specifically happened there. Too many people bought options off Wall Street Bets and things went sideways. Is that all that happened or was there something else?

• 31:47Speaker 02

  There's like a bunch of stuff going on. So I'm like, the thing to know is that GameStop went on this epic run through January. And I was sort of minding my own business because I have other responsibilities here besides like sort of gawking at what the stock market is doing. When on Friday, the stock went up 69% and triggered a circuit breaker.

• 32:10Nilay Patel?

  Nice.

• 32:11Speaker 02

  At which, yeah, nice, right? At which point, a bunch of people started paying attention, including me. And that was when we all realized that like part of what was going on, it was that Reddit had organized a group of retail traders to get in on GameStop. And that was like, the run was getting so Big because there were so many people involved that it actually caused a halt from the market. And we all came back on Monday and somehow everything got crazier. Like the market halted trading, I think, eight or nine times. And at that point, it was like, okay, there is something very strange happening here. And that was, you know, when I, I went back and looked at Wall Street Bets.

• 32:56Speaker 02

  Because the thing is, this is not a new forum. It's been around almost 10 years now. The Wall Street Journal has a really great interview with the guy who founded it, who is just like, no longer a moderator there, like, is kind of like horrified at what it's become. Really worth reading. But basically, they've been written about in the financial press for a couple of years now. Because they can, they're interesting. It's an interesting group of people. But when they sort of came into the spotlight in the way they did on Friday and Monday, a whole new group of people came in who were not necessarily involved with Wall Street Bets, but like, noticed something weird is going on. And so like, figured out that they should maybe get involved too. And then everything just got real weird, real fast.

• 33:40Speaker 02

  So you remember how I talked earlier about how like, there are some people who think that GameStop is, or was, I guess I should say, undervalued and that there was a case, a bull case for the stock?

• 33:52Nilay Patel?

  Yeah. Yeah.

• 33:52Speaker 02

  We are way beyond that now.

• 33:56Speaker 02

  Way beyond that. And so what's going on is that like, it's almost like this stock, like buying options or buying the stock outright has become a meme. And so you see people like posting that they, their orders online, that they, they bought this. You see people posting how much they've made off of GameStop online. And it just seems to be like accreting more and more people, just like, as this continues to go on and the meme seems to spread.

• 34:27Nilay Patel?

  So GameStop is not the first meme stock, right? Like, I think Tesla is like a more famous meme stock that people just like buying it. They like Elon. You know, I've done however many appearances on CNBC where someone's like, what's really up with Tesla? And I'm like, they just like the guy. Like, yeah, like Tesla's underlying financials. Tesla's worth more than GM. Uh, in the stock market, Tesla does not sell as many cars as GM, right? Like it doesn't have as many factories, but the upside of Tesla is potentially very high. So there's like a rational case to be made. The Tesla will just keep going up and meet, meet its sky high valuation. And people really like Elon, but it's still a meme, right? Like none of that's proven out. They have to execute their way to it.

• 35:10Nilay Patel?

  Whereas with GameStop, it's like pure meme. Like it's just a joke you can tell with money.

• 35:16Speaker 02

  The thing that I've been thinking about when it comes to GameStop is like a very weird thing that went on with Hertz last year. You may remember our transportation reporter, Sean O'Kane, and I have been like giggling about Hertz for some reason.

• 35:31Nilay Patel?

  I've been wondering, yeah.

• 35:33Speaker 02

  Hertz went bankrupt, which theoretically means their stock is worth zero. And yet the stock started trading at interesting prices that were not zero, but in fact, like totally unrelated to the underlying business. Um, and at one point, like in the bankruptcy proceedings, Hertz tried to sell more shares to raise money and was told no, that, you know, they figured, I think quite rationally, that if there was that much interest in the stock, then one way that they could make money to pay off the people they owed money to was just to sell more of it.

• 36:04Nilay Patel?

  Right.

• 36:05Speaker 02

  Um, and I'm pretty sure the SEC said no to this. Um, it was either the judge involved, the bankruptcy judge or the SEC. And so there was like this weird disconnect between the people who were trading the shares of Hertz, which were again theoretically worth nothing and what was actually going on with the business. And it was like, this is what I've been thinking about this entire time was like that Hertz event as like sort of being the beginning of whatever we're seeing now.

• 36:30Nilay Patel?

  Okay. It's a meme stock. It goes crazy. What happens to Melvin, right? Cause Melvin basically gets driven out of business and then they get like a cash infusion. That to me is like the other big inflection point where like the pitchforks come out.

• 36:45Speaker 02

  So this was interesting. There are sort of two main short sellers. One is Citron and the other is Melvin, that the people of our Wall Street Bets like really just focused on. And so Citron, like, at one point, they were like, we're not talking about the stock anymore because people are harassing our kids. So, okay, that is a thing that does happen on the internet. But with Melvin, it needed an emergency influx of cash because its bets, its short bets went extremely wrong. And among those bets was GameStop. At that point, it was just like a moment of like, oh, my God, this is so big that these Redditors are starting to topple hedge funds.

• 37:27Nilay Patel?

  I think this is where the, what is now the prevailing narrative of, the reason I brought up 2008 in the depression, the prevailing narrative now is, here's a bunch of kids who came out of the shadow of the recession. They saw the banks get bailed out. They got nothing. They came up and now this is the fury of the working class is bringing down the financial elite of this country. I would say that is a very tempting narrative and I want to believe it. Yeah. I also, and I just want to be clear about this, we don't know that that's true.

• 38:01Speaker 02

  No.

• 38:02Nilay Patel?

  We just don't know. Like, assuming someone on any internet forum who is anonymous is who they say they are, just historically is not a good idea. Yeah. Right? Like, I just, it isn't. Like, they could be anyone. And so there's, what I keep calling it fan, like Fight Club fanfic, like, there's a lot of really compelling posts on Wall Street Bets about how people got wrecked in the recession and they've come back and like, this moment has given them agency and they feel like they're fighting on behalf of the little guy. And like, Alexis Ohanian was on CNBC this morning talking about like, reading those posts and feeling them and like, how everything is democratized. He made a hard pivot to selling Bitcoin, which I thought was smart of him.

• 38:45Nilay Patel?

  I like always be awesome.

• 38:48Speaker 02

  All of my interests together here.

• 38:49Nilay Patel?

  Yeah, exactly. Um, but I mean, do what you gotta do. But I think that stuff is really compelling. I just would caution everyone that we don't know. Like, that's one of the things about this is that the narrative is now, it's taken shape and it's a story that just like the price of the stock is no longer tethered to GameStop's business. The story, the narrative, is no longer really tethered to what we know is happening or what we can prove is happening.

• 39:15Speaker 02

  I think that that's a good note is that on the internet, nobody knows you're a dog. But the other thing that I would say here is that there are rich people on both sides of this trade.

• 39:26Nilay Patel?

  Yeah.

• 39:27Speaker 02

  Like, some rich people are getting richer because of what our Wall Street Bets is doing. Like, they're very proud of, like, you know, having taken down a couple of short sellers. But I'm sure that there are a number of places that have been very quietly profiting off the retail trades. And the reason I say that is that the volume suggests that there's high-frequency trading going on that is, you know, unrelated to what the Redditors are getting up to. Because the thing about high-frequency trading is that it's a set of algorithms and they tend to add momentum to whatever is going on in the market. So if you remember, there is this flash crash in 2010 where all of a sudden the market

• 40:11Speaker 02

  dipped and then like went immediately right back up again.

• 40:13Nilay Patel?

  Everyone was like, oh shit, okay, I guess, I guess that happened. Let's not think about it. Hope it doesn't happen again. That, that's that one, right?

• 40:21Speaker 02

  Yeah, that's that one. Um, there were some regulations that were put in place to try to stop that happening again, by the way. There was actually like an outcome here. But that was driven by these algorithms because they're not like people. They're making the decisions too fast to be people. And so they're like doing, it's like the same problems that we have whenever any kind of algorithm makes a decision is that sometimes those decisions are bad. Sometimes they're bad. And so I think that there are probably, there's probably some of that going on where like whatever momentum is happening in the stock is getting accelerated by these kinds of algorithms. And then also like there are just people, again, like the new board member from Chewy, who own a lot of this stock and are suddenly much richer,

• 41:05Speaker 02

  not because anything changed at GameStop, but because our Wall Street Bets is doing whatever they're doing.

• 41:11Nilay Patel?

  Yeah. So this brings us to, I think, the, the, the moment when everything just like flipped over, which, you know, last night, the Discord pulled the R Wall Street Bets Discord, but they brought them back today with support from the company so they could moderate it better.

• 41:28Speaker 03

  Yeah. So the, the, just, just so it's clear, if you missed this, Discord banned R Wall Street Bets, not because of issues related to should, is any of the shenanigans they're doing with trading bad. It was specifically for like racist hateful content, right? Because, because the community had gotten so big, so fast, it, there was just no way, they just didn't, they couldn't keep up with the moderation. And who knows if they were trying hard enough in the first place. So they got taken down, because apparently they had ignored warnings. But now they're back and Discord is like, helping them in some way to actually do the moderation.

• 42:02Nilay Patel?

  Yeah. So Discord takes them down, puts them back up. Our Wall Street Bets itself goes private and comes back.

• 42:11Speaker 03

  A decision by the moderators, not the powers that be at Reddit.

• 42:16Nilay Patel?

  And so like, that to me is like, okay, I get it. Like, things got out of hand in one, on one platform, the moderators couldn't handle it and they went away. And the platform said, okay, we're bringing you back. We're going to help you out. On Reddit, the moderators themselves are like, this is out of hand. We're taking it down. They brought it back.

• 42:32Speaker 03

  Yep.

• 42:32Nilay Patel?

  Then there's the chaos, which is Robin Hood.

• 42:37Speaker 03

  Yeah.

• 42:37Speaker 02

  Yeah.

• 42:38Nilay Patel?

  Liz, what happened with Robin Hood?

• 42:40Speaker 02

  Well, it's not just Robinhood. I want to be clear, but a lot of these brokerages, including Robinhood, have limited how you can trade GameStop and AMC and a couple of the other stocks that our Wall Street Bets has gotten into.

• 42:55Nilay Patel?

  Actually, can we just take a pause there? Just more Verge keywords. Some of the other stocks that are that are part of this game include BlackBerry.

• 43:05Speaker 03

  Yep.

• 43:05Nilay Patel?

  And Nokia.

• 43:06Speaker 03

  Yep.

• 43:06Nilay Patel?

  Which is just very funny to me personally, because like, I saw a video today of like, a kid like cosplaying as a trader, right? Like, he was like a teenager in his bedroom, like making a TikTok. And he was like, pretending to be a trader. And he was like, Nokia to the moon! And it was like, cracked me up. Like, it was like, the funniest thing I've ever seen.

• 43:28Speaker 03

  But like AMC is a Verge thing too, because we were talking about the theaters closing and dealing with streaming and blah, blah, blah. And I don't know, Bed Bath & Beyond is where I swap out my soda streams.

• 43:37Nilay Patel?

  Nope, that's not ever a Verge word.

• 43:38Speaker 03

  Sorry.

• 43:40Nilay Patel?

  You can buy, you can buy Google Nest at Bed Bath & Beyond. Okay. That's the end of the Verge. Yes. We strained credulity. All right, so a bunch of the, the trading apps. I think Robinhood is the one that like, took it on the chin.

• 43:54Speaker 02

  Yeah. I mean, look, here's the deal. Like, Robinhood was part of this meme. And like, that's not really, I don't think, the company's personal fault, so much as it was just that a lot of people were using Robinhood to do these trades. And it got, it became part of this. They became, like, the people who are doing this became known as the Robinhood traders. And so, when Robinhood limited what you could do, a lot of people really freaked out. Like, really, really freaked out. And like, part of that, again, has to do with the narrative we just discussed about how this is the little guy getting back at the big guy. And that's like, kind of what the name Robinhood implies.

• 44:34Speaker 02

  Right? So I suspect there's like some measure of that involved as well. And so when when Robin Hood limited some of these these trades, people got real, real mad and and they've been yelling at it about it on Twitter ever since.

• 44:51Speaker 03

  So we have spent the last six months to four years yelling at all the platforms, Twitter, Facebook, disclosure, my wife works for Oculus. How are you going to moderate? What are your moderation decisions? Explain them better. Facebook is setting up a court. We have all become smarter at knowing that platforms need to make moderation decisions and trying to hold them accountable for like having some sort of rule of law, some sort of justification for those moderation decisions. And so when Discord took down our Ross Seabreeze and said it was because of hate speech, when on Reddit, the moderators took it down and said like, it's happening too fast. We need to make sure that we're able to handle this moderation.

• 45:33Speaker 03

  Like, that'll fit with what we have all learned about how moderation works over the past year. I don't know why Robin Hood restricted the trades.

• 45:44Nilay Patel?

  Well, actually, as we have been talking.

• 45:47Speaker 03

  Oh, great.

• 45:47Nilay Patel?

  Robin Hood put out a statement, "Starting tomorrow, we plan to allow limited buys of these securities," that's AMC, GameStop, et cetera. "We'll continue to monitor the situation and may make adjustments as needed." And then this is its explanation, and I'm just going to read it. And then we're all just going to experience Liz reacting to it together. "As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. To be clear, this was a risk management decision and was not made on the direction of the market makers we route to."

• 46:29Speaker 02

  Of course it wasn't because the more you put through the market makers, the more money the market makers make. Hello.

• 46:36Nilay Patel?

  Right. So, okay. So this is, so this is like the Citadel miasma conspiracy theory, right? All day, I'm literally watching Tyler Winklevoss of the Winklevoss Twins go at it with John Fort, a CNBC anchor, because Tyler Winklevoss is convinced that the suits Citadel, the White House, Robinhood's VC companies called Robinhood and said, stop this to protect us. And John Fort, who was an excellent anchor on CNBC, said, do you have proof of this? And now they're fighting on Twitter. That's a real thing that's happening. So I'm reading this statement as this was a risk managed decision not made in the direction of market makers, as Robinhood desperately trying to like tamp that down. Is that your read, Liz?

• 47:22Speaker 02

  Yep. I think that's part of it. Part of it is also like, there's a lot of jargon in there, but what they're saying basically is that there's a requirement of money that they have to personally have to make the SEC happy. And the requirements around that money change depending on how volatile the stock market is, which we're seeing now, very volatile, and a couple of other factors. And so if I'm understanding this right, and and maybe I'm not, it sounds like they halted trading, basically because they didn't have enough money to allow the trading to continue so that they could meet this requirement with the SEC.

• 47:59Nilay Patel?

  Why didn't they just say that? Like, the thing that popped up on the UI of Robinhood for people was, we're restricting the stock because of volatility. That's all it really said. Yep. And there was some other nonsense there. And people could read into that, whatever. If they had just said, hey, we're a startup. We can't cover our own float to make all these trades per SEC regulations. Will we back when we go to the ATM? Like, wouldn't people have been more charitable?

• 48:27Speaker 02

  I don't know.

• 48:28Speaker 03

  This is like the miasma of conspiracy theory.

• 48:31Nilay Patel?

  But it's also possible that they, in the moment when they had to put the thing up because the, you know, the person who was counting the tills, like, oh, God, we're out of money, do something right now, their hands might have been tied by like the SEC, like saying that might have had some other material impact on their business. And so they had to like, take a breath. I'm like trying to give them the benefit of the doubt. I don't know. Like, I agree with you. They should have just said it.

• 48:52Speaker 02

  We talked earlier about how a lot of things that a lot of the parties are engaged in this, the situation, like they can't say a lot without engaging in securities fraud. We've talked about this before. Okay. So you've got like Robin Hood here, I feel like is kind of trying to thread the needle and like, give people an idea of what is going on without engaging in securities fraud. Like, that's, I think, why there's all this technical jargon happening here, is that like, this thing was written by lawyers and then lawyers made it worse. And now we all have it.

• 49:30Nilay Patel?

  We do all make, we, lawyers make things worse.

• 49:33Speaker 03

  I gotta say, I don't like the idea of the gold standard. I think, oh, we should, we should just have the gold standard. And there should be a real, you know, unit of value that money should be tied to. Like, I don't like that idea. But man, I can see why it's tempting after this hour. Right? Just like, all of that would go away.

• 49:49Nilay Patel?

  Right. Look, again, I'm cautioning everyone listening to this. We have just come through a year, two years of, let's get good at misinformation and conspiracy theories on social networks. That's what this looks like to me. There's something true here, but people keep sending us screenshots of people on Reddit, saying they work for Robin Hood. And there was a phone call. Maybe that's true. We should go report it out. We're gonna, we're gonna go try to report it out. But right now, what's happening is like, the entire literal market is reacting to screenshots

• 50:29Nilay Patel?

  like that. The entire market is reacting to billionaires like Tyler Winklevoss saying, there was a call being made. It's a Dave Portnoy, who runs Barstool Sports and has like a very popular stock trading Twitter account situation. And it's like a multimedia empire of stock trading. He's like, everyone should go to jail. He's already, he's skipped 15 steps, and the CEO of Robinhood is in jail. Yeah. And I like, step one, and you know, I think this is frustrating for people. Step one is to be like, wait, can Robinhood do this? Have they given themselves the ability to halt trading?

• 51:06Speaker 02

  I just got some breaking news, which is coming from Bloomberg, and it says that Robinhood is said to draw on credit lines from banks amid tumult. And it's, it's a two paragraph release. It's literally still coming in, but it sounds like they've tapped several hundred million dollars, which suggests that they are trying to make sure that they are meeting their capital requirements.

• 51:31Nilay Patel?

  Okay, so again, like, we trust Bloomberg, but why won't Robinhood say this? Right? Like, they're creating the conditions for disinformation to flow. They're creating the conditions for people to fill in the gaps of their understanding with things that sound totally reasonable, but add up to at-stool president saying they should be in jail. Right? Like, that's just a, just take yourself out of this situation. How you feel about money in the stock market? This looks like conspiracy theories on the internet. Like, it really just, it has that shape. Like, it's a resonant, all of my instincts that we built to cover that stuff are resonating with this story in this way. And like, what I think is really frustrating to people is that

• 52:16Nilay Patel?

  It's a long road from here to the, the CEO of Robinhood being in jail. Like a long, winding road where step one is we're going to go read the Robinhood Terms of Service Agreement. And if you have been listening to this show for however many years, you know, I think Terms of Service Agreements are inherently problematic, should maybe even be illegal, are definitely non-negotiable, definitely contain a power imbalance between the service and the like, how many episodes of the show have we talked about this? But they exist and they're enforceable. And Robinhood's Terms of Service Agreement, which people click agree on, definitely says, we can shut down your account and restrict your trades with securities.

• 52:57Nilay Patel?

  There's parts of it that based on what kind of trades you're doing, how much, how much money you have in your account to cover your trades if they go sideways, all this stuff, much more complicated. There's parts of it that say, we can sell your positions for you. Now, is any of that fair? I don't know. Is that, is, is it reasonable? Like, will it hold up? I don't know. But you got to file a lawsuit against Robinhood. You got to say, this is the stuff we disagree with. You got to find a plaintiff. You got to find somebody who's mad. And that person has to sue. You got to pay the lawyer to sue Robinhood. Lawyers cost money. We're, we're knowing that way. Then the court has to say, here are Robinhood's obligations to the SEC and the markets and the rules they have to follow. Here is the position they were in. This is Robinhood's response. We've evaluated all of that. We've looked at their contract.

• 53:42Nilay Patel?

  We think that their Terms of Service Agreement is unconscionable. You have to, as the plaintiff, you have to overcome the fact that you hit, I agree. And then they say what you did was wrong. But just imagine what that court decision has to look like. Imagine what Robinhood's response, like now you're five years from now, you've wound your way through the Court of Appeals and you know, Justice John Roberts is like, so there was this subreddit called Wall Street Bets. Like, you gotta get all the way there. And I would just, I feel like telling people on the internet to slow down is a lost cause. This story has all of the hallmarks of slowdown.

• 54:22Speaker 03

  Well, so, but the, the other thing to add on to that, and Liz and I were talking about this. We watched the internet learn how to mess with an election, right? They learn how to spread misinformation, mess with an election. We watched a bunch of platforms figure out how to handle that misinformation problem. The thing that is being messed with right now are algorithms that make a thousand decisions every nanosecond, right? So, asking the internet to slow down is one thing, but this is, if there's just day trading algorithms making nanosecond decisions based on things that it's seeing as a result of these collective online actions, that's a much more difficult problem to solve. And the problem you elucidated the first place was difficult.

• 55:07Nilay Patel?

  Yeah, I mean, you know, there's like this, it's risky. Here's like a risky strategy Robin Hood could have taken. They could have been good at talking to reporters, which they're not really. And they could have definitely just let it leak to a reporter, hey, we have to cover, we have to cover our position for SEC rules. And that's what's happening, right? And then Bloomberg would have gotten that story before the thing went out. And then everyone would have taken that information. But like most new look Silicon Valley companies, they actually hate the media. So they, the only way they can talk is officially indirect. And so they end up putting out these half-assed statements. There's just a lot of ways to manage the gaps in information. And I think Robin Hood caught in a panic, understandably did not.

• 55:50Nilay Patel?

  But those gaps in information now have turned into the gigantic narrative. And that narrative is at the point of, okay, there's going to be Senate hearings about the state of the stock market.

• 56:00Speaker 02

  Yeah, I mean, like when Ted Cruz and Alexandria Ocasio-Cortez are agreeing on something, you know, something big is going on. But the thing that I do want to say here about Robin Hood is that I don't think it's like as simple as just they hate the media. Because drawing down your credit lines is pretty serious stuff and they have investors to whom they have duties. And so if they were to go out and say directly what's happening, or in some cases maybe leak stuff, they may very well be lining them up, themselves up for a different lawsuit from the people who put money into them.

• 56:35Nilay Patel?

  Yeah, I mean, I'm not, I don't work at a company that has SEC obligations. At least I don't think we do. Oh, worse. I don't bang off stuff too, but um, you know, there's a lot of ways to handle it. My point was they didn't do themselves any favors, right? And that's just one way of like getting ahead of the story. So that people have some sense of what is actually happening. Instead of the now received wisdom of the internet, which is almost impossible to change. That there were definitely shenanigans and definitely criminality and definitely people should go to jail. Maybe all of those things are true, right? It is totally possible that all those things are true. We don't know.

• 57:19Nilay Patel?

  And what we do know much more lines up with, man, this tech startup saw a total influx of users. They're a fintech startup, they're in a regulated space and they scrambled to meet their legal obligations. And that scramble resulted in chaos. Yeah, like just on a like Occam's razor basis. On the one hand, you have a gigantic criminal conspiracy led by a party that was said it all was making money.

• 57:48Speaker 02

  Yep, that's right.

• 57:49Nilay Patel?

  That's your point. And on the other hand, you have like idiot scramble, right? Moment, right? Like I've been in idiot scramble moments. I know what they feel like. And often you just don't do yourself any favors. That I don't know. I don't know how you resolve that gap. And I certainly don't know how you resolve that gap and somehow reconnect yourself to the overwhelming narrative that this is the little guys versus the big guys. And there's justice that was subverted by Robin Hood taking the step. Like, that's a lot of things.

• 58:22Speaker 02

  Yeah, I mean, like, look, we're in a highly chaotic situation, which I feel like is when I I come on this show most often. And like, there's something chaotic going on and and I show up. I don't know what to tell you about this. Like, I don't, I don't know enough about Robin Hood to tell you how they could have done this differently or should have done this differently. I don't know if they could have done this differently, to be real with you. I also don't know how they recover. Maybe they will. It's possible, but there's just like a lot of, a lot of. Things that are moving very quickly and kind of scarily in the financial space right now as a result of Reddit. I just want to be super clear, like, like this doesn't

• 59:05Speaker 02

  happen without like Reddit and Discord and Twitch and all of these ways that these individual retail investors have figured out how to organize themselves. Like, this is why we haven't seen anything like this before. Because like ordinarily, when you're, you know, trading, you don't really necessarily have a community. I mean, you might, but like, it's not at this kind of scale. This is like, the internet mob has come for Wall Street, and Wall Street does not know what to do.

• 59:36Speaker 03

  Yeah, Lizzy said two things to me today that like I really stick with it. One is, this is going to end in tears because fundamentally what we're looking at is like an out in the open pump and dump. And so far, we've only seen the pump. And two, that this, you know, this community, and now the internet at large, has figured out how to do a new thing. And that new, and, and, and Wall Street doesn't have like an inoculation against it. They don't, Wall Street doesn't know what its response should be yet. And so like, what, what's going to happen next is like, what I want to ask you. I mean, who knows? By the time this airs, 15 other things will have happened. But like, the, the combination of, you know, there's always, there's going to be, someone's going to pay somewhere. There's going to be some crash. Maybe it'll be the rich people, maybe the poor people, maybe

• 1:00:21Speaker 03

  it'll be everybody, who knows? And that there's a new move that Wall Street doesn't know what to do with. Like, those two things seem like, I guess we're gonna need to buckle up?

• 1:00:30Speaker 02

  I would buckle up.

• 1:00:31Speaker 03

  Okay.

• 1:00:32Speaker 02

  Yeah, I mean, like, look, there are a couple of ways that you can look at the place where GameStop is now, right? It has nothing to do with the actual physical store. It has nothing to do with the people who work there. It has nothing to do with any of like, the fundamentals underlying the business. Like, this is just a thing that is occurring out in outer space somewhere that is probably freaking out people who work at GameStop, frankly.

• 1:01:03Speaker 02

  Um, and, and so it's, it's unusual for a stock to be this divorced from reality. And when that does happen, typically it comes crashing down. Now, I can't tell you when that will be because I don't know. And like, if I were in a position to know, I would not be working as a journalist. I would be trading fucking stocks. But, but I do think that there is going to be a, a, a significant crash of GameStop stock coming. And like, I think that if you are getting in at the end of the pump, you are potentially in a world, in for a world of hurt. Like, anybody who's getting into this stock now is getting into a much riskier gambling

• 1:01:48Speaker 02

  situation than somebody who got in two weeks ago.

• 1:01:51Nilay Patel?

  All right. I usually end by saying like, what's gonna happen? I think we know better than that.

• 1:01:58Speaker 02

  I'm kind of excited. I like, you know, I, I like everybody else during the pandemic. I too am at home and bored and now I have an interesting thing to watch.

• 1:02:06Nilay Patel?

  Yes, although are we once again staring at like, the end of the American experiment? Who knows? I will say that I am, I'm very appreciative of, like I said at the top, like the internet has all kinds of outcomes. And if like, we can just raise the floor from truly terrible to just super weird. Like if Wall Street Bets and GameStop is like the worst thing the internet regularly causes, I would be very happy. Like, very happy. All right, let's take a break. Dieter, I want you to just run us through a little, little gadget using lightning round and we get out of here. We'll be right back.

• 1:02:47Speaker 05

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• 1:04:03Nilay Patel?

  We're back. Dieter, we did have some gadget news this week.

• 1:04:05Speaker 03

  Yeah, so I reviewed the Galaxy S21, the regular one. You know, what's interesting about this, this one is Samsung took its flagship name and put it on a mid-range phone. It's like, it's a perfectly good phone, but it definitely is like an $800 phone that is going to get discounted at $650, $700 by carriers in two months. And that's where its price should be. And I don't know what the heck Samsung is up to, selling its best, it's like using its best name on a mid-range phone because they've got the A series, now that there's the S series, but the S series is now split into really good and like, fine. I don't know what they're, they're doing anymore.

• 1:04:39Nilay Patel?

  I kind of know. They're just like doing, they're, they're doing Samsung stuff. They're, they're just hitting every price point with every phone, right? They've got their lines.

• 1:04:50Speaker 03

  Yeah.

• 1:04:50Nilay Patel?

  And the A goes up to a point and the S comes down to a point and they overlap.

• 1:04:53Speaker 03

  Okay. Yeah, I mean, sure. It just, I'm sad because last year I bought the Galaxy S20 and it felt like it was within spitting distance of the S20 Ultra. Well, that was because the S20 Ultra was bad.

• 1:05:05Speaker 03

  Like you could get a really, like the best flagship Android phone at a reasonable size. And like, I just think that's gone. That's not happening this year. You have to get a big phone if you want the best phone. Not just from Samsung. I think it's gonna be the same story with everybody else. Sony announced the latest version of the Experia. It's the Experia Pro. Liz, did you see this story?

• 1:05:25Speaker 02

  No, I did not.

• 1:05:26Speaker 03

  Well, this phone costs $2,500.

• 1:05:31Speaker 02

  Why?

• 1:05:32Speaker 03

  Yeah, because it has an HDMI in.

• 1:05:35Nilay Patel?

  Amazing.

• 1:05:38Speaker 02

  Look, for that price, the phone should have to do my laundry.

• 1:05:41Speaker 03

  Yeah, so the idea is it has HDMI in, so it can serve as a monitor for a professional camera or DSLR, and then it can livestream 4K from that camera. So like, this is a phone specifically designed for guys on the football field at NFL games to stream their cameras, you know, over 5G, because that's where 5G actually matters. To me, it's like Sony's charging that much money, not because it costs that much to put an HDMI into a phone, but because literally, there's no other way to do this, without getting like a whole like, complete erector set of other components and parts and gadgets. So it's 2,500 bucks. I don't know, I might try it. I'm not gonna buy it though, because

• 1:06:22Speaker 03

  I'm not a maniac. But yeah, I don't know, man, Sony, just... You explained Samsung to me, now you need to explain Sony to me.

• 1:06:30Nilay Patel?

  Um, here's my Sony. I'm coming up with it, so I'm stalling. Okay, here it is. Like LG, Sony can't win in the big market, so they're just making crazier stuff, and they know that features like HDMI in will appeal to like a very specific audience that will definitely buy their phone, and that kind of marginal incremental innovation is good for everyone.

• 1:06:54Speaker 03

  Sure. There's no way they make a profit on it, though.

• 1:06:58Nilay Patel?

  Well, you solve one problem at a time.

• 1:07:01Speaker 03

  Okay, fair. I do think we should just like, mention the fact that like Tesla announced a refresh of the Model S, like a redesign, and like it's got a whole bunch of stuff.

• 1:07:13Nilay Patel?

  I think it looks great. I have a lot of questions about the steering wheel and Elon's plans to not have a shifter, but I'm gonna hold on this, because as we speak, Sean O'Kane and Becca Frosace are working on our Mustang Mach-E review,

• 1:07:28Speaker 03

  Oh.

• 1:07:29Nilay Patel?

  which I am extremely stoked about. So that's gonna come out next week, we're gonna have them all on, we'll just do a whole car thing.

• 1:07:36Speaker 03

  Okay, that's great. I love that. I have nothing else to talk about, and by nothing, I mean that Carl Pei, formerly of OnePlus, has launched a company called Nothing.

• 1:07:45Nilay Patel?

  That's pretty good.

• 1:07:45Speaker 03

  I don't know.

• 1:07:47Speaker 02

  Dieter.

• 1:07:48Nilay Patel?

  It's like the most Dieter.

• 1:07:50Speaker 03

  They named the company Nothing specifically so that people would do the thing that I just did. I fed into their game. I feel bad about it, but not that bad.

• 1:08:00Nilay Patel?

  Wait, can I give everybody one little taste of Sean's Machi review video? Before we break, he sent me a clip because I'm dying to know about this car, right? He sent me a clip from a GoPro as he was driving down the highway in in Texas because he lives in Texas now. And literally, it's just a woman pulls over next to him, motions for him to roll down the window and is like, what car is that? And he's like, it's an electric Mustang. And she's like, that's the coolest thing ever. Like, she goes nuts over the Machi. I can't wait for this video. It's like amazing. Okay, that's it. This was a ride. I feel like I had every emotion about the internet that I could.

• 1:08:37Speaker 02

  I really hope I didn't confuse people any farther than they are already confused because it's like, this is just confusing. And I don't know what's gonna happen next. And like, I'm just trying to imagine what's gonna get crammed into the next 24 hours. And like, my brain just kind of went tilt. So, good luck out there.

• 1:08:57Nilay Patel?

  Casey had a had a good tweet. Actually, his, um, he had his entire issue of Platformer was about this, but his tweet joke was congratulations to unruly mobs for being the main character of 2021, which is, it sounds all right. Okay, speaking of things that are very complicated, on Decoder this week, we had Joseph Ben from Reuters, who's broken a lot of news on the SolarWinds hack. I actually think this is pretty undercover. Generally, it's like massive. You know, Biden had his first call with Putin and like, talked about the SolarWinds hack because our government was compromised. So, listen to that. Get some, that story is hilariously more organized than the Wall Street Fed story. It turns out, the Russian government, when they hack you, there's like, there's good guys, there's

• 1:09:41Nilay Patel?

  bad guys, you kind of know what happens. Unruly mobs, unruly. Anyway, check that out. That's on Decoder this week. You can tweet at us. We love to hear from you. Dieter is at Backlon. Liz is MS Lapato. I'm at Reckless. We'll be back next week with Decoder and the Verge Cast. Hopefully, we'll know what's going on.

• 1:09:58Speaker 02

  I hope so.

• 1:09:59Nilay Patel?

  Rock and roll.

• 1:10:00Speaker 03

  Wear a mask.

• 1:10:19Speaker 06

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