This September cinemas will begin showing Dumb Money, a Hollywood film about the Gamestop “short squeeze” – in which an army of amateur traders, led by a mild-mannered financial analyst, took down a number of billionaire hedge fund managers. The home of these amateur traders was an online forum, part of the Reddit social network, called WallStreetBets. The group has its own complicated history – one from which its founder, Jaime Rogozinski, refuses to be written out.
Rogozinski was born in Mexico City, where he lived until he was 13 before moving to the United States; he studied computer engineering and economics at the University of Chicago. He started an IT business almost as soon as he graduated, and it did well; within a few years he received a buyout offer for the company. The deal offered him millions of dollars’ worth of stock warrants, or a considerably smaller sum in cash. Rogozinski was 26, and he wanted to be a millionaire, so he took what he thought was the greater sum. He was wrong: “Turns out the stock warrants were just paper that took up a lot of space on my desk. So, I did not become rich.”
He’d lost on the deal, he decided, because he didn’t understand how it worked. So he went back to university, studied for a master’s degree in finance, and took a job in financial services – a job he almost immediately lost, thanks to the financial crisis. After six months of unemployment he got another job, at the Inter-American Development Bank, working on “complicated risk problems”.
In the years after the crash, the consequences of failed risk management were evident everywhere. As he walked from the metro station to the bank in Washington DC each day, Rogozinski would pass the tents of the Occupy DC movement, a daily reminder of how the chances taken by a small group of wealthy people were being paid for by everyone else.
At home in the evenings, with the financial crisis still leading the news, he asked other people on Reddit why the system hadn’t changed, why the same complex derivatives that helped to cause the crash were still for sale to anyone who was old enough to open a trading account: “Haven’t we learned any lessons yet? How can you let anybody go in and find these crazy, abstract instruments that pose systemic risk?”
But it wasn’t just outrage that drove these conversations. Rogozinski and others were also talking about why, given their understanding of the products investment banks used to gamble with other people’s money, they shouldn’t try gambling with their own.
Reddit is divided into “subreddits” – message boards on which members can post their thoughts, links, pictures and comments – and Rogozinski decided to set one up. He called it “WallStreetBets”, to underline his assertion that financial markets were casinos. From the beginning, WallStreetBets was motivated by the idea that if bankers were going to continue gambling, everyone else should, too: “I wanted the people on Bloomberg or CNBC to get outraged at how us amateurs were treating the stock market.”
He also wanted something to do. Rogozinski is a recovering alcoholic, and he set up WallStreetBets during an attempt to get sober; growing the community became his way of “filling up the extra time”, after many years in which he had given hour after hour to drinking. It wasn’t an instant cure, but six months later he was close enough to one of his fellow moderators that they stayed in his house and looked after his dog while he went into rehab. Returning to WallStreetBets was part of his recovery process; it was a community in which he could find support. By the time we spoke he had been sober for eight years.
WallStreetBets grew slowly at first, taking almost three years to reach 10,000 members. Rogozinski remembers that in April 2015 the community received its first mention in the financial press, when an article on the Fortune website linked to it; he and his fellow mods ensured that what the staid investors of Fortune’s readership would see, upon arrival, was a twirling cartoon penis. But the mixture of expertise and anarchy continue to draw new users, and before long Rogozinski was being interviewed by the financial news website Marketwatch.
At almost the same time, in March 2015, a new stock trading app called Robinhood was launched – the first to offer commission-free trading. It had no minimum limits, meaning younger people with less money could start making as many trades as they liked, often buying small fractions of a share. It turned day trading – buying and selling financial products at a high frequency, rather than making long-term investments – into a game, one that WallStreetBets was excited to play.
Rogozinski noticed the community was changing. “I thought I was the craziest risk taker” – he could sometimes win or lose $20,000 in a day’s trading – “and then all of a sudden, I see people coming in here and just making me look like a peasant.” He began to see amateur traders winning or losing $100,000 on a single position. “The entertainment values were increasing.”
The community now spoke its own language: its members, mostly young men, referred to themselves as “apes” and “degenerates” when they knew they were gambling, or “autists” for their obsession with numbers. A trader who held a stock in the face of plunging values had “diamond hands”; trading strategies were explained through memes taken from Marvel movies and SpongeBob SquarePants.
The idea that kept WallStreetBets growing was that its members were, despite their aggressively puerile and self-deprecating humour, capable of outsmarting the Ivy League stockbrokers of Wall Street itself. Some simply bought stocks, as retail investors always had, but Robinhood had also given them the power to trade options (derivatives that are linked to the value of stocks) in increasingly complicated strategies, using leverage (debt) that magnified their gains – or their losses.
On WallStreetBets, members celebrate each others’ wins, especially if they’re the result of a convoluted scheme, but it is losing money that is seen as truly heroic. For many – Rogozinski included – the apex gambler of the pre-pandemic WallStreetBets was a trader with the handle “1R0NYMAN”, who in January 2019 used $5,000 to create a complicated “box spread” of trades – a set of hundreds of derivatives, hedged against each other – which he thought would net him a “risk free” payout of tens of thousands of dollars (you could think of it like betting for and against every horse in a race, such that a net payout is inevitable). “It literally cannot go tits up,” he told his fellow apes. It did, of course, and dramatically so: the trader’s account was closed $57,000 in the red.
In November 2019 the community discovered an “infinite money glitch” in the Robinhood trading app that allowed them to access an effectively unlimited amount of “leverage” (money a user can borrow to make trades). This opened up the possibility for unlimited losses, too, but WallStreetBets knew the company was unlikely to pursue them for losing money they didn’t have in the first place. “They don’t have a million dollars,” Rogozinski explains, “so they can lose somebody else’s million dollars, and then put their hands up and say, ‘whatever’.”
For Rogozinzki this created “a beautiful risk asymmetry”. After 2008, the banks that had caused the crash could keep doing as they pleased, because they were too big to fail; “well, now the little guys have an asymmetric risk advantage, because they’re too small to collect on.”
As the platform grew to hundreds of thousands of members, it became more difficult to moderate. Problems began to appear with posts that appeared to be attempts to conduct insider trading or market manipulation, and (after taking legal advice) Rogozinski had to tighten up the rules. This did not go down well with traders who read his original motto for WallStreetBets – “like 4chan [an anonymous social media site known for its glorification of misogyny, racism, pornography and violence] found a Bloomberg terminal” – and took it at face value.
Rogozinski – who is Jewish and Mexican – had always enjoyed the unregulated, wilfully offensive nature of discourse on WallStreetBets. But it began to appear as if for some people that was the whole point. He and other users began noticing more and more overtly racist comments and, after Rogozinski implemented another rule change to prevent hate speech, a group of other moderators changed the WallStreetBets logo to a caricature of Donald Trump appearing to make a hand gesture associated with the white supremacy movement. He suspended every other moderator and says that he began trying to “clean up” WallStreetBets, but other users appealed to Reddit and in April 2020 he was banned, allegedly for attempting to enrich himself from the now valuable WallStreetBets brand.
Rogozinski doesn’t deny that he was looking for ways to monetise his position as founder and moderator, and on another social media platform this would have been expected – many careers have been built on Twitter, YouTube and TikTok. But Reddit is different; many of its communities oppose such monetisation. And WallStreetBets was about to become a much more significant force in financial markets.
As the pandemic arrived, Rogozinski remembers, WallStreetBets members were jubilant: it was a unique opportunity to short (bet against) anything and everything in the market. “They were making so much money that they were feeling guilty,” he recalls, and he and other members raised tens of thousands of dollars for charity from the community’s profits. Then central bankers began pumping money into the US economy, and stock prices took flight. There had never been an easier or more profitable time to gamble, and in the US, the government was even handing out stimulus cheques for people to gamble with. “Stocks only go up,” the growing army of new traders said. And for a while they were right.
Relegated to the sidelines, Rogozinski could only watch as WallStreetBets grew exponentially. Since 2019, a financial analyst from New England called Keith Gill (known on YouTube as Roaring Kitty and by a more offensive soubriquet on WallStreetBets) had been posting explanations of why he believed a chain of video game shops, Gamestop, was undervalued by the market. Billionaire hedge fund managers disagreed, short-selling the stock so eagerly that they made themselves vulnerable to effectively unlimited losses if a sudden rise in confidence in Gamestop occurred – a weakness that, once spotted by Gill and others, WallStreetBets was determined to exploit. Explaining the trades to each other through memes, united by the common purpose of taking money from the richest people in the American financial system, WallStreetBets – which now had millions of members – orchestrated a massive “short squeeze”. By the end of the month hedge funds were reporting losses in excess of $6bn. Two hedge funds were closed entirely.
It’s a great story, but the ending is not that simple. In the weeks and months that followed large numbers of people who had flocked to WallStreetBets to take part in the Gamestop squeeze held on to their stock – as the memes and posts had told them to do – and lost almost everything (to say nothing of the people whose money had been invested by the hedge funds). Rogozinski worries about narratives like the Gamestop one; in general, he says, it’s better for people to watch individuals lose money, because it’s a shared mistake that only costs one person. In an episode like Gamestop, he says, “the majority of people will get in there too late, and they will lose money. And that sucks.”
How would he have moderated it? “I wouldn’t have stopped Gamestop from happening, but… I might have slowed it down.”
And, of course, the Gamestop episode did not force any recognition of the wider risks created by the recklessness of financial institutions – only a concern that Robinhood had suspended trading, causing some people to be excluded from taking part. When Rogozinski watched politicians and regulators discussing the event he saw, “to my surprise… they’re actually defending these children gambling”.
It was a strange kind of vindication, a recognition that however complicated his history with Reddit (he has since taken legal action, unsuccessfully, against the company for banning him) his sense that ordinary people could gamble as well as any stockbroker had been right all along. “You now have all these institutions which are accustomed to using sophistication, and jargon, and certifications – and they’re jealous of WallStreetBets.”
[See also: The age of cheap money is over]