From The New York Times, I’m Michael Barbaro. This is Daily.

What started as a story about Reddit versus Wall Street, the little guy versus the man, has revealed itself to be something larger — a kind of story of our time. Today: My colleagues, technology reporter Taylor Lorenz and business columnist Andrew Ross Sorkin, sort through the meaning of GameStop.

It’s Monday, February 1.

So Taylor, I want to start where this story starts, which is far from Wall Street. You write about internet culture for The Times. Tell us what you were observing in the weeks leading up to this becoming a huge national story.

I spend a lot of time on Reddit, which is basically full of all of these little subforums called subreddits. And there’s one in particular, called Wall Street Bets, that has a pretty notorious culture on Reddit. It’s full of these, essentially, day traders — people that trade small amounts of stocks, big amounts of stocks. They’re individual traders that don’t work for hedge funds or anything. It’s mostly young men, a lot of people in their teens or twenties. It’s very irreverent, and it has its own language. They post nonstop memes and jokes. They call winnings or gains “tendies.” It’s a play off “tender,” you know, sort of tender, money. They called it chicken tenders and now tendies. So it’s very customary when you have big gains on a stock to celebrate with a plate of fried chicken tendies.

So it’s kind of self-consciously poking fun at the normal world of stock trading.

Yeah. It’s like if the normal world of stock trading took a bunch of shrooms and started livestreaming itself.

[LAUGHS]

So Wall Street Bets is this place where the incentives of stock trading and incentives of the internet overlap and meet. It’s not just about trading a stock and making money. It’s also about maybe having a viral moment, or launching an online campaign, or shaping culture somehow with your trades. And much the way that memes go viral overnight and are suddenly popular, and everyone uses them for a while — and then they become passe — this community treats stocks like that, almost. They’re kind of hyping things up. They’ll go really viral. It’ll become funny, or it’ll become a meme, and everyone will talk about it for a while, and then they kind of fade away.

Mhm. And, Taylor, how exactly are all these people, including teenagers, affording this stock? How is that working?

So Robinhood is key to all of this.

Robinhood is a stock investing app. It basically makes it really easy for people with very small amounts of money to buy tiny pieces of shares of stock in a company.

Ah, fractions of shares.

Exactly. Robinhood’s whole goal is to democratize investing. So say I got 20 bucks from my lawn mowing job. I can put that into a Robinhood account and start investing tomorrow. It’s really easy to sign up. You have to be 18, but a lot of kids sign up under their parents’ information. And they start trading small amounts of money. And also with the pandemic, people have gotten really into this. A lot of people that used to bet on sports or used to spend their time, maybe their leisure money, elsewhere, are trapped at home. And Robinhood is almost gamified investing. It’s allowed people to just play around with the stock market. Maybe throw $20 in, see where it goes, almost as a pastime.

So over the past few weeks, as I’ve been spending more and more time in this community, I noticed that there was one stock in particular that had really emerged. And it seemed like at one point, every other post in the subreddit was about GameStop, or GME, which is the stock ticker.

So there had been this one Reddit user called DeepEffingValue who had been posting about GameStop nonstop.

This guy, he really believed in this company.

And I think more and more people in the subreddit started to see that he might have a point about this company. They started to give it a chance. And at one point, I see this post that says, “Hello, my favorite paste-eating, rocket-posting children. In a few hours, the market opens, and the floodgates will begin. I’m all for GME.” Then he goes on to say, “You can control the power. GME is not going to the moon, but to the edge of the effing observable universe.” And then he puts 10 rocket emojis, which in Wall Street Bets lingo is like, this stock is going to go up and up and up. You better get on board now.

Right. You paste-eating, rocket-posting children. So why GameStop?

GameStop is one of these retailers from almost a bygone era, when malls were king. In the ‘90s and the 2000s, you could walk into a GameStop and actually purchase physical video games. It was almost like a Blockbuster. And so it has this nostalgic place in a lot of people’s hearts. Now, there were legitimate reasons to think that it was being undervalued. The company had sort of made a case that it could pivot to an e-commerce retailer. A former executive at Chewy.com, which is a pet online retailer, had come in and was hoping to turn the company around. He had bought a bunch of stock in it himself. That was kind of the kernel that these people initially clung to. And it was like, maybe this company is being undervalued, but also maybe we don’t want to lose it. Maybe we’re not ready to let go of GameStop yet. But as the Redditors are rallying around this stock and getting excited about GameStop, a bunch of large hedge funds felt the opposite. They had actually shorted the stock.

Explain that.

Shorting a stock is betting against it. It’s basically saying, hey, this stock is valued at $10, I think it should be valued at $5, and I’m going to essentially stake my financial position on it going down.

Right. And profit, if it does, in fact, go down.

Exactly. Profit off of it going down. So say you think it’ll arrive at $5. It’s currently valued at $10. If it does eventually land on $5, you’ve made $5 cash.

Right.

Now, if the stock goes up, you lose money. Say the stock ends up going to $20. Suddenly, you’re in the hole. So Redditors discovered that a bunch of big hedge funds were betting against GameStop. And so it kind of galvanized everyone. Whereas before, it was like, hey, look, we want to invest in this nostalgia store. We really think that it’s undervalued. The conversation changed to let’s stick it to these hedge funds. Let’s show them that they don’t allocate value. That they can’t say when a company is worth. We the people can say what the company is worth.

Mhm. So framed this way, by this online community, what ends up happening?

So this sparks this online war, where this community on the internet is basically trying to get the stock as high as it can go and also is kind of gamifying it. You know, everyone is intrigued to see how high can this stock really go. And conversely, how badly can we screw these hedge funds over?

So three weeks ago, the price of GameStop’s stock was under $20. And as this campaign online started to get going, it started to rise. So first, by January 15, it was $35. About a week later, on January 20, it had risen to almost $40. And then on Monday, the stock had hit about $70. And on Tuesday, it was $80. I remember reading posts online where people were talking about buying at $80 but then being like, I don’t know. I don’t know, man. I don’t know if it can go any higher. And then people being like, let’s get it to $100. I think it can go to $100. Wednesday is when things went bananas.

Overnight, the stock price had gone up to $342. Keep in mind, that’s per share. Three weeks ago, this stock was less than $20. Now it’s worth almost $350. So that’s kind of when the whole internet broke. The people that had the stock were throwing it in everyone’s face, talking about how much money they made. People were posting screenshots, in some cases, showing that they had made millions of dollars. And just when you think it can’t get any higher, it goes up to $469.

Right. I mean, just to put that into perspective — I used to be a business reporter — share price swings like that do not happen on Wall Street. I mean, you could spend 50 years waiting for a stock to go from $20 to $50, let alone $20 to $400. So this was like a nuclear bomb in the world of finance.

Yes. And it was crazy, because all of these people, they saw so much money come at them so fast. And as the stock is peaking, all of these people are hopping into online chat rooms. They’re on the subreddit, and they’re in this app called Discord, which is basically a chat app.

They’re screaming, don’t sell now! People are spamming the chat with these long, emoji-laden posts, just saying, do not sell. Hold the line.

There’s this one post that was a person basically bragging about buying in at the highest price and people below them also buying in. It was like, I’m buying in at $350, and I’m holding the line. And then people would be like, $360 reporting in here. And then $380. Almost celebrating how much they were paying for this stock, which is kind of unheard of. You usually celebrate getting in early.

Right. You don’t brag about buying high.

Yes. But in this case, it was sort of like everyone wanted to be part of this.

I’m mindful that a big motivating factor here, Taylor, was proving Wall Street wrong when it comes to GameStop. And as this stock price is surging and surging and surging and going places no stock ever goes, it sounds like that plan worked.

Yes, it did. I mean, people were celebrating. People were dancing on Wall Street’s grave. They were saying that this is the beginning of a revolution, and this is going to change things forever. And finally, the people are getting the recognition they deserve. You know, Wall Street traditionally considered day traders quote, unquote, “dumb money.” People that — they’re not super-informed investors. They’re not people that make millions of a year on Wall Street. And so I think finally they felt a little taste of victory.

The message was we determine the value, not you guys in suits, with your business school degrees. It’s the people. And if enough people on the internet get together and collectively agree that something is worth a billion dollars, who’s to say that it’s not?

Mhm. Or in this case, almost $30 billion.

Yes. Or in this case, almost $30 billion.

Thank you, Taylor. We appreciate it.

Thanks for having me.

After the break, Andrew Ross Sorkin on how changing the rules of the stock market may have unforeseen consequences.

We’ll be right back.

Andrew, I want to pick up where we left off with our colleague, Taylor Lorenz, which is this moment of comeuppance for Wall Street. These regular investors are celebrating having proven Wall Street — these hedge fund managers, these fancy bankers, all of them — wrong. And you are someone who has reported on Wall Street for years. You co-host a CNBC show about Wall Street. You know the players in that world really well. So how did it look to the folks in that world of finance as shares of GameStop are surging to these wild levels?

Total freakout. Total shock. Total confusion. Total consternation. A sense of what is happening here. This is Alice in Wonderland. Everything has just been turned upside down. To them, this was a system upended. This was not supposed to happen, in their minds. Because to Wall Street, things are supposed to be tied to revenues and profits and fundamentals. Here, all of a sudden, was a stock that was almost divorced from any of those things, and purposely so. These were investors who were publicly saying they weren’t investing based on those things. That this isn’t an investment about making a profit in that way. This is about making a profit to demonstrate that they can manipulate the system as well if not better than the professionals.

Right. What turned out to be the actual consequences of all this on Wall Street — besides confusion and frustration — toward the end of last week?

Well, in very real terms, some of these hedge funds were losing billions of dollars, with a B. The Reddit traders won, and Wall Street was losing and losing billions of dollars — real dollars. In one case, Melvin Capital, which had been one of the more prominent firms out there that had shorted or bet against GameStop, literally was on the verge of bankruptcy. Lost over $3 billion and needed to be bailed out by other hedge funds. All of this is completely jarring to Wall Street, to policymakers. Debates are breaking out everywhere about what should happen here. Should regulators step in? Should the stock exchanges step in? Should something happen when you see what is clearly manipulation of some sort? What’s supposed to happen here?

Right. Because theoretically, now that this has been proven to be something that small investors mobilized online are capable of, what’s to stop it from happening again and again and again.

Theoretically, if tens of thousands of thousands, of hundreds of thousands of people are willing to put up $25, $50 to effectively go after or push up the stock of a company, they could. They really could. And that is something that I don’t think was ever on anybody’s radar screen. And as all of this is swirling, Robinhood, which is the platform of choice for so many of the traders who were buying GameStop shares, literally suddenly stops letting people buy GameStop on it.

And Andrew, what was the understanding of what motivated that decision? Because right away there was a lot of outcry over Robinhood making that decision. And to many, of course, it seemed like Wall Street was striking back, protecting itself at the expense of the small investor.

I mean, the outrage was everywhere. Because nobody really knew what the rationale was. People thought the regulators must have secretly called and told them they had to shut this down. They thought maybe hedge funds were telling Robinhood to shut this down. There were all sorts of conspiracies and allegations made about what Robinhood — which its entire brand is about helping the little guy — have all of a sudden done, and it looked like they were helping the big guy.

And what turns out to be the truth behind that decision?

I want to bring in the C.E.O. of Robinhood. Vlad Tenev, is with us right now.

So that night, I ended up interviewing the C.E.O. of Robin Hood on exactly that.

The truth is, it was complicated, but so much more complicated than the speculation, and in many cases, worse than the speculation. Because the true answer was that Robinhood itself was worried that it was on the verge of collapse.

It had turned out that Robinhood was running out of money to continue making these trades. Every time somebody makes a trade on Robinhood, the firm has to put up money. And because there was such a velocity of trading taking place on this small group of stocks, they literally couldn’t keep funding it.

It sounds to me though that you’re suggesting that there was a liquidity problem inside the firm. And my question about that then raises all sorts of new questions about whether there’s a systemic issue underneath the system and underneath the company onto itself.

You know, I pushed him really hard on whether this was a genuine liquidity crisis.

He did not want to use those words. It was clear he couldn’t bring himself to say the words liquidity crisis. But if you read between the lines, it was very clear that the company was truly on the precipice.

Right. It was worried about running out of money.

Exactly.

OK. So this is all wreaking a certain amount of havoc on Wall Street, on hedge funds, on trading platforms. But Andrew, wasn’t that the point, to make a bunch of well-off financial types shake in their boots and to show them that there is a new power dynamic? And I’m sure you saw this too over the past week or so, that a fair number of regular investors ended up making a lot of money off this. I mean, in one case — The Times wrote about this — a teenager whose mom bought him GameStop shares as a gift, and $60 turned into $3,000. And it was hard not to cheer for that.

Totally. It has been unbelievable to watch the little guy beat the big guy at their own game. No question. But it also assumes that the game is over. And what has a lot of people fearful is that the game is far from over. And that some of these individual investors, especially those who bought into the stock recently at $300, for example, stand to lose a lot of money if, in fact, it drops back down to $30 because of this manipulation. And whether the professionals who are — by the way, who are also now in this stock too, trying to ride this in all sorts of directions — may ultimately take advantage of them and win. Remember, there are a number of investors here who have borrowed money to invest. Some of them have used their rent money and levered that up, or their stimulus check. And since the price of this stock is arguably not sustainable — and we’ll see — when it falls, that’s money lost.

Well, forgive this question, but what if they all just get out of this stock right now? Everyone just sells GameStop at once, and everybody does well by it.

That’s not really how it works. It’s going to happen over some period of time. Maybe it’s one day, maybe it’s a couple of hours. But as the stock falls, individual investors, hedge funds, whoever’s in it, are going to lose if they bought at a higher price. There’s no way for everybody to get out at the same time. It just doesn’t work like that.

Right. Andrew, you have come under a fair bit of heat in recent days from the Reddit crowd, the folks from Wall Street Bets, for comments that you have made about this not being a simple good news story or a clear victory for smaller investors. Is that what you’re talking about, that people are underestimating the risk that this GameStop run-up poses to small investors, the supposed winner in this story?

Look, we’ve seen other examples of manipulated schemes like this over the years — just never at this scale. And they historically have ended badly for the individual investor. The professional investor has almost always come in, and effectively, in a predatory way, been able to succeed where the individual investor has not. Professional investors have better access to information. They have better access to data. Some of these big hedge funds are seeing the actual flows of trading. These are things the individual investor typically does not have. And so while there are some very clever and smart investors on Reddit who figured out how to pull this off, there is a whole number of people who effectively were induced into this, hoping to make a profit, who may not have the same background that they do. You know, I’m not the only one who has expressed anxiety about this. People like Senator Elizabeth Warren — an icon of populism on the left, she’s been a champion of the American consumer — on Friday, she came out, and she said, wait a minute. Hold on. She doesn’t like this either. And she wrote a letter to regulators where she spoke of what she called a, quote, “flash mob of money.” And she went on to write, “I am deeply concerned that these casino-like swings in the value of GameStop and other company shares are yet another example of the gamesmanship that interferes with the fair, orderly and efficient function of the market, raising obvious questions about public confidence in the market and those trading in it.”

In other words, a champion of the little guy is not seeing this as a victory for the little guy.

I imagine that she has the same concerns that I do and others do, which is that along the way, there are going to be people who are going to get hurt and lose money.

Mhm. I’m also mindful that a lot of this feels deeply rooted in a kind of populist sentiment, the belief that the system is broken. That Wall Street is broken and unfair. That the little guy doesn’t really have a fair shot. So isn’t there a case that this is what a revolution would look like? That maybe the logic you are applying to this of what the ultimate risks might be, or that it might not be the best financial decision, people aren’t foreseeing all the different downsides — that none of that really matters to people or is what it’s really about.

Oh, the truth is this is not about profits and losses. This is about how rigged and unfair the stock market is. How it is not a level playing field. How much distrust exists in the American public. This even goes beyond the stock market. This is about inequality in America and the haves and the have nots. And what the opportunities are for people. And what the special opportunities that have been created for those who already are wealthy, and how they have opportunities that others don’t. To the degree that you believe that this truly is a genuine protest with aggrieved parties, that’s what this is about.

Mhm. So even if this ends up hurting small investors, this protest, is it ultimately — and feel free to push back — some kind of required step in this larger quest to make an institution like Wall Street, to make a place like American finance, fairer?

Very possibly. In fact, I hope so. I hope if anything comes out of it, it’s an awakening for policymakers. It’s an awakening for people on Wall Street to realize that the system isn’t fair. That people don’t trust it. And then when people don’t trust it, that’s a problem. It shouldn’t be something that can be manipulated by the big guy or the little guy. And hopefully that is a lesson of this. And I don’t want to say that every investor in GameStop is monolithic. There are some people who are investing in this as a protest movement, and they don’t care if they lose their money. There are other people who are investing at GameStop to make a profit. And invariably, there are also professional investors who have jumped into this in the same way, in fact, that in any good protest, they often get co-opted by looters and opportunists. And in this case, I am sure that the looters and opportunists have also arrived. And so it’s a very mixed group that’s involved in this quote, unquote “trade,” but if there’s anything beyond this trade, the trade is for trust.

That’s the real trade here. And it’s an American story. It’s an American story of distrust that we’re all struggling with in so many parts of society.

Right. It sounds very much like the story of 2021.

Absolutely.

All right. Andrew, thank you very much. We appreciate it.

Thank you, Michael.

As of this morning, shares of GameStop are valued at $325, a 1,700 percent increase from one month ago, but down from a high of $483 last week. Meanwhile, Robinhood has ended its ban on purchasing shares of the company. It will now allow users to buy limited quantities of the stock.

We’ll be right back.

Here’s what else you need today. Five of the lawyers who planned to represent former President Trump during next week’s Senate impeachment trial have left his legal team. The departures appear to revolve around disputes over his strategy for defending himself against the charge of inciting violence at the Capitol. The Times reports that Trump had urged the lawyers to focus on the false claim that the election had been stolen from him. And —

For the second weekend in a row, thousands of supporters of Alexei Navalny took to the streets of Russia to protest his detention in the latest show of disapproval for the country’s President, Vladimir Putin.

In response, Russia’s government unleashed a wide-ranging crackdown, including mass arrests, the closure of transportation systems and brutal confrontations with demonstrators. Today’s episode was produced by Stella Tan, Jessica Cheung, Alexander Leigh Young, and Asthaa Chaturvedi, with help from Diana Nyugen. It was edited by Dave Shaw and Lisa Tobin and engineered by Chris Wood.

That’s it for The Daily. I’m Michael Barbaro. See you tomorrow.