Reddit day traders tried to beat Wall Street at its own game to prove the system is rigged.
Instead, brokerages locked them out and their holdings tanked, while some hedge funds still won big.
Experts said Wall Street's reaction showed just how high the deck was stacked against small investors.
Keith Gill, the day-trading member of the Reddit group Wall Street Bets who is widely credited with igniting the recent GameStop trading frenzy, claimed in late January that he had turned his $54,000 investment into a $48 million fortune.
Days later, it had been sliced by more than half to $22 million, and regulators had set their sights on Gill, investigating him over potential disclosure violations.
While Gill still appears to have made a fortune, many of the retail investors who joined the frenzy late probably lost money. GameStop's stock, which peaked at more than $480 a share, had dropped to about $52 as of Friday.
Before the roller coaster went off the rails, however, one hedge fund walked away with a $700 million profit, the brokerage app Robinhood raised billions in new financing after being forced to restrict its users from buying certain stocks, and the trading giant Citadel most likely made a hefty sum from the increased market volatility.
While the dust has far from settled, and some Wall Street firms did lose big, a David-versus-Goliath victory now hardly seems like the most likely outcome.
It had made for a compelling narrative, too: An army of retail investors - without deep pockets, sophisticated trading algorithms, proprietary market data, or other tools of the trade - banding together to beat powerful financial institutions at their own game.
Ultimately, though, Wall Street and other big-money investors still appear to have ended up on top, and experts, at least those outside the industry, say it's that outcome that further proves how the system is rigged.
Insider spoke with three experts on financial markets - none of whom work at traditional financial-services firms. They said there's a lot of work to be done to make the markets work for small investors and, perhaps just as important, to restore the public that the markets can do just that.
'Geared to favor the big'
"The whole business is basically a power dynamic," Garphil Julien, a research associate with the anti-monopoly think tank Open Markets Institute, told Insider.
"It's geared to favor the big over the small," he added. "Those with enormous amounts of capital, enormous amounts of money, will use their power to basically get what they want, and when they get what they want, someone else is going to lose."
He's not alone in that assessment.
A December poll by CNBC found that 57% of Americans viewed the stock market as a reflection of the way only corporations and the wealthy were doing, not the rest of the country. Those views were shared by wealthier respondents as well as Republican ones, both historic defenders of the free markets.
"Is the market really fair for individual investors? Is it really competitive? What we're seeing is that it's not," Julien said.
As the former Wall Street analyst Alexis Goldstein recently put it in an op-ed article for The New York Times: "Wall Street's edge over retail traders remains, as always, structural," and even if a bunch of Redditors band together, "the house still wins." But, she argued, "rather than gambling on the dubious promise of more Americans gaining access to the casino, it's time to rewrite the rules to ensure that the house doesn't always win."
Julien said that meant adding more consumer protections, as well as cracking down on the monopolization of various segments of the financial-services industry. For example, he pointed to brokerage apps, like the Morgan Stanley-owned E-Trade and TD Ameritrade, which is owned by Charles Schwab.
Making money by 'making money'
The markets ultimately proved fairly resilient amid last month's trading frenzy, but that doesn't mean they're working in ways that protect smaller investors who have more to lose.
"There will be a temptation to say ... the market isn't broken, everything's fine," Barbara Roper, the director of investor protection at the Consumer Federation of America, told Insider. "While it's true that the market isn't broken - yet - I don't think it follows that everything is fine."
Roper said that it's good to focus on improving transparency and accountability around practices that might involve conflicts of interest - such as payment for order flow, over which Robinhood and Citadel are facing scrutiny - but that the issue is also far more fundamental and widespread.
"The financial-services industry itself has sort of divorced itself from the more boring and less profitable job of helping to steer capital toward its best uses in support of the productive economy, and has for some time now, made most of its money making money," Roper said.
"Financial firms make all of their money off of securitizing everything under the sun," she said. "They found a way that it's really profitable, and so they're pursuing the profits even though the niche is overfilled."
But that problem "was at the heart of the last financial crisis, and we didn't solve it there," Roper said, referring to the 2008 financial crisis.
There have been multiple near-crises since then, and the problems have only gotten worse.
Robinhood itself has been criticized - and fined $65 million by the Securities and Exchange Commission - over high-frequency trading, a controversial practice that uses technology to execute large trades in fractions of a second, allowing firms to make money off momentary changes in the price of stocks. Wall Street banks are even evading regulations around derivatives trading - the same risky behavior that precipitated the 2008 crisis - according to the financial blog Wall Street On Parade.
Roper said she didn't see dangerous Wall Street business models being addressed anytime soon, either.
"If we didn't do it when Wall Street literally brought the global economy to the brink of collapse, I don't think we're going to do it now because some people on Reddit put on a short squeeze and caused some chaos in the markets for a few weeks," she said. "I guess I'm as cynical as the people on Wall Street Bets."
'Broader public outrage'
Part of Americans' frustration with the current financial system is that it has become so complex that only Wall Street insiders really seem to know how everything works, something the industry uses to its advantage in situations like that with GameStop.
"It's another episode similar to those past ones of the public feeling like there are multiple things wrong here - not really knowing what is exactly wrong, but just feeling like something is not working," Graham Steele, a senior fellow at the American Economic Liberties Project, told Insider.
"It's just a general popular sense that a system wherein this kind of scenario can come to pass, just fundamentally doesn't work for the public and it is 'rigged,' or something else, but they know something is wrong."
Steele also said widening inequality, pandemic-response failures, and polarization around the election amplified the GameStop fury: "It feels like you're layering a new financial episode on top of other, broader public outrage."
That's also apparent in the voices from across the political spectrum that have criticized Wall Street in recent weeks: progressive Democrats such as Rep. Alexandria Ocasio-Cortez and Sen. Elizabeth Warren; far-right Republicans such as Sen. Ted Cruz; and tech investors such as Elon Musk and Mark Cuban.
But that's where their agreement ends, with Democrats typically favoring government intervention and Republicans typically pushing for more transparency and then letting the markets figure out the rest.
"In terms of the Silicon Valley folks," Steele said, they're "painting themselves as kind of populists, but a lot of them have their own sort of financial interests at stake here. A lot of their solutions are like, don't use that app, use the app that I invested in."
"I just don't see Elizabeth Warren going out there pumping someone else's trading app because a venture capitalist has said, 'That's the right thing to do,'" he added.
Musk, for example, has spent the past few weeks hyping up cryptocurrencies such as dogecoin.
Ultimately, all three experts agreed that making the markets more equitable and aligned with the health of the broader economy will require reforms stretching far beyond the financial services industry.
"Fixing that system requires a whole host of policy solutions that run the gamut from financial regulation to tax policy to how we structure the retirement system to how we deliver healthcare to people," Steele said.
Correction: A previous version of this story incorrectly stated that Alexander Kearns died by suicide in response to last month's GameStop short squeeze. He died June 12, shortly after thinking he'd lost $730,000 on Robinhood. His parents sued Robinhood last week alleging wrongful death.
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