From blockbuster films such as The Wolf of Wall Street and Billionaire Boys Club to bestselling self-help books like Getting to Yes and Rich Dad, Poor Dad, Wall Street has been marketed to everyday Americans as an accessible platform to make money. The perception of Wall Street as a forum for anyone to make a quick buck causes devastating impacts, exemplified by recent events involving GameStop, Robinhood, Reddit, and a market rigged to make the rich richer and the poor poorer. To address Wall Street’s skew toward the rich, reforms to make the marketplace more equitable to all must be implemented, such as measures to limit the power that corporations and wealthy investors hold in the market and a financial transactions tax to equalize investors.
GameStop, the world’s largest video game retailer according to Yahoo! News, has been facing declining sales in the shift to digital gaming. With these developments, Wall Street hedge funds were banking on the decrease in value of Gamestop stock. So, when GameStop share prices rose from $147.98 to $347.51 between January 26 and January 27, these hedge funds unexpectedly lost tens of billions of dollars. GameStop’s soaring stock prices came at the hands of r/WallStreetBets. The Reddit community traders used a practice called a “short squeeze” to swarm Robinhood, a commission-free trading app, purchasing GameStop shares and driving up stock prices. In this groundbreaking frenzy, small investors emerged victorious from the battle against the financial elite, seemingly demonstrating that the 99% can band together against the 1%.
However, the GameStop saga was only a temporary victory. On January 28, Robinhood began restricting people from buying GameStop stocks. Given that the restrictions only prevented purchasing stocks and not selling or trading stocks, hedge funds benefitted from the restrictions while Redditors helplessly lost millions as GameStop, AMC, and other Robinhood-restricted stocks dropped by more than 30%. Robinhood’s trading limits on small investors and blatant market manipulation are a direct conflict of interest due to its ties to businesses such as Citadel Securities — companies controlled and invested in by the wealthiest of the wealthy.
New York Representative and member of the US House Committee on Financial Services Alexandria Ocasio-Cortez criticized Robinhood’s decision soon after the company’s announcement on Twitter.
The GameStop fiasco is just the tip of the iceberg when it comes to inequality in the stock market, though. Because of rigged policies and favoritism that plague capitalist America, Wall Street has just become one microcosm of the inequality present in every sector of the economy. According to The Federal Reserve System, the wealthiest 1% of Americans own 52.7% of the stocks and mutual fund shares in the market today, 8.9% more than they owned three decades ago. Despite small investors’ efforts to succeed in the GameStop situation, they were obstructed by Robinhood’s unfair penalties and policies. Here, the message is clear: no matter what everyday investors do, the system is stacked against them.
This issue extends beyond differences in socioeconomic backgrounds — people of color are also disproportionately impacted. While more than 61% of white Americans own stock, less than a third of Black Americans claim the same, according to data from the Pew Research Center. Similarly, Black and Hispanic families own less than one-half the equity that their white counterparts do. Part of this issue stems from systemic inequality cultivated over generations; because of legislative policy in history that has marginalized people of color and discriminated against them in the workforce, BIPOC families have largely been unable to accrue the same generational wealth that white families have enjoyed for decades.
Historically, Black and Hispanic workers were left without financial aid during the Great Depression and forced to give up their jobs to white Americans. Following the stock market crash of 1929, African Americans suffered unemployment rates of two to three times that of whites. Coupled with segregation-era Jim Crow laws and a lack of government assistance programs, people of color fell even further behind economically. Even in the recent 2008 stock market crash, minorities were disproportionately impacted — a report from the American Civil Liberties Union shows that by 2031, Black household wealth will be 40% lower than it would have been if not for the depression, compared to 31% for white families.
Due to this combination of generational inequality and racist legislation, BIPOC investors today enter the stock market at a financial disadvantage, putting them one step behind the starting line before the race has even begun.
Recent events, such as the ongoing pandemic, have only amplified this effect. In May, NBC News reported that 56 Americans rose to billionaire status between mid-March and December, a duration in which American billionaires collectively gained more than $1 trillion. On the flip side, 40 million Americans filed for unemployment in March alone after grappling with mass layoffs and business closures. According to a December 2020 report issued by the Americans for Tax Fairness campaign and the Institute for Policy Studies, America’s total of 659 billionaires are worth roughly double the amount that 165 million of the poorest Americans own. The facade of accessibility in the American economy leaves out the millions of BIPOC, middle-class, and working-class Americans.
Although the stock market has been historically touted as a legitimate means to becoming richer and gaining more financial security for the future, the reality of the average American’s limited ability to trade in the stock market shows that serious reform is necessary. To address the wealth divide between rich and poor families and dismantle systems of economic inequality, we must establish policies that prioritize increasing socioeconomic mobility for the middle class.
Initiatives such as enacting a financial transactions tax (FTT) — a tax on buying and selling stocks that would mostly affect wealthy shareholders — and equitable tax reforms that discourage companies from funneling more money back to wealthy shareholders could be the impetus to dismantling years of inequitable practices. And with President Joe Biden’s Democratic majority in both houses of Congress and the support of politicians who have endorsed an FTT, like Sen. Bernie Sanders, Sen. Elizabeth Warren, and Secretary of Transportation Pete Buttigieg, passing progressive economic policy is more possible than ever.
While students have much less of a direct impact on the economy than elected officials, they can make efforts to educate themselves on how the stock market works to better understand how it perpetuates divisions of structural inequality and poverty. Students can take advantage of free resources such as Khan Academy’s stocks and bonds course or The Stock Market GameTM’s simulation of global capital markets, and read up on economic policy and investing to learn more about Wall Street’s opportunities and pitfalls. By doing our part to undermine the spread of idealistic Wall Street rhetoric and raise awareness of the stock market’s lack of accessibility, we can rally for progressive change to make the economy more equitable for everyone.
Cover image by Opinion Editor Aria Lakhmani