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How Civil War History Explains Memestocks

The stocks’ prices crashed and the biggest zealots moved from r/WallStreetBets to a new subreddit, r/Superstonk, and began posting essays many thousands of words long that they called “dds,” short for “due diligences,” to explain what had happened.

These were ostensibly research reports, modeled, perhaps, after professional financial analysts’ publications. They made the baseless claim that securities regulators, brokerage houses and the people in charge of the market’s day-to-day functioning had gotten together and agreed to create fake shares of the stocks, which they were secretly passing on to hedge funds preparing to short them again.

To fight back against this supposed scheme, the Redditors pledged to buy as many more shares of GameStop and AMC as possible to bring about the “mother of all short squeezes,” or the MOASS for short, when short sellers would be forced to pay whatever price the Redditors asked — maybe even $1 million a share — to cover their bets.

Reality check: There is no giant conspiracy, there are no fake shares; there will be no MOASS. The January 2021 short squeeze did cause breakdowns in the stock market, the most dramatic of which occurred in the brokerage houses that eventually shut down trading in those stocks, not based on any moral authority, but because they were about to run out of money to cover failed trades.

But the Redditors accomplished something real. Like Jay Cooke, who pointed out how hard it was for most people to get access to investment products in 1861, the Reddit crowd highlighted structural problems in the stock market and prodded regulators to try to fix them. The Securities and Exchange Commission has since proposed several changes to stock market operations that would make them more visible and easily understood and faster.

Wall Street has long boasted that its great-great grandfather firms saved the Union during the darkest period of the Civil War by generously lending Lincoln’s administration money. This claim, which financial titans repeat to imply that their work is morally good and descended from opponents of slavery, is now getting a fresh look.

In “Bonds of War,” Mr. Thomson describes how, after arranging an initial $50 million loan in early 1861, elite financiers in New York, Boston and Philadelphia basically told Lincoln’s Treasury secretary, an Ohioan named Salmon P. Chase, that they wished him the best of luck. They felt it was too risky to keep buying U.S. debt, especially since individual states had regularly defaulted on their debt during the antebellum period.

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