In the 19th century, small investors played a big role in finance. Wall Street took it away. Redditors are trying to get it back.

By Emily Flitter

April 2, 2022

In 1861, Jay Cooke, a minor money man hoping to help the Union army, lobbied Abraham Lincoln’s government to make investing accessible to more Americans. In 1972, Bill Gross, destined to earn the nickname “the Bond King,” realized that more value could be squeezed out of the products that Cooke wanted to sell — government bonds — if they were traded by experts. And in 2021, a Reddit user named Roaring Kitty led a band of regular Joes on a crusade against financial engineers of Mr. Gross’s ilk.

And that arc of U.S. economic history helps explain why people were calling me a puppet on the internet.

At least that is how I came to understand it. At first, all I knew is that I was facing intense backlash from Roaring Kitty and company after I wrote about the evolution of what they, and other smaller retail investors, believed — a baseless theory that various powerful entities were out to get them and tank their stocks.

While I was awash in all their bad vibes, I was also reading two new books: “The Bond King,” by the NPR host Mary Childs and the forthcoming “Bonds of War” by the historian David K. Thomson.

I realized that there is a strong link between the Civil War-era campaign to sell bonds to working class people and a stock-hoarding movement among financially inexperienced masses connecting on the internet.

It’s called financial populism.

Over the past century and a half, finance in the United States has been characterized by an ebb and flow of who feels Wall Street is for them, who feels (or is) excluded.

Understanding how we got where we are now is one way to demystify the Reddit-based investing revolution, which is powered by a conspiracy theory along with a deep resentment of the way real power and wealth seem so out of reach for most people these days.

About the conspiracy theory: A year into the pandemic, a group of doctors, factory workers, salesmen, dentists and other investing amateurs came to the defense of companies facing existential challenges: a chain of empty movie theaters and a secondhand video game retailer. Hedge funds, run by superrich and increasingly powerful people, were shorting shares of those companies. The smaller investors fought back.

They gathered on a Reddit forum called r/WallStreetBets, where group members goaded and cheered one another into buying more and more shares of these companies — GameStop and AMC Entertainment — vowing to hold on to them “with diamond hands.” Stocks became stonks, jokey things infused with the currency of internet memes. The buying only stopped when a handful of retail brokerage firms cut off access to the market like a bartender cutting off a sloppy drunk.

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.

The People’s War Effort

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.

Jay Cooke, a financier from Philly who wanted to make the big leagues, persuaded Chase to make it easier for Treasury notes and bonds to be sold in small denominations, then started going door-to-door signing people up to buy them. He specifically targeted “small subscribers,” as he put it, who came away from agreeing to make their investments “almost with tears in their eyes, so overjoyed at the patriotic scene.”

Mr. Thomson, an assistant professor of history at Sacred Heart University, chronicles how Cooke assembled an army of salesmen and sent them all over the country looking for people who had saved a little money and wanted to make a statement while spending it. Buying Treasuries let Union sympathizers — including formerly enslaved people, Native Americans and residents of Southern cities — express their support for the cause no matter who or where they happened to be. It made buyers feel powerful.

For the first time, wage-earners played a crucial role in the U.S. financial system — and they knew it. A new class of financial participants was born.

On and off, well into the second half of the 20th century, the image of the investor that Jay Cooke helped create prevailed, especially during the periods in which the United States was deeply involved in world wars and appealed yet again to patriotism in search of financial support.

If Jay Cooke made Americans feel like they mattered, Mr. Gross — unintentionally, you could say — instilled in them the opposite belief.

Ms. Childs’s book is about the expansion of finance as a whole, told through the history of Bill Gross’s life’s work as the founder of what would eventually become the biggest bond fund in the world, PIMCO.

Mr. Gross, whom Ms. Childs portrays as a single-minded whiz-kid seeking to prove his worth to his parents and former classmates, chipped away at the notion that anyone could be an investor by criticizing the buy-and-hold strategy for bonds. He began studying tables of bond issues and “making money buying the better bonds and selling the worse ones.” This made big money for big organizations, but it also made everything more complicated, bringing about a rule of experts.

Mr. Gross got the bond market going just as the dollar was disconnected from a fixed price for gold, ending the last vestige of the gold standard. The financial system grew much more subjective and more hospitable to operations conducted on the largest scale possible.

Buying bonds was increasingly viewed as something that ordinary people just didn’t do. The technology to buy and sell them didn’t keep up with the technological innovations that brought stocks to life in the imaginations of retail investors. While no one was cut off from buying bonds, they weren’t regarded as fruitful investments for just anyone.

Eventually, Ms. Childs writes, Mr. Gross and his allies and competitors grew not just powerful, but arrogant. They seemed to feel that any means they could think of to serve their clients, regardless of their wider consequences for society, were justified. This was contemporary Wall Street culture taking shape. More and more, in every asset class, including stocks, the biggest gains were going to the biggest investors.

I was in the middle of Ms. Childs’s book when I began exploring posts on r/Superstonk. I soon noticed a paragraph of text that seemed to be repeated over and over again by a slew of different posters on the forum. It expressed joy at the defeat of “smug fine art collecting ‘high class’ billionaires” at the hands of Redditors who were “completely immune to all the psychological warfare” perpetrated against retail investors “for decades.”

The difference between the medium the Redditors chose for their rebellion and Mr. Gross’s area of expertise is important: Throughout his career, Mr. Gross generally viewed the stock market as a place where dumb money gathered. He never quite saw the point in participating in it. The Redditors would probably label this as snobbery, but the truth is the stock market is more susceptible to populist activity than the bond market.

Although the oft-repeated post was not referring to Mr. Gross specifically — he played no part in the Reddit rebellion — it was clearly a rallying cry for people like Jay Cooke’s “small subscribers” against the big financiers who took so much power away from the American public. Those ordinary people are now using the internet to try to get it back.

Emily Flitter covers banking and Wall Street. Before joining The Times in 2017, she spent eight years at Reuters, writing about politics, financial crimes and the environment.

A version of this article appears in print on April 3, 2022, Section BU, Page 6 of the New York edition with the headline: The Long Roots Of a People’s Revolt Against Wall Street.

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