I think it's a tad bit more interesting than that. The real issue is that certain people like (((Gabe Plotkin))) and his fund Melvin Capital are not allowed to fail. Most of the people who are counter parties buying GameStop didn't know this at the time.
The stock was a bit undervalued at the time because typically GameStop makes good profits after new consoles are released (both a new Xbox and Playstation just got released) as well as increased game buying from the lockdowns. Additionally, there was the fact that GameStop has 50k+ employees who tend to also the the maligned geeky type as well which further merits saving them for a year or two.
Rather than just accept moderate losses a little while ago, (((Gabe Plotkin))) doubled down knowing he wouldn't be allowed to fail. Then he doubled down again using a bunch of illegal-for-peons tactics when that went bad. So here we are. Someone who isn't allowed to lose a bet is on the wrong side of a very large losing bet. The odds are good that he still won't be allowed to lose. The only way this is possible is doing something crazy like stopping trading on GameStop this Friday. Problem is, this will blow confidence in the entire market, because most players don't know who else not allowed to fail.
They're stuck between their commitments to protect their own and potentionally collapsing the whole market. The U.S. has already invested over $10 trillion in the market over the past year, and it has only lead to scammers scamming more scammers. No where near that much has been given to citizens who aren't allowed to work or to small business literally burnt to the ground by criminal rioters.
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