Finance theory suggests that the privileged information that traditional banks obtain about borrowers through monitoring creates opportunities for banks to impose informational hold-up costs on such borrowers. Because a surge in borrower risk increases banks’ hold-up power, banks with information monopoly should be able to increase their rates beyond the level explained by borrower risk alone. We test this theory using the setting of activist short sellers’ public allegations—a setting that increases borrower risk and restricts borrower access to public financing sources—and find, on average, that, after controlling for both ex ante and ex post changes in borrower credit risk, banks increase loan pricing following activist short sellers’ allegations. Our loan pricing results not explained by changes in borrower credit risk are consistent with banks extorting borrowers during times of adversity.

In 2021, a social movement rallying retail investors unexpectedly shocked Wall Street, forcing a prominent multi-billion-dollar hedge fund to shut down one year later, after incurring massive financial losses. Social movements in financial markets have significantly developed in the wake of the 2007–09 financial crisis, resulting in the emergence of various collective actions. We analyze one recent example of such action undertaken by the r/WallStreetBets (WSB) community on Reddit, which disrupted the stock prices of several “meme stocks” (e.g., GameStop) by disseminating influential investment narratives. We analyze the 150 most upvoted Due Diligence posts on WSB and interview eight members of its community. We find that a popular expertise in investment narratives emerged, developed, and was propagated on this digital platform. WSB authors' claim to popular expertise is made in a hybrid language combining traditional financial expertise with an accessible and entertaining writing style, complemented by references to pop culture. Our analysis brings out a growing resentment among retail investors about the unfairness of financial markets, and its role in mobilizing them for collective action that challenged the existing order of things. Yet this widespread resentment did not spontaneously translate into a meaningful, sustainable collective action initiative. Our thesis is that the development of popular expertise played an instrumental role in the formation of WSB's collective action initiative targeting several perceived investment opportunities.