are<\/em> working against Reddit-based trades and certain hedge funds have taken a hit. What does this victory-for-the-little-guy rendering of events get wrong in your opinion?<\/p>\n<\/dd>\n \n Edward Ongweso Jr<\/dt>\n \n Yeah, it ends up being a lot more complicated than that. If you look at GameStop or AMC, some of the largest holders of these companies that are being invested in as part of the fight against short sellers are large institutional investors that have massive slices of almost every single publicly listed company. BlackRock, for example \u2014 which is one of the five largest shareholders in 90 percent of the S&P 500 \u2014 is a huge GameStop investor. It had a $174 million stake and about 13 percent of the company and at the peak of this explosion was worth $3.1 billion. Of course, BlackRock is not going to liquidate its GameStop shares.<\/p>\n
But BlackRock is also in a position to do something called securities lending where, if you’re a short seller, you can come to me and, if I’m BlackRock, I can lend shares to you, and you just have to give me collateral. And the collateral is a steal in and of itself because GameStop stock is worth nowhere near $400. It’s not worth $4, but it’s also not $400. So you’re handing over collateral equivalent to a massively inflated price, just so you can get out of a ridiculous short that you\u2019re trapped in. So these companies \u2014 BlackRock, Vanguard, Fidelity Investments \u2014 have securities lending programs and have massive stakes in companies like GameStop, AMC, BlackBerry, and so on. And they\u2019ve been able to make hundreds of millions of dollars over the course of this entire spectacle by either lending out the securities or maybe liquidating some of their assets. That should tell us that this isn\u2019t simply the little guys waging war on the hedge funds. They might’ve taken down one hedge fund \u2014 they did cost Melvin Capital billions of dollars \u2014 but they’re doing nothing that fundamentally threatens the way that the financial system operates. At the end of the day, we have a stock market that is not realistically connected to the livelihoods of workers or people on the ground, and that also isn’t even efficient relative to its own logic.<\/p>\n
Doug Henwood had this piece talking about how there’s been about $671 billion raised in IPOs since 2000. But in that same period, there’s been about $8.5 trillion spent on stock buybacks. That, alongside the institutional investors benefiting, is the real story about what’s going on. Yes, there was a move by different groups of people against these hedge funds to make money for themselves, in addition to other ongoing trends \u2014 like the rise of younger retail investors, social media investors, financial TikTok (all these events have come together in a perfect storm) \u2014 but at the same time, this storm is taking place in a system that is not going to experience any real shock because of it and is probably going to entrench itself further.<\/p>\n<\/dd>\n \n \n
Luke Savage<\/dt>\n \n What do you think the legacy of this controversy is going to be? Finance, for all the reasons you’ve said, is an inherently exclusive enterprise, despite all this rhetoric around these freemium apps and the idea of it being a sphere that’s now more accessible for people. What’s going to happen now that this precedent has been set?<\/p>\n<\/dd>\n \n
Edward Ongweso Jr<\/dt>\n \n There are already some lines being drawn. Some people are saying, in relation to Robinhood\u2019s behavior during all this: \u201cHow can we make sure trading is never again halted? How can we make sure that we can universalize and democratize finance and stock ownership and the right to trade?\u201d These kinds of demands might result in weakening Dodd-Frank; they might result in trying to ensure in one way or another that retail investors have access to platforms, etc. I think that those are the wrong solutions, by the way.<\/p>\n
Others might seize this moment to say that we need to punish retail investors and that they’re too reckless and dangerous and that they\u2019re hurting the hedge funds that optimize the markets (or whatever those companies tell themselves they do). They are probably going to advocate for stricter requirements, higher barriers to entry on platforms like Robinhood, which would probably blow up its business model.<\/p>\n
But I think at the end of the day, there’ll probably be jockeying between that and short selling. Some people are seizing on that and saying it doesn’t need to exist. I think Elon Musk is a pretty prominent example of someone who’s been trying to wage a war on short sellers. I personally don’t really care for them, and I don’t really understand a lot of the arguments being made that they\u2019re necessary for the economy, especially when you look at what happened with GameStop.<\/p>\n
So it\u2019s really just going to come down to who wins out: Is it going to be the crowd that wants to regulate retail investors, or is it going to be the crowd that wants to regulate the hedge funds? I’m more inclined to believe the hedge funds are going to win just because of the impressive lobbying machine the financial industry has. But who knows? If nothing else, things may be different if people come to hate Wall Street and finance even more as a result.<\/p>\n<\/dd>\n \n <\/dl>\n \n \n\n \n
\n \n\n\nThis post was originally published on Jacobin<\/a>. <\/p>","protected":false},"excerpt":{"rendered":"After a banner week in which renegade Reddit-based trading shot up the value of GameStop stock to nearly $470, the company\u2019s share price now appears to be on a downward trajectory. But while this week could see the end of the GameStop bubble, the controversy has undeniably unleashed a tidal wave of resentment toward Wall [\u2026]<\/p>\n","protected":false},"author":1637,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"_links":{"self":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/22082"}],"collection":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/users\/1637"}],"replies":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/comments?post=22082"}],"version-history":[{"count":1,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/22082\/revisions"}],"predecessor-version":[{"id":22083,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/22082\/revisions\/22083"}],"wp:attachment":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/media?parent=22082"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/categories?post=22082"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/tags?post=22082"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}