The Case for Not Regulating GameStop
What happened was simple. That being the case, why did hedge funds staffed by such sharp, Ivy League-toting-MBAs, whose profound intelligence and education have long been used to justify their egregious 8-figure salaries, get trapped and taken by legions of mostly ordinary investors? Because they were just going about their usual business, taking money from ordinary people, and operating under the usual assumptions: “retail money is dumb money.” They were just going to take a bunch of ordinary people’s money. No big deal, business as usual.
In an effort to save GameStop, bunches of devoted young retail traders bought into the company. Too many, apparently, at least according to Wall Street logic. The company’s share price became “overvalued,” and so hedge funds took massive short positions on the stock and then bombarded it with ladder attacks to make sure the price collapsed and they got paid. As Noble Prize winning Yale economist Robert Schiller has explained in his seminars on finance, these hedge funds are doing us all an inestimable favor: they are exposing inefficiencies in the market, and for that we owe them billions and our undying gratitude. However, these particular hedge funds did not anticipate that the retail investors facing them were not, in fact, dumb, and understood perfectly well that they were about to be victimized. To prevent this, they banded together using social media, collectively beating back the hedge funds’ attacks and forcing a short squeeze that cost the hedge funds billions.
So, the initial dust having settled, the question of regulation is now being floated. I, for one, am resoundingly against it.
Will these bubbles eventually blow up, wiping out some of the retail traders themselves? Yes, an unfortunate minority will lose what they put in. That is unfortunate. Even more unfortunate, this will be the pretense given for the revolution-crushing regulations that are bound to be handed down. However, the overwhelming losers will be the hedge funds or institutions on the losing end of the squeeze. Their billions will be redistributed among hundreds of thousands, if not millions of retail households consisting of everyday working people. This is a highly effective method of wealth redistribution. Of course, among those winners will be some opportunistic hedge funds. These institutions are so amoral that when they saw fellow hedge funds getting squeezed, they jumped on the pile and publicly gloated about it. When it happens again, they will likely do the same. What they know, however, is that their turn may be next, which is why ultimately the SEC and Biden administration will try to kill the revolution that is GameStop, AMC, NOK, et cetera. It is telling that only the radicals of the establishment parties have spoken out against the crime committed January 28, 2021, when brokers locked out the retail trading community while the hedge funds dug their way out of the short positions they had accumulated against the small investors, fleecing them and escaping with their billions in hand. It is only individuals like Alexandria Ocasio-Cortez, who command strong popular followings capable of supporting her campaigns, who would dare to criticize brazen Wall Street duplicity. As the literature has long shown, the single most likely predictor of which candidate will win a given race is how much money they have at their disposal. As such, the deafening silence of the overwhelming majority of lawmakers is unsurprising. Wall Street is where the money is, and the eventual betrayal of the Biden administration will therefore be likewise unsurprising. After all, his much-vaunted Treasury Secretary, Janet Yellen, has within the last year taken millions in speaking fees from these same hedge funds. We will be told, of course, that this is not unusual, which is itself indicative of the corporatist nature of the crony capitalist state. Furthermore, reports are now circulating that suggest the retail trading community may be the real subject of the SEC’s brewing investigation: accusing retail traders of blowing up a bubble.
All this author asks, in the name of fairness, is that whichever members of the WallStreetBets Redditt community are hauled before a court be tried by the same sharp-edged prosecutors who took on all the big banks who blew up the housing bubble in the runup to 2008. You all remember those big cases, right? The Biden administration will betray the progressive agenda just like its 2008 predecessor did. At this point, the GameStop revolution is the best chance of a wealth tax we have.
Note: to avoid any accusations of conflict of interest, the author has held and still holds positions in the retail stocks listed above.