Off the bat, it’s important to state that I am in no way a financial advisor, a financial journalist or someone who has ever come close to thinking about buying stock. For me, Wall Street is that place that some people occupied for a few months early last decade.
I am, though, someone who knows hypocrisy when I see it. And judging by the GameStop Reddit Saga that went public yesterday and continues to unfold, hedge funds and many higher ups on Wall Street and in the US financial media are full of it.
Here is what happened, in as much of a nutshell as I can put it in (again, this isn’t my beat):
- Hedge funds routinely short sell stocks of companies they think will fail as a way of both helping that failure along and profiting off the company’s misfortunes.
- Independent traders (or “retail investors”) on the subreddit wallstreetbets decided that some shorted stocks needed their support and bought shares in GameStop, AMC and Nokia en masse.
- GameStop’s stock price shot through the roof yesterday and hedge funds lost big. Melvin Capital even got a close to $3 billion bailout from other Wall Street firms to stay afloat.
- People on Wall Street started freaking out. Many called for what happened to be investigated and for something to be done to stop it from happening again.
- Today, the now ironically-named Robinhood trading app followed brokerage firms like TD and moved to restrict trading of GameStop shares. This move has prompted calls from politicians like Alexandria Ocasio-Cortez to investigate Robinhood’s actions.
Now among the voices calling for something to be done about retail traders on Reddit affecting stock prices was that of investor and hedge fund manager Michael Burry. He’s the guy who famously bet against the housing bubble before it crashed in 2008, plunging the US economy, and by extension, the global economy, into a tailspin (while, at the same time, drastically improving his personal finances).
Yesterday Burry took to Twitter to call what happened with the GameStop share price “unnatural, insane, and dangerous” and claim that there should be “legal and regulatory repercussions” for those involved. He later deleted the tweet.
Just speculating here (there’s probably a pun in that)…maybe he deleted it because he realized that his indignation now might be compared to how he felt about profiting off millions of people losing their home. Or maybe he remembered that regulation is the last thing Wall Street wants.
For decades, hedge funds have treated the stock market as a casino, a game they are entitled to play. They have never seen a problem with manipulating the price of stocks through their bets.
Any attempt to regulate what they do is treated as an attack on free market capitalism itself. Now, though, many of these same people want protection from the free market because a group of people who aren’t in the same club have learned to use it as well as they can, if not better.
To be clear, I am in no way a free market capitalist, or even a capitalist, really. Those who do believe in the free market, though, should be appalled at how the hedge funds are now attacking it.
I had always hoped the hedge funds would be taken down from the outside and firmly believe that people who profit off the misery of others are just plain jerks. Traders on wallstreetbets, or at least a good chunk of them, as seen in statements on the subreddit, probably agree with the second part of my statement.
The only difference is they want to take down the hedge funds by using the free market. By playing the game.
If you don’t think the Reddit traders have a right to do what they are doing, or feel there should be rules in place against them, then you can never call yourself a free market capitalist again.