Game on! (Or, game over?)

 

Bill Knight column for 2-4, 5 or 6, 2021

 A couple of words come to mind after a large number of small stock buyers last week contributed to huge hedge-fund investor losses and to Wall Street’s worst week in months: “game” and “stop.”

A few phrases also seem apt, topped by legendary baseball manager Casey Stengel’s remark, “Can’t anybody here play this game?” but also including “all bets are off” and “stop and catch fire.”

Days after the stressed video-game retailer GameStop started closing some of its 5,900 locations, including some in Illinois, people in an online Reddit chat room launched a campaign to buy shares of GameStop, which had hedge funds holding some through a “shorting” scheme, betting against the company. The mostly little interlopers’ mischief-making was like Loki, Bugs Bunny or other tricksters causing chaos AND revealing hidden truths.

Speculators such as hedge funds – in which institutional investors and rich individuals pool their resources to play the market without many restrictions that others face – are like the Harlem Globetrotters; they almost always win. Their financial maneuver “shorting” lets them profit by predicting when stocks will drop in price. They essentially borrow corporate shares from a broker and sell them, planning to buy them back when prices fall. Then they return them to the broker and keep the difference. Their risk is the stock value rising, when they lose their bets and OWE the difference.

Since 2008, policymakers have said some high-rollers are “too big to fail” (although everyone else can), and the day after the GameStop campaign started, New York Times’ Thomas Friedman’s column “Socialism for the rich. Capitalism for the rest” shared thoughts that government does more to help the market than the actual economy.

“So, America’s richest 10%, who own more than 80% of U.S. stocks, have seen their wealth more than triple in 30 years, while the bottom 50%, relying on their day jobs in real markets to survive, had zero gains,” he wrote.

Yes, in good times, rich folks prosper and the rest of us get by, and in bad times regular people struggle and the rich do REALLY well: “Heads they win, tails we lose.”

However, tossing a tool into the gears of casino capitalism, the upstarts caused GameStop’s paper value to skyrocket, increasing from around $20/share to almost $500/share. For a while, GameStop’s value was more than ExxonMobil or Apple, and one hedge fund, Melvin Capital, reportedly needed billions to cover its previous GameStop strategy and sustained a 53% loss, reports Financial Times.

The financial frenzy forced Robinhood Financial to find emergency cash to continue to be able to trade during the disruption. Robinhood, Charles Schwab and TD Ameritrade (founded by the Chicago Cubs ownership Ricketts family) were among brokerages to reportedly prevent purchasing GameStop, and Robinhood plans to continue limiting GameStop purchase, CNBC says.

In Illinois, Chicago billionaire and Citidel hedge-fund owner Ken Griffin (key to the defeat of Illinois’ proposed Fair Tax amendment) was criticized for ties to Robinhood, and Naperville lawyer Richard J, Gatz filed one of several lawsuits about the chaos.

Robinhood investor and rapper Ja Rule commented, “We’re getting to see, in plain sight, how broken this system really is, and how it’s leaned toward one particular group of people.”

Indeed, the main purpose of the stock market was supposed to be assessing the value of corporations based on investors’ information.

Besides Ja Rule, outrage about hijinks like short-selling has come from other high-profile investors such as Tesla CEO Elon Musk, plus conservatives Donald Trump Jr. and U.S. Sen. Ted Cruz (R-Texas), and progressive Congresswomen Alexandria Ocasio-Cortez )D-N.Y.) and Rashida Tlaib (D-Mich.).

Wall Street rebounded this week, but now – possibly (and finally) – the federal Securities and Exchange Commission may investigate – along with the House Finance Committee and the Senate Banking Committee.

Senate Banking Committee chair Sherrod Brown (D-Ohio) said, “American workers have known for years the Wall Street system is broken. It’s time for SEC and Congress to make the economy work for everyone, not just Wall Street.”

Regardless of the uprising with GameStop (or, now, silver, according to some reports), financial markets will keep enriching the rich and inequality will worsen unless rules and regulations – fairness – are restored.

Lastly, a cautionary thought from Stengel: “Most games are lost, not won.”