Former SEC Chairman Calls For an Agency Investigation Into Online Stock Trading Platforms (bloomberg.com) 127
Arthur Levitt Jr., a former chairman of the U.S. Securities and Exchange Commission, writes at Bloomberg Opinion: They say history occurs first as tragedy, then as farce -- I fear we're about to see that in U.S. financial markets. Two decades ago, U.S. financial markets were riding all-time records. Day traders were using chat rooms to swap what they thought were reliable tips about stocks that were about to pop. Stocks with negative earnings were trading at astronomical valuations by almost any measure. People without any experience in stock market trading -- no less any understanding of how to read a financial statement or earnings report -- were confidently pouring dollars saved for college tuition or rent into short-term bets on companies they knew little to nothing about. And the surest sign of mania was this: People found stock market investing terribly entertaining. I remember high school students asking me for stock tips. It all came to a crashing end as the dot-com bubble burst, blowing up a few companies and several billion dollars of investor savings. And in retrospect, it seemed so obvious. All the signs of a market bubble were there. People chose not to pay attention.
[...] By all indications, today's investors are repeating the same mistakes. Consider the following: Significant stock movements are now spurred by social-media-driven gossip about the company and short squeezes (when an investor betting against a stock is forced to pay up for shares to cover their position). Novice investors are learning about investing not through fundamental rules of the road (study the company and its leadership, read its filings, study its markets, consider its price-to-earnings ratios, evaluate its cash generation versus its debt load, review its earnings expectations versus reality, etc.) but rather through a casino-like focus on ticker symbols alone. It's quite common for novice investors on day-trading platforms to buy a stock for the same reason they might choose a specific color of sweater -- for aesthetic purposes only. This is all terribly familiar.[...] Now, with the benefit of hindsight and history, how do we not repeat the dot-com experience as a dark comedy? [...] WH Press Secretary said moments ago at a briefing that Biden team is "monitoring the situation" around GameStop.
[...] By all indications, today's investors are repeating the same mistakes. Consider the following: Significant stock movements are now spurred by social-media-driven gossip about the company and short squeezes (when an investor betting against a stock is forced to pay up for shares to cover their position). Novice investors are learning about investing not through fundamental rules of the road (study the company and its leadership, read its filings, study its markets, consider its price-to-earnings ratios, evaluate its cash generation versus its debt load, review its earnings expectations versus reality, etc.) but rather through a casino-like focus on ticker symbols alone. It's quite common for novice investors on day-trading platforms to buy a stock for the same reason they might choose a specific color of sweater -- for aesthetic purposes only. This is all terribly familiar.[...] Now, with the benefit of hindsight and history, how do we not repeat the dot-com experience as a dark comedy? [...] WH Press Secretary said moments ago at a briefing that Biden team is "monitoring the situation" around GameStop.
And so it begins (Score:5, Insightful)
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What do they think the price is going to be in a week? A month? A year? At the end of the day someone has to make money on the stock or your just holding a piece of paper. In a year or two gamestop might not be around. Do people really need it? You can buy/sell games online and also order consoles online, going to the mall is a drag.
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I think the premise is to show that manipulating a company's underlying value can be a two way street if you can organize the hoi-polloi against the fat cats. This has more easily come to pass because the definition of value has become detached from common sense. It's all pump-and-dump, with short sellers essentially pumping the dump.
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It's also a wakeup call to funds/companies operating on unsafe investment practices (like unsecured shorts, which aren't really supposed to happen).
In the end though, had this been one big trading company savaging another, we'd never have heard a peep about it.
But, because this is Joe Small Investor doing it, these companies need to remind the peasants who's in charge. THEY are allowed to manipulate stock prices. But not YOU.
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Well, what ends up happening is people think they are making money by having most of their account in a position, and they do in the short term. Usually this involves filling a 'bucket' then emptying it out into the next one. However this is the easiest way to get burned because without hedging and without diversifying you can have one security that takes out an entire account.
I suspect that a majority of traders now have not taken a large loss, if they have they would be wary of ganging up on a stock. As s
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Irrelevant. Stocks have virtually nothing to do with the underlying companies when traded on speculative markets. Someone must make money and someone must lose money for the system to work. In this case little guys are organizing to use their collective muscle to crush the massive institutional investors that normally crush them with aftermarket short positions. The institutions which shorted all the stock and never normally need to cover their shorts (unlike the little guys) and can do so on virtually no i
Re:And so it begins (Score:4, Interesting)
Think so? The price is now vastly overinflated. The hedge funds have closed their shorts, and a few billion was moved between columns on a spreadsheet. Those who hold GSE have paper profits right now, and there's no longer underlying support for the stock price (short squeeze was a good play, but that's over, and there's not nearly enough value in the company itself). Now, every seller needs a buyer and the whole thing will eventually be a race to the bottom. So some of "the people" will win hugely, while most of "the people" are going to lose their teeth. How is that really different than your "institutions vs. the people?" What makes you think the reddit instigators aren't just smart folks from some competitive hedge fund rallying the masses to their own advantage?
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Does it matter? All stock trades are gambles. But unlike Melvin, I doubt many of these small investors will turn crybabies having a temper tantrum when their bets don't have positive returns.
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Many of these traders are probably new and have never lost a significant amount of money.
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It's funny how people are only Concerned about the financial status of small investors on this one very specific stock.
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Actually who cares? Many on the WSB channel said they don't care if they lose their money.
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"All stock trades are gambles."
Some stock trades are much more of a gamble than others. If you can't tell the difference, you shouldn't be playing the markets.
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Speaking of telling the difference, you do know that it was the redditors who were making the smart bet and the hedge fund making the catastrophically risky one, yes?
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Yes, I'm aware, and have been investing in the markets since '82. And, it's one reason I've always avoided derivatives. There's way to much manipulation, and not much the average Joe can do about it.
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Exactly.
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People throw away money on all sorts of stuff. If a student were not buying stock, it would be energy drink, weed, and blow. If the average worker were not buying stocks, it would be lottery tickets.
The only real
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Because the "little guy" is gonna get his ass handed to him the vast majority of the time, and end up bankrupt. The majority of these idiots are the same people who believe they actually have a decent chance of winning the lottery (read: bad at math).
FWIW, I was the little guy when I started investing 39 years ago with an odd lot of shares in a utility DRIP. Those kind of things are fine, but for inexperienced people, leveraged (derivatives) shouldn't be on the table.
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Is this related to the Access Denied responses from the GameStop website?
Why do we care? (Score:3)
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No love lost for either side. Hedge funds that are taking such high risks deserve to eat some humble pie once in awhile. Any one betting against the hedge funds.. hopefully people are only investing what they are willing to lose. At this point, however, seems like quite a few are coming out way ahead.
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> hopefully people are only investing what they are willing to lose. At this point, however, seems like quite a few are coming out way ahead.
They are enabled to keep dipping into the well over-and-over with larger buckets each time. Just wait, the bottom will drop out and we will see where things land. Thinking that you are smarter/faster and loses won't happen to you is a sure way to get in trouble. How many of these people have the discipline to stop?
GameStop's business does not support the stock pr
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GameStop's business does not support the stock price, whether you are sticking it to the man or not. I don't support Gov action here. Guess I'm not willing to fund a revolution to nowhere. Beyond some sense of group accomplishment, what does the world actually gain in the end?
If the so-called "diamond hands" of Reddit hold out long enough to actually bankrupt Melvin and Citron, it could save Gamestop. If they hold THAT long, Gamestop will have the opportunity to issue more shares, and/or refinance debt at favorable rates, while figuring out an overhaul of the company that could save them.
Odds are against it, but money makes a lot of things possible which otherwise aren't.
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I think very few will lose their shirts, the vast majority it seems are happy to lose a few hundred bucks if it bankrupts a wall street hedge fund in the process. They are driven by spite rather than financial interests. At least that's the vibe I've gotten.
Re: Why do we care? (Score:2)
Aggressive retail traders lose to manipulation by the big players all the time. At least in this instance, they get to screw the big players and lose to other retail traders.
What's good for the goose is good for the gander (Score:2)
https://www.nytimes.com/2021/0... [nytimes.com]
"If you want to sound smart, traders call this phenomenon a âoegamma squeeze.â And if this sounds familiar, itâ(TM)s because SoftBankâ(TM)s mass buying of tech stock options last year â" earning it the moniker of the âoeNasdaq whaleâ â" worked in a similar way. (Extra credit: âoeDelta hedgingâ is also a factor in all of this.)"
Sauce for the Goose (Score:5, Interesting)
So this kind of bubble creation is okay when the hedge funds do it and lose millions of dollars of other people's money but if the other people do it to the hedge funds, there is a problem with the system? Rich indeed.
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That's what I was thinking. These rich evil shits were watching with glee as GameStop stock circled the drain. Does anyone really think they were any more restrained in attempts to make their own prophesies self-fulfilling? I don't. I think they were just more careful about planning their market manipulation in public. There seems to me to be some strong metaphorical parallels between their own business plan and the designing of the Death Star's laser defense grid.
Re:Sauce for the Goose (Score:5, Insightful)
I find it laughable that the "retail investors" are the bad guys here for buying the ACTUAL STOCK and not selling, while the big hedgies that were selling short more than 100% of the entire available pool of stocks are the good guys.
One of these groups is doing exactly what has always been the intent of the stock market (owning shares of a company they like) while the other is literally gambling.
But for some reason all of the media coverage is about how these reckless investors are "gaming" the system.
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Check out Chamath Palihapitiya's interview on CNBC today. He says explicitly this while calling out the institutional investors who are whining about how the master they created has been turned against them. It's a long watch, but definitely worth it: https://www.youtube.com/watch?... [youtube.com]
Money isn't always the object (Score:2)
I for one am willing to bet a pretty substantial percentage of people buying GME right now are doing it not for the money, but for spite and for the lulz. Sure, I suppose it's insane in a sense, but don't underestimate the amount of glee people can have participating in a six billion dollar punch to some pretty big stock traders. This narrative about wise investments and the danger of bubbles isn't the whole picture.
I peeked at wallstreetbets and wow... (Score:5, Interesting)
A quick peek at wallstreetbets and they are finding all sorts of crazy lying by the big media.
Such as interrupting news to parade sockpuppet accounts around to say the squeeze is over when it's not.
Then again running news that Melvin had finally covered their shares when people went and looked at open short interest which hadn't bulged indicating again this was all lies.
They all joked that because they figured out how to screw a big company that shouldn't have opened their mouth about their huge short position but they did anyways to try to scare others into selling.... this backfired and the public seen the 120% short and knew to go grab some shares for the eventual cover.
To now see any mention of regulation/intervention is *exactly* on point with the idea that all the mainstream media/companies/politicians are literally fucking running ball for a private hedge firm is just amazing confirmation it really works this way.
Nothing at all illegal here. The firm bragged they shorted more shares than exist and others rightfully called them out on it and sank their hedgefund. Tough shit.
First they came for Parler... (Score:4, Insightful)
all the mainstream media/companies/politicians are literally fucking running ball for a private hedge firm
Very soon all social media sites will be shutting down access to anyone who even mentions GME, along with all individuals identified from that Reddit sub.
Turns out, slippery slopes are indeed slippery all the way down.
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Very soon all social media sites will be shutting down access to anyone who even mentions GME, along with all individuals identified from that Reddit sub.
Turns out, slippery slopes are indeed slippery all the way down.
You realize Reddit is a "social media site", right? You think Reddit will shut them down now? After their highest revenue from ad-impressions threads in the history of the company? Put down the crack pipe SuperKendall.
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Yep, maybe conservative should have thought of this before handing all their power to social media sites and congregating on them. Then maybe they wouldn't get burned by free market capitalism, their god and savior.
Oh wait, you wanted a hit piece on left wing people, sucks to be you.
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To now see any mention of regulation/intervention is *exactly* on point with the idea that all the mainstream media/companies/politicians are literally fucking running ball for a private hedge firm is just amazing confirmation it really works this way.
Saying this might get you downvoted since pointing out the obvious Biden's administration [bloomberg.com] ties to Wall Street is wrongthink.
There is more than one short seller... (Score:2)
A quick peek at wallstreetbets and they are finding all sorts of crazy lying by the big media.
Then again running news that Melvin had finally covered their shares when people went and looked at open short interest which hadn't bulged indicating again this was all lies.
Open short interest doesn't prove the media lied. Melvin could have covered and other actors are still going short.
The price of GME is so insane that there will continue to be short interest in the stock. The price will eventually reflect the underlying company. Eventually the retail traders will lose.
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The craziest thing is people used to ignore this crap. They are claiming that they are the good guys, they are giving moral reasons for being the good guys. What they are doing controlling the market, when you can control the market you can make millions at the expense of others.
If you knew that your posts would make a stock go up, what is the first thing your going to do? Buy the stock, then post
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Remember, this is an op-ed piece, not that the SEC is actually going to do it.
But basically what happened are the big corporate institutional investors have realized that their shenanigans to make ever so much more money are being called out on.
The retail investor who holds money for retirement suddenly has a lot of power to call the shots and it's got the big investment banks scared because they're in an oh-sh*t moment where they're going to lose, big. Suddenly all the big Wall Street types are scared beca
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Do they not realize that short interest data is only published twice each month? It's not updated on a daily basis.
The government itself is to blame (Score:2)
Where do you think some of the stimulus is ending up? Some of that 1.6Trillion ended up in gamestop. While its not the complete reason, I think the stimulus is part of it.
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Remember kids (Score:3)
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Re:Remember kids (Score:4, Informative)
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Problem: Biden is infinitely more psychopathic than Trump. More psychopathic on race, deportations, cutting Social Security and regime change wars.
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I see liberals have started to attend Pete Hoekstra's [knowyourmeme.com] school of batshit insane analogies.
Facts are stubborn things. Biden has gotten millions more brown people imprisoned, deported or bombed than Trump. He spent much of his time in the Senate working with Strom Thurmond to pass racist crime bills. The two dixiecrats were such BFF's that Biden delivered the eul
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Biden/Democrats wanting to cut Social Security?
I must have missed that one....I've never heard the Democrats want to cut back a social program, especially that one.
What are they wanting to do exactly?
Any links?
Serious question....
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Plenty.
Apparently [c-span.org] you you [twitter.com] did, plus this whopper. [jacobinmag.com]
Chained CPI, [counterpunch.org] or consumer price index. Basically it argues that because TV's and phones are getting cheaper, seniors can make do with smaller cost of living increases, ignoring the rising costs of housing and health care. Yes, I picked a link from the Obomber Administration, because Biden has picked
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Kids also do fun things like eat too much cinnamon and eat tide pods.
The game is rigged (Score:1)
What gall (Score:1)
crushing a stock price of a company that is solvent and making product, shorting 100+ percent of extant stock, manipulation of prices of energy, real food and medicine by paper trading and derivatives, all that is fine if done by billionaire elite... but common man sticking it to these parasites and vampires is bad?
I called it :) (Score:3)
Socialism for the upper class, dog eat dog for the rest of us. It's Ok though, we're all just Temporarily Inconvenienced Millionaires.
Oh boy... (Score:3)
Its a rich party! (Score:3)
https://www.cnbc.com/2020/06/2... [cnbc.com]
As part of the CARES act, Trump allocated $450B to corporate relief, which the Fed leverages 10-to-1 for stock purchases. Meaning, the entire stock market is supported by a $4.5TRILLION gimme to corporate oligarchs. This a direct wealth transfer from the people- aka taxpayers – to corporate ownership. When accounting for the tax boycott of the ultra-wealthy (Amazon not only paid ZERO income tax, but actually got a refund).
https://www.cnbc.com/2019/02/1... [cnbc.com]
Remember, when America was “Great!”, during the Eisenhower administration, the tax rate on the rich was 91%. The top tax bracket in 1979 was 70%. – in 2019 it was 37% with stock dividends taxed at 15%. Median incomes since the 1970’s have decreased while the ultra rich experience a disparity not seen since the pharaohs. This is the exact reason US roads crumble, there's no money for education or social programs
Ultimately, stock prices and values today are complete, fabricated, nonsense. Its greed run amok, the party’s almost over and the average American is getting stuck with the check.
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Besides this craze being driven by Redditors... (Score:2)
...this is a classic (and illegal) pump-and-dump scheme.
It will be interesting to see what the SEC decides to do on this, because i don't really see them prosecuting a couple hundred thousand Reddit users in the process.
Re:Besides this craze being driven by Redditors... (Score:5, Informative)
Not necessarily. Pump and dump involves artificially inflating the price of an owned stock through false and misleading positive statements.
Inflating the price based on factual information is not illegal. The redditors are inflating the price based on the very factual information that doing so screws over certain wall street investors. Spite is perfectly legal.
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Which is arguably the case here? I have no love for hedge funds, mind you, but there's absolutely zero justification for people to be trading GameStop stock at ~320 USD right now. And yes, pumping stock prices up to hurt other investors still falls into the same category.
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Spite is the justification. Spite is legal.
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There is no spite, the WSB guys are feeding everyone lies. Do you think that the hedge funds aren't maintaining their positions? They'll at least wait a few weeks for things to settle down, they already have backups. The evil guys ARE WSB, they are the first to profit from all of this.
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Only billionaires are allowed to manipulate the stock market - which they do all day long, all day strong. Proles betting against a company betting against another company's stock? Call the whaambulance.
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And yes, pumping stock prices up to hurt other investors still falls into the same category.
And short-selling 141% of the outstanding shares of a company and publicizing the fact to hurt companies and investors doesn't? What's good for the goose is good for the gander. The hedge funds had it coming, and were FAR out in front with manipulative behavior for the express purpose of causing harm.
Not that that will stop the powers that be. If there wasn't a rule that prevents this, there soon will be, and it will be written so caaarefully that hedge fund manipulation will somehow still be legal but w
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The online users themselves, yes. Their stock transactions, hardly so.
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What CAN the SEC do without the threat of litigation?
Lots of things. They are hold Reddit liable. They can also hold the trading platforms liable.
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I mean, what could be simpler?
President Trump had credible evidence from multiple sources that the Russians were paying the Taliban to kill US soldiers in Afg
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The most crazy thing is they (WSB) will announce their positions and tell everyone when they will trade, all someone has to do is get just on the other side of the trade or that time and take the opposite bet, and believe me there are plenty of people that want to do that. Once you announce your moves someone can profit.
Funny (Score:2)
A group of normal dudes is using the market in its intended way and people are mad. Expect r/wallstreetbets to get the axe soon.
The lame stream media thinks people 18->40 watch them
The thing that makes this possible is that the normal ways companies like Melvin manipulate the market (lame stream media) only works when theres trust in the media.
The fact that anyone today can take stock advice from other people playing a zero sum game is laughable.
If FOX or CNN told me to buy X, I would immediately setup a
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Fuck that noise (Score:2)
This is nothing more than betting against a company's bet against another company.
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How about coordinating shorts (in this case, shorting more shares than exist) to devalue a company below its cash value? Follow that up with doing so to allow your buddies to swoop in and take over the company at pennies on the cash value then selling the value and wrapping the debt into a bankruptcy filing (destroying thousands of jobs in the process while screwing the debt holders)?
There's a reason a number of big name folk are jumping on this - it's illustrating just how Wall Street has been screwing ove
"Study the company"? *bwahahaha!* (Score:2)
study the company and its leadership, read its filings, study its markets, consider its price-to-earnings ratios, evaluate its cash generation versus its debt load, review its earnings expectations versus reality, etc.
Yeah, right. Because those who ought to know stock trading lead by good example. E.g. by financing multi-digit million $$$ for dedicated transatlantic data lines just to shave off a few milliseconds for high-speed trading.
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I'm pretty sure the transatlantic lines ran into the billions. IIRC, GS pegged latency as worth $200MM/ms/year a decade ago.
Re: "Study the company"? *bwahahaha!* (Score:2)
Millions, billions... if we're not careful, we'll pretty soon be talking serious money here :-p
Graph theory (Score:1)
Is all I needed to profit.
Let me translate that... (Score:1)
Not about retail investors (Score:5, Interesting)
Here's why the SEC would be interested in this, and it has to do with the financial equivalent of parallel construction.
There's an HFT firm called Citadel that has a very cozy partnership with Robinhood, which is where a lot of these retail investor accounts are coming from.
As part of that partnership, Robinhood routes trades through Citadel, who does the actual buying and selling (what's called "execution") of user stock orders. Citadel makes money by buying the stock themselves and then selling to the user for a slightly higher price. Robinhood gets a kickback from this, it's a practice called PFOF and a lot of discount brokers do it.
The problem is that like all brokerages, Robinhood has something called Duty of Best Execution to its users. This means that they'll route stock trades through whoever will give users the best price. However, Robinhood doesn't do that - they route through whoever pays them the best kickback via PFOF.
As part of that relationship, Citadel also knows every trade made by a Robinhood user.
Now, Citadel knows that hedge funds like Melvin and Citron have massive short interest in Gamestop. They also know that if Gamestop's stock was to pop right around the time those hedge funds have to cover their short sales, they'd potentially become insolvent and could be snatched up for cheap.
However, price manipulating like that is illegal. So what do they do? They use the trade data from Robinhood to justify a massive buy of Gamestop stock. This is perfectly legal. And naturally, as soon as Melvin and Citron are in trouble, Citadel swoops in and buys a stake in them.
This also means that Citadel is making money off every angle: they make money front-running the retail trades, make money buying the smaller hedge funds, and make money off Gamestop's stock.
This is the kind of thing the SEC cares about, not retail investors.
They're also naturally concerned about the pyramid scheme-like nature of Gamestop stock, where a lot of average people are going to get burned, particularly if they got in late.
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Is it price manipulation for Citadel to short squeeze Melvin and Citron by themselves? I thought it was only if there was coordination among multiple actors to squeeze.
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They won't find anything, do you know how grossly unprepared robinhood was for the onslaught that was last week? Pretend your drinking through a straw and it turns into a firehose. There internal financial systems got overwhelmed, it takes 2 days to clear a transaction off the books, and its likely that Thursday was the most traded day in history. They had ~1 million people sign up and start dumping cash in and start trading, most brokers are not prepared for that:
https://news.ycombinator.com/i... [ycombinator.com]
They would
Money is for Rich People (Score:2)
The SEC is on it? I feel safer already. Fuckers. (Score:2)
Yeah, this is the same SEC that ignored *multiple* demands, backed by sound mathematical analysis, for investigation of Madoff's Ponzi scheme? You know, the LARGEST ONE IN HISTORY? Seriously, motherfuck the SEC. They are so blitheringly incompetent they typify most of the US Government's ineptitude.
60 Minutes interview with the Math PhD that broke the Madoff thing: https://www.youtube.com/watch?v=s68FR1MXT8Q
It's very worth it if you haven't seen it.
Honestly, if I want to trade securities based on the sh
The White House? Bloomberg? (Score:2)
"Novice investors are learning about investing not through fundamental rules of the road (study the company and its leadership, read its filings, study its markets, consider its price-to-earnings ratios, evaluate its cash generation versus its debt load, review its earnings expectations versus reality, etc.) but rather through a casino-like focus on ticker symbols alone. It's quite common for novice investors on day-trading platforms to buy a stock for the same reason they might choose a specific color of s
Opinion (Score:2)
With the utmost of respect for Mr. Levitt, it is due to gross incompetence and impotence at his SEC that financial statements and earning's reports cannot be trusted. He was at the helm while Enron and Worldcom were both guzzling away billions in investor dollars.
If we can't have faith in basic financial reporting then why shouldn't we buy momentum stock lottery tickets?
he was also on the PWB with Summers and Greenspan (Score:2)
when they decided that Credit Default Swaps didn't need to be regulated very carefully back in the late 90s
This is when they told Brooksley Born that she was wrong (she thought the government should examine the question). So they all got to keep their jobs and be on magazine covers and she didn't. Nobody knew about her until after the crash and Frontline made a documentary about her.
Their decision about CDS led to cds on cdo
which led to synthetic cdo
which led to the great recession.
Notice that these decisio
Bitcoin. (Score:2)
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"GME should have collapsed today after the hedge funds announced overnight that they'd closed out their shorts"
The number of shares owned is still greater than the total number of shares the company has issued. Yes, two particularly noisy hedge funds have closed their short positions. The numbers say that many others have not.
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Re:Biden team is "monitoring the situation" around (Score:4, Insightful)
What do you expect when you elect the most corporate-friendly President in a long while?
Nah! Democrats are pro-corporate for the corporations they like a lot. Republicans are pro-corporate for the corporations they like a lot. And Trump is pro-corporate for Trump's corporations. Or do you think his rhetoric was anything but?
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Because, apparently, he also thinks it is one of the most important and most depended on programs in the entire government less than 30 minutes later [c-span.org]
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You're only insulting your own intelligence if you think that changes Biden's decades-long jihad against Social Security. He named Bruce Reed to head the OMB, the same Bruce Reed that worked with Clinton and Biden in the 90's to gut welfare. The same Bruce Reed that Obama named director of his Catfood Commission, stacked with Social Security cutters pushing BS like 'chained CPI'. A long term cut that Biden is now advocating for now that he's taken office.