The System Is Rigged - Episode 4537: Game Stop Corp
Early this week a few amateur stock trading nerds decided to promote a stock that was heavily shorted by certain hedge funds. The idea was to raise the stock price of Game Stop Corp., a vendor for computer games, by having lots of small stock traders to buy into it. The hedge fund that shorted the stock, and thereby bet on a dropping stock price, would then make huge losses while the many small buyers would potentially profit.
These people, who had joined up in the sub-reddit /r/WallStreetBets, were not driven by greed but by rage against the financial machine:
Instead of greed, this latest bout of speculation, and especially the extraordinary excitement at GameStop, has a different emotional driver: anger. The people investing today are driven by righteous anger, about generational injustice, about what they see as the corruption and unfairness of the way banks were bailed out in 2008 without having to pay legal penalties later, and about lacerating poverty and inequality. This makes it unlike any of the speculative rallies and crashes that have preceded it.
The movement was successful. The stock price of Game Stop Corp. rose from some $10 to over $400 within just a few days. The short seller had to take cover under a larger firm:
Hedge fund Melvin Capital closed out its short position in GameStop on Tuesday after taking huge losses as a target of the army of retail investors. Citadel and Point72 have infused close to $3 billion into Gabe Plotkin's hedge fund to shore up its finances.
Then the system hit back.
Discord, the company which hosted the server for the sub-reddit /r/WallStreetBets suddenly found that there was 'hate-speech' in the threads. It unplugged the server. (Discord had previously unplugged the sub-reddit /r/The_Donald.)
Glenn Greenwald @ggreenwald - 0:53 UTC · Jan 28, 2021What an absolutely extraordinary coincidence of timing that Discord happened to decide the r/Wall Streetbets sub-reddit had too much “hate speech” to tolerate on the same day hedge fund billionaires declared them a huge threat for the crime of winning at their expense!
Next the trading app Robinhood, which many of the amateur traders use, blocked further buys into the stock:
Robinhood, the fee-free investment app that has helped Redditors and other retail investors pump dark horse stocks like GameStop, AMC, BlackBerry, and Nokia, has stopped allowing users to buy those stocks and others YOLO picks.According to screenshots shared on social media, on Thursday morning a notification appeared on Robinhood telling users that they could close their position on GameStop's stock, but not buy any additional shares. Redditors are currently panicking, looking for ways to transfer their shares of GameStop off of Robinhood to other platforms, and are generally furious at the platform.
In a blog post, Robinhood confirmed that it has placed restrictions on several stocks due to volatility.
"Volatility" = the prols are messing up Wall Street by doing legal stock transactions our overlords do not like. What an irony that a company named Robin Hood is protecting the rich from the poor.
The many people who use Robinhood can now only sell their shares and not buy additional ones:
This is likely to have a massive impact on Robinhood users and ultimately the company. According to a popup on the app's homepage, 56 percent of all Robinhood users own at least some GameStop stock. They are now unable to freely trade it; the app is only allowing users to close out their positions, meaning they can sell it but not buy more. This is potentially devastating for novice investors or those who simply want to follow the general marching orders of the r/WallStreetBets subreddit, which is to hold (and buy more) GameStop stock until further notice.
After Robinhood stopped to allow further buys of Game Stop Corp the stock price crashed from above $450 down to $120.
bigger
That outright manipulation of the stock markets was noticed and may even have consequences. Unlike Joe Biden it united legislators across the aisle.
Alexandria Ocasio-Cortez @AOC - 16:36 UTC · Jan 28, 2021This is unacceptable.
We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.
As a member of the Financial Services Cmte, I’d support a hearing if necessary.
Ted Cruz @tedcruz - 16:47 UTC · Jan 28, 2021Retweeting @AOC
Fully agree.
House Speaker Nancy Pelosi will take care that nothing will comes from it. The system has proven again and again that it is rigged. No change to it will be condoned.
As Glenn Greenwald noted yesterday:
Glenn Greenwald @ggreenwald - 13:49 UTC · Jan 27, 2021To review:
- Politics is to be manipulated only by K Street.
- The stock market is to be manipulated only by Wall St.
- Dissemination of information is to be manipulated only by corporate media outlets.
Those are the rules.
The lesson they want us to learn: Don't even think of ever breaking those rules.
Posted by b on January 28, 2021 at 18:05 UTC | Permalink
« previous pageThanks to the responses to my rant about "ism's" and the reality of mixed economies.
What I have since thought to add is that for each country and peoples it comes down to economic geography or the mapping of physical and human resources against human needs for physical and social support. That said, the need for water and other such staples may require some nations to cooperate with other countries on basics for survival. The nation state lines that have been manufactured over the centuries should/will evolve over time to reflect resource boundaries like water. How the ethnicity mix of humans evolves over our world is another story but may include a barbarism/socialism split (private/public finance).
Posted by: psychohistorian | Jan 30 2021 20:36 utc | 202
How about the fact that the market has been hitting all time highs while the economy stumbles.
Thanks to a few trillion tossed in by the fed. Kind of makes this GME puny in comparison.
For the most part the stock market tries to be as fair as possible but like everything else where money is involved you get crooks and thieves and con men. No different then the trillions handed out to crony companies and all the ones who have their noses stuck in the trough.
What is happening on GME is wrong on the buyers part imo.
What they are doing is mob raiding and taking advantage of a huge loophole in the rules of the game.
If the short sellers did not have to show their positions then in all likelihood this would not have happened.
By knowing the short sellers position they have a huge advantage at squeezing him.
Most likely one of the rule changes will be to allow hedge funds and large traders to keep their positions secret.
PSW; I think what that guy wrote is a bunch of nonsense.
Posted by: arby | Jan 30 2021 20:48 utc | 203
There are definitely things wrong with the system nowadays.
HFT is wrong. They do not provide liquidity as they say they just chisel and distort markets with thousands of 100 share orders. In order to do this they are obviously not paying the kind of commissions that the vast majority of the participants have to. Tables tilted in their favour.
Having several exchanges all competing for order flow so much so that they pay for certain types of trades on their platform. Again slanted table.
so when that poster says -"as i have been saying - the game is totally rigged... "
Sounds good to many ears but what does it mean? evidence please.
Sure there is inside information and stuff of that nature but to say it is totally rigged is nonsense.
Posted by: arby | Jan 30 2021 21:05 utc | 204
There is a good story on this subject going the rounds of most news sites, so you can search and take your preferential pick . A Texas mother bought for her fifth-grader son ten GME Gamestop shares at $6 a piece near two years ago . The young guy, now 10 years old, sold total for $3200.
So who here is/was in on the trade previous, or bought in on the dip this week ?
Posted by: Fíréan | Jan 30 2021 21:15 utc | 205
Grieved and others in that discourse, IMO you'll all find this fifty-one year old yet timeless essay--Hudson's oldest from his archive--to be very helpful. In it, Hudson gives us the point-in-time when the reaction against Marx and British Political-economy got into full swing--by 1870 if not before. Marx died in 1883 and likely never fathomed the reaction since it seems to be unanticipated, and it was very well cloaked as we've discovered in trying to discern its origins.
Tobin Tax and some background notes. Beware there is a wee bit of pro market propaganda threaded throughout. I post this CME analysis as a sort of a primer.
My basic position is that capital should be taxed when it is at work. Existing taxes can be reviewed and abandoned/diminished to ensure the tax is progressive ie: not a means to put the burden on the low income people but to 'level' the playing field of income.
Posted by: uncle tungsten | Jan 30 2021 22:19 utc | 207
@ 204 arby... you are welcome to address me directly, as opposed to as you have... i address you directly... you want evidence of how the markets are rigged?? i am not sure where to begin... perhaps it is wrong for me to say everything is rigged.. there are always good people trying to do honourable work, regardless of the medium.. when the medium is all about money and nothing else, i think it changes.. i think from an idealistic point of view warren buffett and his company berkshire hathaway, have tried to do good and honourable work in the markets.. but even then, i think he and his partner charlie munger - i don't know if he is still alive) are not above working the market to do what all the players do - profit.. and that is off others lack of knowledge or insight into everything that is involved from the company, right up to who is the ceo, to etc. etc..
as for making it illegal for others to know about the number of shares shorted on a company, i believe this public knowledge is accessible - for some probably sooner then others, and a part of trying to make these same markets as transparent as possible... i am not sure you'd prefer to erase this... what would we learn if the federal reserve was responsible for revealing its books and actions?? the problem is, they are a privately held bank, with responsibility for overseeing the usa banking system at the same time.. it is a complicated set up which i don't profess to fully understand, but i think the reason some in the political realm have wanted to see the federal reserves books, is it would reveal a lot more about the nature of wall st and how it works.. i think this information is being withheld because they are a private corporation of sorts and have managed to keep control a storyline and agenda that is not open to debate... maybe at some point this will change.. until it does, it is hard for me to not look at the market as 'rigged' as i say, or like a giant ponzi scheme, or a casino where the house rules.. the house and those partners who have stock in the house - goldman sachs and etc. etc. - will want to keep it the same too - no transparency or accountability on a bigger and more important level... so yeah - it is easy for me to say it, but i do believe it is borne out by the facts... i am sure some of it is good, but most of it at this point, especially how the us$ is a linchpin in so much of it - is bad as i see it..
Posted by: james | Jan 30 2021 22:26 utc | 209
arby #135
Short sellers should demand to be treated like people.
They are. Thats why the guillotine has a wide blade.
Posted by: uncle tungsten | Jan 30 2021 22:30 utc | 210
For the sake of the regulations the regulator describes/defines the trades
https://www.sec.gov/investor/pubs/regsho.htm
How could the markets function if one party to the trade be allowed to operate in secret ?
Posted by: Fíréan | Jan 30 2021 22:36 utc | 211
I can't believe the hate on for short sellers. Amazing.
I see that belief is even deeper than the 2 minutes of hate we are fed everyday.
When any of you buy a stock , do you actually realize that you are buying it from someone who is selling it. Do you care if the seller is a short seller?
NO. You are buying it because you think it will increase in price.
The seller could have many reasons for selling including the fact that they think the price is too high. Good heavens. ( a short seller).
Posted by: arby | Jan 31 2021 1:16 utc | 212
RobinHood might be more aptly named Robbing The Hood.
Posted by: Hobbiton | Jan 31 2021 1:19 utc | 213
And all the time that is spent discussing short selling and the gorilla in the financial room that should, IMO, be discussed are derivatives.
What the hell is the world going to do when financial armageddon comes and these few derivative holders come forward saying they own the whole world because they have these pieces of paper and it is all legal.....?
I posit that if we didn't live in a fiat currency world then short selling would be less necessary. As it is now, since money has no intrinsic value that share price can be measured with, investors are forced to cast a pall of morality over short selling. Short selling is a tool of the financial elite to control markets and players by playing/manipulating the price margins, that only they have the financial depth to do.....one could call it rich kid casino gambling.
Posted by: psychohistorian | Jan 31 2021 1:49 utc | 214
arby #all of the above.
Some markets are creative of human wellbeing. Some 'markets' are designed and rigged and then played by unconscionable beings who care nothing for other markets that provide products, services, jobs for people to work in.
Some 'markets' are played by people who are fully aware that their manipulations destroy other people's lives, investments, futures for their own selfish betterment.
I say we tax the life out of the latter and that we people who may not be as conniving, smart, unconscionable thugs, get to have markets and economic systems that are supportive and distributive of sufficient wealth to have a good life.
For a start let us now drop the term 'market' as applied to the USAi form of 'stock exchange' and call it what it is - a CASINO of vile people, rigged processes and corruption sufficient to elevate it beyond the reach of the law and regulation.
You desperately try to redefine 'Short' selling but you cannot fit any more lipstick on your pig that is loose in the market.
Posted by: uncle tungsten | Jan 31 2021 1:50 utc | 215
Yes, shorting is impossible to regulate. A cycle has been imposed where government regulation committees will appear soon and pretend to be ahead of the game. What a laugh!
The SEC might be noble-minded, but ultimately shorting needs to be disallowed. Divesting is about as dirty as players should be allowed to get.
Posted by: NemesisCalling | Jan 31 2021 1:57 utc | 216
@212 arby
It would be nice if we could see a distinction between short sellers and naked short sellers.
I think we could all agree that naked short-selling is actually illegal and should be treated as the crime that it has been designated in the law - that is, if we want to have markets that we can believe are fair
My understanding is that the short selling in this play was naked. That's why the squeeze worked. As I understand it, the shorts had 140% of the the GME stock shorted.
Naked short got squeezed. Onlookers applaud, but only because this one time the squeeze was distributed - a system we ordinary people recognize as the only defense we have against centralized exploitation.
We still have to consider that maybe Morgan gamed the whole thing, and that short sellers are as much dupes as anyone else operating in a system that favors insiders who can expect regulatory protection, against the dictates of law that purport to make a fair market.
~~
If we want to see hate, maybe canvass opinion of JP Morgan and the other few who run the market.
Posted by: Grieved | Jan 31 2021 2:06 utc | 217
I just stumbled across the ZH post linked to below and suggest all read it
Reddit Preparing To Unleash "World's Biggest Short Squeeze" In Silver
This is David against Goliath and it just may bring the issue of global private finance out of the closet......finally. GameStop and GME are small potatoes compared to the ongoing manipulation of the silver market by the private financial elite. If you go read Wall Street on Parade you will find that these folks have been convicted for PM manipulation but just get slaps on the wrist in the back room.
The shit show continues until it doesn't.
Posted by: psychohistorian | Jan 31 2021 2:08 utc | 218
@ 214 psychohistorian first sentence.. that is what i have been saying, but i am generally being ignored on that front on this thread anyway!
@ 217 grieved see @ 211 Fíréan link for your answer...
Posted by: james | Jan 31 2021 2:11 utc | 219
There is a huge difference between dislike or disapproval and the extreme of "hatred " I do not see the extreme of hate expressed within this discussion. The introduction of the word here and broad accusation is a descent into pathos. Doesn't float.
As another contributor rightly states - there is a difference between short selling and naked short selling. Disapproval of illegal action is mostly condemned by those engaged in the action or profiting from thereof.
Anyone here in on this trade, long, short, other ?
I'm still impressed with the Texan boy, 60 bucks to 3200 in less than two years - legally
Posted by: Fíréan | Jan 31 2021 3:03 utc | 220
NemesisCalling #216
Yes, shorting is impossible to regulate. A cycle has been imposed where government regulation committees will appear soon and pretend to be ahead of the game. What a laugh!The SEC might be noble-minded, but ultimately shorting needs to be disallowed. Divesting is about as dirty as players should be allowed to get.
You have got to be kidding us. You might get away with that drivel at a preschool but here it is clearly hog wash: you know - full of shit.
Shorting is easy to regulate just apply the rules or create rules that mandate imprisonment for every felony: no option for plea deals.
SEC noble minded ? are you kidding, they are totally captive in the revolving door of Market jobs, government jobs, regulator jobs then back to market jobs. They are the epitome of FRAUD. They give FRAUD a pass at every chance.
Janet Yellen is a FRAUD boss that has just been appointed by a pickpocket president to a senior treasury position after being at the peak of the FRAUD pyramid.
There will be no regulation under Biden unless he gets a cut.
Posted by: uncle tungsten | Jan 31 2021 3:04 utc | 221
@221 uncle
Don't twist my words.
The SEC was set up after the crashes in the early 20th century to protect us from the wolves. Its origin WAS noble-minded.
Perhaps it was just a silly show, however, to let the proles know that the government is ON THE CASE!
But surely you wouldn't think that I would be defending its performance as of late, what with the 2008 in recent memory.
The problem is, even with prison for violators, is that there will always be patsies that are hooked into the scheme which the Big Wigs can feed to the guillotine when the Feds come knocking.
Can we face facts that the extractor class will always be one step ahead of government regulation.
The only option is to restric these types of financial trades from occurring.
You seem to think that just because the Chinese execute a few token scaoegoats here and there that this makes their regulating somehow invincible and ahead of the game? I see not only in the economic marketplace is a sucker born every minute.
Posted by: NemesisCalling | Jan 31 2021 7:33 utc | 222
Uncle @ 21
"You desperately try to redefine 'Short' selling "
No I am not. I know exactly what short selling is and I am not twisting or putting any lipstick on anything.
Posted by: arby | Jan 31 2021 12:43 utc | 223
Is buying stock from a short seller any more dangerous than buying stock recommended by a broker doing an IPO or a private placement that collapses to zero six months later because the company was fraudulent and the genius analysts at the broker didn't see the scam?
I say no.
The whole industry is designed to flog stock. Short sellers = competition. Of course they are the bad guys.
Posted by: arby | Jan 31 2021 13:19 utc | 224
Everybody hates Wall Street cause they're rich. They are rich because they sell stock, not because they buy stock. Buying stock is your job.
Posted by: arby | Feb 2 2021 0:34 utc | 225
@arby | Feb 2 2021 0:34 utc | 225
Everybody hates Wall Street cause they're rich. They are rich because they sell stock, not because they buy stock. Buying stock is your job.
No, the hatred happens because Wall Street cheats. A lot.
And steals. A lot.
Posted by: Cyril | Feb 2 2021 0:45 utc | 226
" Everybody . . " ?
Here's an excellent article, year 2015, on illegal naked short selling and COUNTERFIETING STOCK .
Posted by: Fíréan | Feb 2 2021 1:22 utc | 227
As far as I can tell the funds that were short, even naked short GME got smashed, destroyed, nuked, obliterated, buried .
What more do you want?
Posted by: arby | Feb 2 2021 13:00 utc | 228
Shorting stock is not a gimme. It is much more dangerous than buying stocks as this situation just proved beyond a doubt.
I'll guarantee you that all funds out there with short positions are having a good look at their exposure right now.
Posted by: arby | Feb 2 2021 13:25 utc | 229
@NemesisCalling #177
A Tobin tax neither encourages or discourages long term holding. A 0.5% tax on any transaction has no impact to speak of.
Nor, IMO, are you understanding the point of what is going on.
It isn't that the RHers are going to get fleeced - that is going to happen anyway. Every single bubble is crowded with idiots who think buying into a rising tide means they are geniuses; every subsequent falling tide is equally crowded as the suckers lose more than what they put in by trying to replicate failed methods - which are failing due to a different environment.
It isn't either that a hedge fund or three got squashed - don't you remember Long Term Capital Management? That kind of thing happens all the time.
The real point is that RH with its no-transaction fee trading combined with collusive social media - a practice pioneered by the crypto-scammers on Telegram - is a short term bull in the china shop. It will cause damage short term but won't change anything for anyone.
Posted by: c1ue | Feb 2 2021 23:27 utc | 230
Like all the other propaganda showered on people daily is the propaganda that short sellers are bad guys.
The part that people like is the fact that they have someone tangible to blame.
The part the pumpers and dumpers like is people not looking at them.
Posted by: arby | Feb 3 2021 0:10 utc | 231
This was not market manipulation...
I wish you had done more research. The buys were limited because robinhood did not have enough liquidity to cover the buys.
The ceo of webull explains it perfectly in this https://www.youtube.com/watch?v=4RS4JIEVyXM
Many other brokers had to stop buy orders because of the same problem. Maybe there was some market manipulation but it was the reddit guys
who created a pump & dump which is far more dangerous to an ordinary person than any sort of market manipulation.
Many people put there life savings in this just to lose everything,
Posted by: Naeem Mujeeb | Feb 5 2021 10:35 utc | 232
Posted by: Naeem Mujeeb | Feb 5 2021 10:35 utc | 232
We don't care which one is the good guys, there are no good guys, we just like watching them try to screw each other. This is not a moral issue, this is entertainment.
Posted by: Bemildred | Feb 5 2021 10:47 utc | 233
The real point is that RH with its no-transaction fee trading combined with collusive social media - a practice pioneered by the crypto-scammers on Telegram - is a short term bull in the china shop. It will cause damage short term but won't change anything for anyone.
Posted by: c1ue | Feb 2 2021 23:27 utc | 230
I expect some sort of war/arms-race unless they outlaw it. Now that the idea is out there and has been seen to work, there will be lots of attempts to copy it. Roving packs of short-wolves, coming soon ...
Seems like a tough problem to fix, now that it is out there. I can see the companies being targeted or their friends with money getting into the game too. They could discreetly organize a little resistance.
Reminds of our current problem with getting destabilized ourselves while busy trying to find somebody else to destablilize.
Posted by: Bemildred | Feb 5 2021 10:58 utc | 234
One potential positive development from all this is that the hedgefund quant analysts now have to figure out how to factor in an essentially unquantifiable variable, retail flashmob reaction, into their calculations when researching potential short opportunities.
It might lead to a reduction on hedgefund willingness to make these bets in the first place
Of course it's equally likely they are pondering how best to game that system, how to organise retail or pseudo-retail flash mobs, so that it works in their favour next time
Posted by: Triden | Feb 5 2021 13:26 utc | 235
The comments to this entry are closed.
@ Fíréan | Jan 30 2021 19:04 utc | 195... thanks for the link and entertaining read.. it just shines a light on how corrupt the whole market is! to quote from the article :
"It's a runaway reaction where the more it happens, the more it happens. You know, one of those cute little phenomena like virus spread. Or nuclear bombs." or stock market bubbles i might add... but when it is going up, no one complains.. it is only when it is going down, that most (long) buyers complain or hope the federal reserve will come to the rescue.... as i have been saying - the game is totally rigged... gamestock is just shining a light on just how rigged it is... so, in a sense those folks who would prefer to not have a light shined on it all, are correct to want to hide just how ugly the inner workings of wall st are... no one wants to know that are supporting the mafia, or wall st, as the case may be, or about how fundamental it is to the sustainability of our present form of capitalism... .but those who are afraid to shine a light on this are indeed supporting a continuation of this...
another quote from the article "And then, if a truly insane amount of call option buying - don't worry about it if you don't know - were to force market makers to rapidly buy up a ton of shares to fulfill all those options ...." as i was saying - derivatives... options are a type of derivative.... and as i and warren buffet have said in the past - the derivative markets are the weapons of mass destruction.... so, i am sure the big players are working at making this go away, but it is this kind of thing that truly brings a bad name to wall st and all that it is about and no amount of glossing over any of it is going to change the basic nature of these markets...
to quote bernie sanders again - thanks @ 157 prezelattack - ""the business of wall street is fraud"... he is right about that.. too bad more people are unwilling or unable to see this clearly... and no need to blame short sellers for it.. it is endemic to the system called wall st and by extension all the other western financial houses, although 'wall st' is a good umbrella term for all of them...
Posted by: james | Jan 30 2021 20:31 utc | 201