Market manipulation is a crime under Section 9(a)(2) of the Securities Exchange Act of 1934. There is a big difference between buying or selling because you think a stock is over or under valued, and trying to manipulate a stock price to extract money from people not in on the manipulation.
SPOILER: you can't, because it isn't true. It's an incredibly popular myth, but it is just a myth.
An interesting resolution to this would be if GameStop would allow the short sellers to close their positions by selling them newly minted shares. The result would be that the company would get all the money instead of the shareholders. But the shareholders own the company. So the share price would only crash by half (from the dilution) instead of 99% or whatever it is now.
Which would also have the effect of saving the company.
Maybe one or two hedge funds will declare bankruptcy. The rest will rake in the dough. And a large number of stupid people will find themselves poorer.
Personally, I’m not for over-regulation. To some extent, people need to take personal responsibility. But conning the stupid is immoral.
The many ill-informed twitterati, pseudo-intellectuals, and political grifters who have taken to cheering a transparent pump n dump will find themselves in an awkward situation in the next few weeks.
The hedge funds used to have money that plausibly soon they won't. It is taking money from hedge funds.
> do you think that the retail traders who yolo’d their savings (there are many of these) will be the ones to sell at the correct second?
Or any point before that second but after the price has increased above what they paid? Quite a number of them I would expect.
Also, it's possible to use limit orders, so that if a short squeeze happens and causes the price to go up above the limit, the person's shares are automatically sold.
Or it could all go wrong in several different ways. It isn't a low risk activity. But if the risks are out in the open, where's the scam?
Looking at WSB today, a lot of people and comments are clearly market-irrational, because they're smelling blood. They're not buying the stock based on the fundamentals, they're buying the stock in the hope of bankrupting any fund that is trying to short sell the stock.
For revenge. For shits and giggles.
A friend of mine posted some statistics from a Swedish broker who reported that over 15000 people had bought shares in GME in the past two days. That's just one broker in one small country. Suddenly, that 50 million share float doesn't look very big. It's definitely small enough that what is essentially a global flashmob of angry people can completely disrupt the share.
I think if you're shorting the stock right now, thinking it "has to" crash back down, you're severely underestimating the size and irrationality of this mob.
The circumstances at the moment are strange, for sure, but the end result seems all but certain to be the same: the patsies mostly end up giving their money to someone else. It just happens that this time, it's a different group of market manipulators, who may or may not be acting legally and so may or may not get to keep that money anyway.
If nothing else, this incident has shown that maverick investment could be dangerous to our financial systems. These stocks do not exist in a vacuum and the people playing games with them are not operating independent of the rest of the markets. Their actions could hurt a lot of innocent people as well -- ordinary people who just have their savings and pensions invested in the market in normal, responsible ways -- at least in the short term.
If the same strategy continues, it must be a matter of weeks, if not days or hours, before governments begin heavy-handed regulatory interventions and even new legal restrictions, assuming that hasn't already started behind the scenes and isn't responsible for the interventions in buying certain stocks that have already happened.
Why? If the end result is the same, what's the argument for regulating it?
Also, there's a hilarious near-unanimous political backlash against the brokers that interfered or halted with their customers' ability to trade GME these past couple of days.
> If nothing else, this incident has shown that maverick investment could be dangerous to our financial systems.
In the 2008 financial crisis, the actors who caused it suffered absolutely zero consequences, while the losses were socialized, and regular people suffered consequences in the form of recession and unemployment.
The hypocrisy is staggering, if anything, the large actors in the financial systems are dangerous to ordinary people!
> Their actions could hurt a lot of innocent people as well
"Won't somebody please think of the children!!!"
Yeah, no. The explicit target of this action are the shorting hedge funds that were betting on Gamestop's slow demise. There are no innocents being hurt here.
Mitigating the collateral damage that this sort of situation causes.
The hypocrisy is staggering, if anything, the large actors in the financial systems are dangerous to ordinary people!
I agree that some large actors have in the past been grossly irresponsible. I agree that they should be regulated and if necessary penalised accordingly.
But two wrongs do not make a right.
The explicit target of this action are the shorting hedge funds that were betting on Gamestop's slow demise. There are no innocents being hurt here.
Tell that to everyone whose savings and pensions are invested rationally in places that are traded on the same markets but have nothing to do with the WSB pump and dump. Extreme volatility and irrational stock prices ultimately hurt everyone in the market who is trying to invest responsibly.
The thing is, this isn't 2008. The risk then was that the entire financial industry was in a precarious position because even the ones not holding enough bad mortgages to bankrupt them were still holding some, and the double whammy of that and being exposed to defaults by what people expected to be stable institutional debtors could have had a domino effect.
Right now the financial industry is already flush with stimulus money and interest rates are around zero. You don't get the same domino effect. So big firms that made risky bets can suffer the consequences.
> But two wrongs do not make a right.
Just the opportunity to not bail them out this time could be worth the consequences to act as a deterrent for this kind of careless risk taking.
> Extreme volatility and irrational stock prices ultimately hurt everyone in the market who is trying to invest responsibly.
Explain how this has any significant effect on everyone investing in major index funds. Most of them don't include GameStop at all and for the few that do it generally isn't a major component. And even if it was, they would have then owned the same number of shares before this started and after it ends, so if the price goes from $5 to the moon and then back to $5 again over the course of a short period of time, that effects them how exactly?
And yet, despite steady, healthy growth in recent months, I appear to be down close to 10% over the past week. Now, that could just be bad luck, with sharp falls striking a variety of different funds at almost exactly the same time. Perhaps there has been some profit-tasking after that period of growth. But there has been generally positive sentiment in other respects this week, from Biden to vaccines, and no obvious cause for sudden alarm or to expect the growth to stop.
Alternatively, something else is happening, and there is only one story making the front pages today that could explain it.
Now, as I mentioned, I'm generally a buy-and-hold, long term investor. Short term blips don't greatly concern me, and probably won't until I'm getting close to retirement. But if I were about to retire, I'd be concerned about the short term consequences for rationality in the markets.
and that's why it's a game of chicken...
Also, I don't believe it's legal for a public companies to issue shares to specific parties at sub-market prices. It certainly wouldn't be legal for the to do it if shareholders didn't approve of it.
I think it is common for public companies to sell stock below market though. If they set a price ahead of time, unlike GameStop in this instance, then the market price will change, right?
AMC did this, both through direct stock sales and through convertible debt. The latter seems easier, because all the work is done ahead of time and when the stock reaches a certain level everything just goes "poof" automatically.
https://deadline.com/2021/01/amc-entertainment-silver-lake-s...
The purpose of the stock market is asset allocation, to ensure capital is used efficiently. Companies with high stock prices can issue shares to invest in their business when needed. People are voting with their money for companies to live or die. In that sense, certain forms of 'manipulation' are indeed wrong as they decrease capital efficiency in the system.
You can argue that the stock market has ceased to function this way already, but to that I'd say: two wrongs don't make a right.
Regardless of the legality - the entire stock market, is not mechanisms which lead to equitable and socially beneficial distribution of resources, efforts, products, services. Fundamental needs and well-recognized valid interests of the majority of the population (in the US and in the world at large) are unmet and unattended to, while limited interests of small elites are well catered to.
So, there is a lot wrong with short-selling as part of a wider mechanism.
Lots of hedge reptiles were on the momentum side rather than the short side. They've ridden it up, and eventually they'll ride it back down. There's no way they'll allow regulation to interfere with this sort of opportunity. Smart money does not outlaw dumb money.
People defending short sellers are likely to be one and/or protecting their rich short seller friends.
Neither side is deserving of compassion or concern as long as they are fully informed on the underlying nature of the share of the business they are buying.
Selling a house that you have a mortgage on is selling something that you only partially own.
Short sellers are selling something they borrowed because what they borrowed is fungible (ie one share in GME is equivalent to any other share in GME).
The real question is whether what they borrowed exists and whether the owner of that is doing the right thing by lending it. If owners of shares won't lend, then short sellers can't borrow.
Should a pension fund that owns shares that are expected to increase in value (otherwise why do they own it), lend that share to someone who is actively trying to reduce its value?
Short sellers are effectively betting against the success of a company, which gives them an incentive to do everything in their power to put that company out of business. And don't say "but that's illegal!" since our enforcement system has no teeth and big players commit crimes all the time whenever the fines are lower than the cost of legal alternatives.
And when a company is overvalued or committing fraud, that is a good thing. Stopping a bubble from growing is how you reduce the harm inflicted on regular investors.
> which gives them an incentive to do everything in their power to put that company out of business
And the long position is incentivized to hype up a business up to and beyond the line of fraud.
Both sides of a financial transaction can perform their duties fairly, or corruptly. Life is not so simple as to declare only one party the problem.
There is absolutely nothing wrong with redditors fucking with short sellers. People who are clutching their pearls about this are only trying to protect rich friends who are hedge fund managers.
There is nothing wrong, illegal, or immoral about trying to "manipulate" the stock market unless you are committing fraud or have insider information. CEOs of companies, activist investors, and analysts do this for a living every day. They are not more qualified than us to have and share opinions and history tells us they are perhaps much less.
There is absolutely zero reason for anyone - SEC, The Government, robinhood, the exchanges, Facebook - to intervene and anyone who is considering intervention right now is only doing it to protect their rich hedge-fund friends.