In The News Quiz February 8, 2021
GameStop Politics: Regulating Wall Street…and Reddit Day Traders?
As the COVID pandemic stretched from spring into summer 2020, the brick-and-mortar video game retailer GameStop was faring poorly. Gamers increasingly opted for digital downloads, and few wanted to browse aisles of new or used offerings amid coronavirus fears. GameStop’s stock was trading at around $4/share, down from double digits pre-COVID, and some Wall Street financial firms shorted (bet on the price to drop further) the stock. Suddenly, in January 2021, a group of day traders sharing tips and ideas on Reddit drove the company’s stock price higher and higher—topping out at over $400. GameStop trades were temporarily suspended on most market exchanges, and the hedge funds that shorted the stock lost billions, with one (Melvin Capital) forced to seek a $2.75 billion bailout from investors.
Politicians responded in different ways. Financial regulators, like the Securities & Exchange Commission (SEC) and Treasury Department, began investigations into how a loosely coordinated group of amateurs could effectively ruin giant financial firms. Others—on both the left and right, including such disparate figures as Senator Ted Cruz, staunchly conservative Texas Republican, and Alexandria Ocasio-Cortez, symbol of the left and New York Congresswoman—took aim at “Big Wall Street” and celebrated the Reddit traders as crusaders for economic justice.
What do you think: are the Redditors heroes, in the Robin Hood mold? Or illegal manipulators of a stock market that appropriately rewards innovative companies and penalizes outmoded ones, like GameStop?
Read the following articles that detail some of these issues: