After remaining curiously quiet over last week’s Robinhood fracas, White House press secretary Jen Psaki finally addressed the issue. Rather than focus her fire on Robinhood, the crypto and stock trading app that may have broken the law in rigging the market against GameStop and AMC bulls, she absurdly recast the problem as one of market volatility.
Asked by Jordan Fabian of Bloomberg whether President Biden backs proposals to regulate short selling or financial transaction taxes, Psaki replied, “This is under the purview of the SEC in terms of their review and monitoring, but there is an important set of policy issues that have been raised as a result of market volatility in recent days, and we think congressional attention to these issues is appropriate and would welcome working with Congress moving forward as we dig into these further policy issues.”
Never mind that this is basically a non-answer — it’s also an illustration of illiteracy in finance. That Psaki frames the impetus as “market volatility,” not of a trading platform suppressing purchases of GameStop shares while allowing sales, is telling. Fabian did not even mention market volatility in his question.
The hedge funds shorting GameStop were doing nothing illegal, even if it seems shady to bet against brick-and-mortar businesses and, in effect, suppress a company’s market cap. The band of Redditors who drove up GameStop’s stock price and beat the billionaires at their own game for a time also did so through entirely legal means.
The real villain of the saga is Robinhood, which crucially rigged the game by giving the hedge funds that had shorted GameStop a chance to cover their shorts at a discount by freezing purchases of shares. According to Goldman Sachs, last week was the largest active hedge fund deleveraging event in over a decade. If the freeze wasn’t the result of a liquidity issue, as Robinhood asserted, then it was almost certainly the company intentionally rigging the market in favor of the hedge funds.
Yet Psaki blames “market volatility,” which would imply that the cause of that volatility, the Reddit bulls blowing up GameStop, is the real problem. That’s not a great sign that Biden will stand up for the financial rights of people, or even more importantly, it shows his willingness or eagerness to take on the multibillion-dollar company that might have just manipulated markets in order to protect hedge funds.
