What will Biden and Yellen do on the GameStop case?
Because the GameStop case represents a conflict of interest for the Biden administration. All the details in Stefano Graziosi's article for La Verità
Conflict of interest ahead for the Biden administration?
The Gamestop case is shaking American politics. The trading app Robinhood has limited transactions after numerous small investors bought stocks of a declining company (Gamestop) breaking eggs in the basket for hedge funds that had bet on its downside.
The decision sparked controversy. And, as mentioned, there is also a problem for the president.
One of the companies most affected by what happened was Melvin capital which – a few days ago – was rescued by two hedge funds, Citadel and Point72, through a payment of almost 3 billion dollars.
And there are those who speculated that Citadel may have had a say in the Robinhood squeeze. A thesis that the Chicago hedge fund has denied, although it should be remembered that Citadel is the main market maker used by Robinhood.
And what does the Biden administration have to do with it? It has something to do with it because – as reported by Politico – the new Secretary of the Treasury, Janet Yellen, has in the past received from Citadel over $ 800,000 as compensation for some conferences. The same Yellen who, according to reports from the White House last Wednesday, is "monitoring" the Gamestop issue.
Question: Is it normal for a lady who has such ties with someone involved in the matter to be in charge of "monitoring" that same matter on behalf of the US government? Not to mention that many supporters of Joe Biden had said they were in favor of a reform of Wall Street.
A somewhat odd position, given that in the past two years, Yellen has received $ 7.2 million in compensation for conferences organized by major financial players (including Goldman Sachs and Barclays). Reforming intentions, starting from these premises, are difficult to consider concrete.
That said, one must also avoid running into trivializations. What small investors did on the Gamestop case stems from a dynamic that is increasingly taking hold in the American financial world: due to the very high prices of the big giants which in fact exclude individual individual investors, the latter first turned to platforms that allow the splitting of securities and then thrown on the so-called penny stocks. However, coordinating on Reddit is a very dangerous leap.
The limitations introduced by Robinhood are also explained by the fear of an intervention by the Sec. It must in fact be said that the measure is aimed at stemming any manipulation of the market (a case in which American law is notoriously severe).
Charles Whitehead, a professor at the Cornell law school, for example told the Vox website that – with respect to the issue of manipulation – the conduct of small investors in the Gamestop case falls into a "gray area". This is to say that some positions that have taken place recently are a bit demagogic. This is the case, for example, of deputy dem Alexandria Ocasio-Cortez, who took sides against hedge funds and asked for "a hearing if necessary".
Nonetheless, the legislation governing the activities of these funds is anything but tender and is based on a large set of rules. And the practice of short selling (the sale of securities not directly owned by the seller) is governed by the so-called Regulation sho, through the Securities and exchange commission.
It is therefore curious that Elon Musk also found himself criticizing short selling on Twitter, given that he himself sold cars for years that he did not actually have. More than cheap demagogic shots, what is needed is perhaps something else: certainly keep our guard high towards large hedge funds, but – at the same time – also study how to regulate investment phenomena "from below", such as the Gamestop case .
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/caso-gamestop-biden-yellen/ on Tue, 02 Feb 2021 08:07:37 +0000.