GameStop and Share Markets: Between the Bad and the Ugly, There is No Good

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GameStop and Share Markets:
Between the Bad and the Ugly, There is No Good

Harry Glasbeek

The recent GameStop story coming out of the US pushed arcane financial dealings into a prominence they rarely enjoy. The public was introduced to weird concepts such as “short selling and short squeezes” and, for a while, they are likely to be part of many zoom conversations. Not least because, whatever these strange things are, to many they appear to have delivered a rare victory to the little guys who cunningly used apps to hoist the captains of finance – who often refer to themselves as the Masters of the Universe – on... their own petard.

Many commentators tell this story with relish. The envied, and seemingly untouchable (and sometimes hated) rich and powerful have been bested. One big guy, the hedge fund Melvin Capital Management Fund LP, is said to have lost $3-billion. Pete Evans, from the CBC, reported that, in the aggregate, hedge funds may be down as much as $5-billion as a result of the GameStop caper. And some little guys are said to have made out like bandits! The David and Goliath story is invoked, again and again. Who does not love this kind of story?

Of course, the big guys are hitting back. Wall Street pundits are eager to give interviews saying it will all end badly for the upstarts. That is how they see those investors whom they have derisively labelled as “dumb money” investors. And they are not just talking. The rich and powerful are using their clout to shut down the entities which the upstarts had used. As if to demonstrate their fecklessness, these most notorious of denouncers of government regulation are calling on regulators to step in and quash the unregulated upstarts. Given the obvious sympathy the public is evincing for the little guys, US politicians have been forced into action. Both the Senate and the House of Representatives have set up committees of inquiry to determine whether the retaliating hedge funds are overstepping their bounds by trying to crush their small-time rivals. At the same time, not being all that opposed to the big guys, regulators are asking whether there is a need to bring the little players down a peg or two.

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