Congress gets involved with GameStop and Robinhood
Story has been crazy but is it all legal whether it's the flurry of retail traders drug stock prices or the hedge funds and partner companies trying to maintain their dominance wall street is entering some new territory and the rules. Aren't really clear here to explain. Why congress is actually starting to involve is recruits. Ronnie mola sherani. Hey daddy so catch me up on game stop so we talked here on the show about retail traders mobilizing on read. It obviously A key part of the internet to buy hundred game. Stop stock right. And then there's this. Hedge fund called melvin capital but hedge for the general were shorting the stock and they lost all this money. What happened since we last talked about game. Stop so basically robin hood. This commission free app that everyone's been using to buy all these memes stocks like games up. Amc announced that it was actually going to restrict trading on certain stocks including game. Stop rate as all. These people were making a lot of money in the stock price was super high. And as a result everyone got really upset especially these retail investors. A lot of people joined this class action lawsuit saying that robinhood manipulated the market by restricting trades and caused them to lose a lot of money. Sort of this. This platform has become Now being dogged by allegations as it's an tank for one side or another. So why would robin and do this. Why would they yup. They're supposed to just facilitate trades and not care whether game stock goes up or down. Don't they make money on volume so they want more activity. But why would robinhood care if some hedge funds were taking a hit. So i don't think robin hood did care that hedge funds retaining hit. There's a lot of confusion about this but basically it comes down to this plumbing about how the market works and how trades are actually executed that you would never really need to know but essentially because all of these people were investing in these really volatile stocks stocks whose prices go up and down. Robinhood has to keep a certain amount of money. These deposits with clearing houses that are based on how volatile a stock is toronto. Keep some money. Just in case stuff goes race yes essentially and because so. Many people were trading in these really volatile stocks. They had to keep a lot more money. Something like tenfold. What they're used to. And they just didn't have the money for so they actually had to get an infusion of cash rely on a few of their investors to give them a billion plus dollars in order that they could keep letting people trade came out said that we didn't want to stop anyone from trading. Anything this has nothing to do with pets funds or anything. This was just a. We didn't have enough money to clear. These deposits okay so for all the conspiracy theories that have been going on about robin hood somehow being on the take or something like that. You're saying the explanation is actually more boring. It's just has to do with the way that complex financial from his actions like this happened right. And i mean it doesn't help that the way that robin hood makes money is it actually has this other company called citadel securities actually executed trades. And they pay robin hood and they make money because they sell the stocks for a little bit more than they buy them for. They make a few pennies on each trade. And then the guy who owns citadel it all securities also owns a hedge fund called citadel which helps bail out melvin capital which was short and game. Stop okay so there's some associations between between Robin hood and the people who were shorting stock. Yes but they're saying this had nothing to do with the decision they made. That was simply because the deposit requirements for too big sure. Sure okay so now what happens now. I mean so. We're starting to see some action in washington about this. Obviously this politically appealing to a lot of people because you can run against wall street running in silicon valley run against the rich people like. Tell me what we can expect. Obviously there's a lot going on dc but the seems like something that could have some. Bipartisan outrage to it yeah you saw lawmakers on both sides of the tweeting and calling for hearings. There's definitely going to be multiple hearings in congress about what happened. Precisely lawmakers are pretty happy to find any reason to call into question. What's going on wall street. And why a lot of this seems very unfair conservative. Republicans like ted cruz want some answers. Progressive democrats warn zero cossio. Cortez are making a big deal about this. Warren obviously has a background in financial regulation. Tell me tell me what she's thinking. About what congress should do about this just so we get a flavor of the types of things being talked about washington. Yeah she's saying there needs to be an sec investigation. The sec needs to do their job. Make sure there's more transparency in financial markets. Make sure it's not rigged. Make sure there's no manipulation so she's sort of just calling for them to figure out what's going on. Are they doing anything about this yet. So the sec side. It's monitoring the situation. It's also going to look into whether any investors were disadvantaged because they weren't allowed to buy these certain securities It's also important to know the sec's in transition right now. They have an acting chair but they're waiting for their nominee Gary gansler to actually be confirmed. But in the meantime yeah. You're you're just gonna see the sec monitoring the situation. They makes me wonder. How does robin feel about sort of these allegations or conspiracy. Theories robert is now being a little bit more open about what happened and they were in the initial kind of crisis mode. Yeah i mean. They've lifted some of the limits that they had on securities. You could now by game stop again if you buy a shares of amc. They're also going on the sort of like pr offensive. Where they're saying exactly what happened. The they wanna tell you all about clearing houses they want to tell you about the deposits the volatility. You know how how they had to spend so much money this time. So like even the vlad ten of went on clubhouse yesterday with your skin kind of tried to explain exactly what happened. you know. And they're just trying to say this wasn't some sort of giant wall street cabal. This was a really boring thing that had to do with deposit requirements.