...Instead of greed, this latest bout of speculation, and especially the extraordinary excitement at GameStop, has a different emotional driver: anger. The people investing today are driven by righteous anger, about generational injustice, about what they see as the corruption and unfairness of the way banks were bailed out in 2008 without having to pay legal penalties later, and about lacerating poverty and inequality. This makes it unlike any of the speculative rallies and crashes that have preceded it.
They forgot to add unemployment due to lockdowns (or, lockdowns generally) to the list of injustices inspiring anger.
PufPuf93 » Fri Jan 29, 2021 4:22 pm wrote:A transaction tax would halt much of the automated trading and raise an substantial amount of revenue. Also would create more stable financial markets.
Long as I'm not getting socialization of capital, I am very much for a transaction tax. Its advocates produce estimates that do not always try to account credibly to what extent it would cause all manner of transactions never to occur, and therefore net a far lower tax haul than they think. Of course, I actually believe in MMT: how much they get out of it doesn't really matter, at least if it's federal. (It would if it were for a state or some other entity that isn't the currency sovereign.)
And I'm all for that aspect of it. Fuck all this casino trading. A TT would basically kill HFT DEAD, which is exactly what should happen to those frontrunning thieves. (Who the fuck THINKS of shit like that?) All these other trades that amount to the Superman III maneuver would also disappear. There's probably a host of other unsavory and predatory actions I'm not thinking of directly that it would effectively abolish, which of course the lackeys to capital at CNBC and at the libertarian/neoliberal high-policy citadels would be blaming for the end of innovation and your 401K and whatever other watery-gray bullshit they can think of.
Not that it's a solution to everything.
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We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.
To Justice my maker from on high did incline: I am by virtue of its might divine, The highest Wisdom and the first Love.
PufPuf93 wrote:A transaction tax would halt much of the automated trading and raise an substantial amount of revenue. Also would create more stable financial markets.
Minor major point: Impose transaction tax to curb automated trading and stabilize markets, but not for revenue.
All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.
I know I'm harping, but this caveat is pertinent to reshaping of the financial system.
Edit: I didn't see Jack's fuller response above when I submitted.
“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” ― Joan Robinson
"When I'm done ranting about elite power that rules the planet under a totalitarian government that uses the media in order to keep people stupid, my throat gets parched. That's why I drink Orange Drink!"
I thought gamestop went out of business a few years ago.
I wouldn't call it the moonrake effect, though. But it gets me thinking about it. I don't know why I thought they went out of business already. Maybe I read something about them closing a lot of locations one year?
I think back to pre-moonrake effect times, when you heard that someone from stage and screen died, and said 'oh, I thought so-and-so was already dead.' and that was that. You didn't need to psychoanalyze everything. The dimensional drift of the moonrake effect simply didn't matter. Maybe it didn't exist, until it was postulated.
Both his words and manner of speech seemed at first totally unfamiliar to me, and yet somehow they stirred memories - as an actor might be stirred by the forgotten lines of some role he had played far away and long ago.
Born we are the same, within the silence, indifference be Thy name Torn we walk alone, we sleep in silent shades The grandeur fades, the meaning never known- 'Born' Nevermore
At this point I think mixed as a thing, but with a revelatory function that is much bigger than the thing itself.
Whatever gets more people correctly viewing Wall Street and "the markets" as one big industry of interlocking scams and frauds with no social or economic benefit and plainly destructive for the vast majority of humans is a good thing. Even when the good guys and the bad guys in a given conflict are not as clear-cut as we may want to imagine.
Yves for example says that about Wall Street generally while pouring water on the liberation angle. Agree or disagree with given points, her analysis is weighty. If you can get past the headline...
Not only is your humble blogger not feeling well and in no mood to write,
uh oh
but due to the uninformed and misguided hyperventilating about Robinhood and the outrage about Reddit touts being deprived of their trading fix and possibly some gains, I nevertheless feel compelled to weigh in.
I can muster the teeniest bit of sympathy for media frenzy over this story. It’s a happy bit of nostalgia, a reminder of the innocent days of the flash crash, before Trump and Covid. Plus the financial press must be happy to be getting some attention again. First Leon Black, now wild stock gyrations and lots of finger-pointing. They might be on a roll.
But let’s put the atmospherics to the side. This episode, including the grotesquely disproportionate amount of attention it is getting, is an indictment of American capitalism.
I'd say the latter, definitely. So let's welcome the attention. Too many indictments go unnoticed, after all.
First, the spectacle of the Senate wasting its time, in the middle of a pandemic, on some trading junkies maybe having not made as much money as they felt entitled to, is pathetic.
Well, it's Melvin and Citadel and Co. who are aggrieved that they didn't make the money they feld entitled to make by bombing some random retail chain from the sidelines for sport and profit. And this was just as big the day before Sherriffofnotingham lived up to its name
It shows how warped the priorities of our putative elites are. This is secondary market trading in one bloody stock. Secondary market trading is societally unproductive (more on that shortly) and should be discouraged by increasing transaction costs (this is one of the big reasons to push for a financial transactions tax, not for revenue purposes, although that’s a nice side bennie, but to shrink the financial casinos).
The company is unimportant. The parties on both sides are competitors in a beauty contest between Cinderella’s ugly sisters: clueless new gen day traders versus clumsy shorts, many of whom look inept at the basic survival requirement of managing trading risk.
I'd say a classic case of so much impunity enjoyed that they forgot what getting caught is, or as they say, "those who win a rigged game, get stupid."
And as we’ll address in due course, the real bad guy, the SEC for promoting such a socially unproductive market, has yet to receive the criticism it deserves. It’s simply bizarre that cheap market liquidity is being treated as some sort of right.
The focus has been the traders on Robinhood, a free trading platform, although some of the bigger low-cost services also had some trading halts in GameStop. These punters are surprised that a free service might not give them the best, or any execution in a bad market? Did they not work out that they were the product and having their order flow to Citadel might not be a great position to put themselves in?1
When you put it that way, hard to disagree. A genuine insight I didn't realize until Yves pointed it out. Citadel does the clearance for RH, and Citadel also does HFT. Golly.
Or as Financial Times reader AM put it:
Providing zero commission retail investing is only viable with an inflexible and highly optimised execution model.
It’s no surprise that the execution model fails for small single name stocks when their market goes haywire.
Now in fairness, it appears that not all of the speculators involved in the short squeeze were plucky retail investors up against big bad Wall Street pros; some have suggested that there were hedge funds on both sides of this play. But the press is still running uncritically with the “little guys get the better of professional money” spin, no matter how well it actually fits what happened.
However, another wee problem with the little good guys versus big bad Wall Street narrative is that the retail traders might be deemed to have engaged in price collusion or market manipulation.
Nothing comparable to the scale of what Melvin did, though. And they're working with publicly available market info and pointing to it on message boards.
Bloomberg’s Matt Levine walked very carefully around the issue and said he couldn’t conclude either way. But his arguments to try to exculpate the Reddit-maybe-colluding longs all hinged on the trades being one big lark. So why should Congresscritters come to their defense if it’s not clear that their activity was legal, and it is clear that they were speculating, not investing?
Because it's clear that Melvin & Co's activity was unscrupulous and SHOULD be illegal, but isn't?
You live by that sword, you can die by it too.
The shorts are depicted as hedgies, when short sellers are arguably the least pernicious financial speculators. They do the unloved and risky work of finding badly managed, overhyped, or even outright fraudulent companies, then betting on their views and trying to educate other investors that they are being had at current price levels.
Oh come on.
Turn that around and WSB could more credibly argue it in their own defense: "They do the unloved and risky work of finding badly managed, overhyped, or even outright fraudulent TRADES, then betting on their views and trying to educate other investors that they are being had at current price levels."
However, the GameStop shorts look like an awfully inept bunch. Even though at a remove, they appear to be correct about their views of the company’s valuation, if you are a short, you never want to take a position that is so large you can’t get out of it pretty quickly, as in out of proportion to regular trading volumes.
Bet they got away with it so many times they forgot anything like that applies to them. That's what was so wonderful about the WSB move.
This is the same rookie’s mistake that brought down LTCM, which managed to make a outsized bet in the interest rate swaps market. From Ghostrider2014:
Firstly, contrary to what WSBers think, there is no sympathy in any corner (wall street or main street) for the HFs who in their infinite wisdom shorted over 100% of free float – that is just dumb and they deserve to lose in the squeeze.
I'd point out the notable exception of all the paid-for sympathy they are getting from some of their lackeys and useful idiots in the press, especially on CNBC, which is no surprise (and which no one may take seriously any more except to mock it).
Secondly, there is no way the long is driven solely by retail demand – there is over $15bn of trading every day for the past 4-5 days and that has to be institutional money. So this is HF vs HF most likely.
Or HF "versus" allied HF engaging in repeated back and forth trades of the same chunks of shares with the design of driving the price down against those who bought and are holding.
Finally, brokerages have no incentive to halt trading unless they have capital/margin requirements from the clearing houses. So this conspiracy theory of wall street banding together doesnt make sense.
Second, the reporting on the Robinhood and other trading halts in GameStop has been abysmal. Some of them were circuit-breaker-type interruptions due to the speed of the price moves. But that big uptick in price volatility in turn led the clearinghouses imposing higher margin requirement on brokers trading in GameStop, hitting Robinhood, proportionally most exposed, the hardest. Mind you, I’m not saying that Robinhood handled its customers very well when this happened, but the underlying cause isn’t nefarious. Robinhood is likely to be revealed as incompetent, which is still a very bad look someone handling other people’s money.
See the discussion by the WeBull CEO starting at 1:20 on the big increase of DTCC margin requirements and how that affected brokers:
The simplified version from DSC at the pink paper:
RH has capital requirements for that activity and in extreme vollitality/elephant herd of orders it’s easy to see how that got smashed and how it might have been reasonable for RH to liquidate non margin but RH funded positions
Third, while this story has entertainment and perhaps even educational value,
Oh come on, it's definitely educational, and a good kind of entertainment. But what she follows with is really important.
the fact that it’s getting any traction in DC is confirmation of how backwards our priorities are. Since the crisis, there have been boatloads of economic studies on secular stagnation and other ills of advanced economies. Despite the joke, “You can lay economists end to end and never reach a conclusion,”: a surprisingly large number depict overfinanicialization as a drag on growth.
Not to mention any hope of reaching the "other world that's possible," with or without the present model of "growth."
Even the IMF concluded that the country representing the optimal level of financial “deepening” was Poland circa 2015, and more financialziation was productive only if regulations were strict. Those conditions haven’t been operative in the US for quite a while.
On top of that, the most unproductive activity is secondary market trading and asset management. The US stock market has a very high level of secondary market activity compared to primary investment, as in companies selling stock to the public to raise new funds to expand their business. You don’t need anything approaching this level of liquidity for companies to be able to price and sell new shares, as the success of large (by the the standard of the day) IPOs and stock offerings of seasoned issuers back in the stone ages of high priced stock commissions attests. The fact that it’s twice as easy to become a billionaire in asset management as in tech shows the degree to which money manipulation is sucking activity and talent away from Main Street to Wall Street.
Oh Yves, did you really just group "tech" in with Main Street against Wall Street?
Anyway, larger point taken: the big show is a fucking casino on the sidelines of anything that could be sold as remotely productive. (The difference between betting against the Patriots -- erm, sorry, I mean the Buccaneers, fucking Tom Brady -- in the Super Bowl, however, is that no matter how much I convince myself that my mind-power is going to help make the bet pay off, it will have no effect on the outcome of the game. Whereas shorting 140 percent of Game Stop's available shares does have an effect on the price of GME. Since a short involves selling the share before buying it later. It's as if, every time I bet against the Bucs, I was also delivering a kick to Tom Brady's shin.)
Fourth, and related to our third point above, is how the SEC has actively promoted speculation and poorly functioning markets. Since my childhood on Wall Street, the agency has relentlessly pushed for lower and lower stock trading costs, as if that were somehow a good in and of itself. In fact, it has largely fostered speculation and the worst sort of liquidity, the kind that is there when you don’t need it and goes poof when you do. It’s a complete disgrace that SEC hasn’t stopped high frequency trading, which is destabilizing in bad markets, which it could easily do by revoking Rule NMS, which on top of making the world safe for high frequency traders, dark pools, and also gave American the worst possible market structure. As recovering derivatives trader Craig Heimark and we explained in 2014:
Perversely, much of the regulation of the last twenty years has been nominally in the interest of “market efficiency” but has come at the expense of market integrity. Far too many of the arguments and studies saying the promotion of competition among exchanges (and dark pools) has led to greater efficiency look at the efficiency as measured by the bid ask spread (plus fees) only of trading in the top stocks (because if they are trade weighted so that is where all the volume is). But this greater efficiency comes at the expense of no reciprocal liquidity obligation (witness the flash crash) as well as reduced liquidity in less frequently traded stocks.
The societal benefit of trading is to reduce cost to raise capital for actual companies. Does anyone really think that narrowing the spread on Google by a penny or two makes any difference to its weighted average cost of capital? In contrast, incidents like the flash crash and the feeling the market is rigged keep many small investors away from the market. The penalty for reduced liquidity in small stocks may actually be material to small company capital formation.
And these small investors are right to be concerned. The old exchange system was a hub and spoke model, which was a stable system architecture. The internet was an outgrowth of a DARPA project to make a communication system so decentralized that it could not be taken out by a nuclear strike. Hub and spoke models are stable, but subject to an outage, say by a nuclear bomb or electrical failure. What chaos theorists have found is that highly decentralized networks are stable, as are single node networks (like exchanges), but that slightly decentralized networks are fragile. And that is what we have now thanks to the SEC’s misguided efforts to “modernize” the stock market via Regulation NMS.
tl;dr a set of four SEC directives in 2005 designed to make trading of any kind easier, faster and lower-cost, in keeping with the neoliberal ideology that speed and competition are always going to yield the best outcome and be more "efficient"
So I am bracing myself for some particularly painful, as in misguided, Congressional hearings and follow on upset. It’s really disturbing to see the Congresscritter eagerness to score points on this nothingburger (in the larger scheme of things) on Twitter and in the press, when late 2019 House hearings on private equity abuses produced an embarrassing amount of Big Finance pom pom waving on both sides of the aisle.
I do think she's getting this part wrong, though the political grandstanding can easily go wrong or obscure what matters.
And while I would be delighted to be proven wrong, the odds of anything good coming out of this controversy look vanishingly small. ____
1 Just to be clear, the order flow buying part of Citadel swears up and down it has a firewall between it and the hedge fund part of Citadel, which translates into, “Don’t you accuse us of front-running.”
This entry was posted in Banana republic, Free markets and their discontents, Hedge funds, Investment management, Regulations and regulators on January 29, 2021 by Yves Smith.
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So I'd love to hear from WombaticusRex on all this, if you're still reading anything on this site.
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We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.
To Justice my maker from on high did incline: I am by virtue of its might divine, The highest Wisdom and the first Love.
When the pro-hedge fund press calls them reddit trolls, it has the sense of bandits, highway robbers. Waylaying the stagecoach, holding up the train.
Calling them populists, though, I'm not really seeing it. Unless by populists we mean pop culturists.
Saying they are the 99 percent without being anti-capitalist is kind of a joke, I think. Although I thought the slogan was pretty dumb ten years ago, too.
But I guess this is really the only class warfare left to write about. The millionaires vs the billionaires.
Both his words and manner of speech seemed at first totally unfamiliar to me, and yet somehow they stirred memories - as an actor might be stirred by the forgotten lines of some role he had played far away and long ago.
dada » Sun Jan 31, 2021 1:38 pm wrote:Saying they are the 99 percent without being anti-capitalist is kind of a joke, I think. Although I thought the slogan was pretty dumb ten years ago, too.
It was and is a beautiful slogan, despite the simplification, for finally making clear to Americans the relative size of the ruling class. (It's more like the 0.1 percent, with 15-20 also "winning" in the system, so that the 99 is more like the 85.)
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We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.
To Justice my maker from on high did incline: I am by virtue of its might divine, The highest Wisdom and the first Love.
I don't take issue with the breakdown of the numbers, it's the simplification of society into purely economic terms. Like we're all just sims with indicators of our financial worrh hovering over our heads.
I don't know. I feel like I'm in a .001 percentile of, something. Something. Some other scale, where the 99 percent is not me. If they knew what I was working on in this castle, they wouldn't understand. Come up the hill with their pitchforks and torches and trash the place.
Both his words and manner of speech seemed at first totally unfamiliar to me, and yet somehow they stirred memories - as an actor might be stirred by the forgotten lines of some role he had played far away and long ago.
