Wall Street Gets Played

We live in a free-market right? One where we can expect the “invisible hand” to do its magic with little government interference in the free exchange of goods right?

Not exactly. It’s looking more and more like the “invisible hand” isn’t the impartial hand of a free market but one controlled by elites. In other words, the odds are stacked against you.

Let’s not kid ourselves. Politicians, Wall Street execs, and tech titans say all the right things on camera about looking out for the little guy, but the truth is the only people they’re looking out for are each other. The elites are in each other’s pockets and they only advocate certain policies and positions if it makes them sound good to the public but behind the scenes they only do things and if there is a direct benefit to them.

Case in point. I only bring up the following example to make a point:

Last year, following the general elections, The Washington Post, owned by Jeff Bezos, called any claims of mail-in voter fraud dangerous and inexcusable. However, Bezos seems to have changed his tune about mail-in voting now that it’s his pocketbook that could be impacted.

Recently, Amazon made news with its attempts to postpone a unionization vote at one of its warehouses in Alabama, the Wall Street Journal reports. Amazon has requested that the National Labor Relations Board reconsider allowing mail-in voting, claiming that the mail-in voting process has “serious and systemic flaws.”

How many politicians last year were caught violating their own mask mandates and social distancing rules to get haircuts and out at restaurants. It seems the “Rules for Thee but Not for Me” maxim is strong with the elites.

The elites of this country all got exposed this past month for who they’re protecting. Ironically, it was the little guy that unmasked them. It all started with an online investing community who goes by the name of WallStreetBets who gather on Reddit, a news aggregator, and discussion website.

WallStreetBets boasts more than 2.1 million members strong. Members of the subreddit are often young retail traders who use the free trading platform Robinhood and who ignore fundamental investment practices. Many take pride in their cavalier, devil-may-care speculative approach to investing. Armed with stimulus checks, many don’t care whether they win or lose – sometimes investing for the pure rush they get from stock market volatility – like a roller coaster.

Tired of hedge funds preying on flailing companies like brick and mortar gaming retailer Gamestop by shorting their stock and precipitating the stock’s decline by the shorting activity.

​​The members of WallStreetBets decided to strike back by collaborating to drive up Gamestop’s stock to put these hedge funds in a short squeeze – forcing them to buy stocks at higher prices to cover their shorts and in the process losing money. This plan took off in January where the price of Gamestop shot up from around $17 around the beginning of the month to a record high of $469.42 on January 28th. Hedge funds lost billions.

As the hedge funds were bleeding billions, that’s when the elites stepped in. It started with Robinhood. Pressured by the hedge funds, Robinhood stepped in by suspending the trading of Gamestop (GME) shares. Gamestop stock immediately plunged to where it now sits at around $53 a share as of the writing of this post.

The sham doesn’t end there. When Robinhood users flooded Google with hundreds of thousands of negative reviews, Google removed these reviews to protect fellow Silicon Valley tech firm Robinhood’s reputation.

So why did Robinhood intervene to help out the hedge funds?

To understand why Robinhood intervened, you have to understand its free-trading business model:

  • ​​Robinhood doesn’t charge commissions to encourage high volume trading and it has liberal margin policies to encourage this activity.
  • ​Robinhood makes money turning those trades over to high volume traders (aka market makers) who execute the orders in bulk (high volumes) – making money from the price spreads.

These market makers pay Robinhood more for options trading than for straight buy and sell orders. Hedge funds are some of Robinhood’s biggest traders. So, if hedge funds are losing billions of dollars due to the actions of Robinhood retail traders, who do you think Robinhood is going to protect?

Then the Washington elites stepped in, painting the WallStreetBets crowd as market manipulators. The Biden administration was reportedly “monitoring the situation”, and the CEO of Nasdaq Adena Friedman vowed to halt trading if they matched unusual activity with chatter across social media platforms, and give investors a chance to “recalibrate their positions.”

In other words, Nasdaq vowed to halt the trading of Gamestop stock to give “investors” a chance to recalibrate. The only “investors” Wall Street is protecting here is the elite investors – the hedge funds.

If by “monitoring the situation” Washington means doing nothing, then the political elites have done their jobs. This shouldn’t come as a surprise.

Wall Street’s financial support for Biden exceeds the amounts raised from Wall Street executives in support of Trump in both the 2016 and 2020 cycles. And when some financial companies announced they would take a more apolitical approach going forward due to backlash in the press, Democratic lawmakers privately threatened to limit access to policymakers for companies that pause donations.

The lesson in all of this is if you think the Wall Street odds are stacked against you, you’re right. Wall Street is being played – to the detriment of everyone else but the elites. Wall Street, tech, and Washington elites are only taking care of each other.

All this market manipulation can be frustrating for those of us who have done everything according to the rules. We went to medical school, took the board exams, and complied with all the required regulations and certifications required to practice medicine.

We’ve played by the rules, but now, to find out that the elites don’t play by the same rules is discouraging. ​​Putting money in the stock market – a market rigged to benefit only the elites – is a fool’s errand.