Josh Hawley Forgets to Put the First Things First

A powerful appeal from one of the Missouri Senator's former colleagues.

Before he was a politician, Josh Hawley was briefly a law professor at the University of Missouri. Not all of Senator Hawley's former colleagues are fans of his political career. Some, such as Frank Bowman, have been quite critical.

This week, Hawley's former colleague Thom Lambert posted a twitter thread on Senator Hawley's political turn more in sorrow than in anger. It it very much worth a read. It begins:

My former colleague @HawleyMO, whom I recruited to Mizzou Law and consider a friend, penned this @firstthingsmag piece. He argues that Robinhood's restriction on GameStop trading was a Big Tech conspiracy to hold down the little guy. A few thoughts. 1/x https://t.co/Zfl1Rb75nj

— Thom Lambert (@profthomlambert) February 4, 2021

 

@HawleyMO is lying. I hate to say that of a friend, but it's true. He's saying things he knows are false. As many have explained, Robinhood halted certain trading to deal with a liquidity crisis. He knows there was no conspiracy to protect hedge funds. 2/x https://t.co/yCcaebVIGR

— Thom Lambert (@profthomlambert) February 4, 2021

 

As they say, read the whole thing.

Comments

[Ben_]

I don't care for Josh Hawley. But this post is petty.

What's it to you, Adler? Are you becoming a full-time petty hater of some category of people who are not like you? Maybe that's what you've always been?

[Queen Amalthea]

Ben has got to be the least self aware person in the world...

[Ben_]

None of this is in any way about me. So your comment is beyond irrelevant.

[Queen Amalthea]

Ben, Ben, you magnificently un-self aware person you, you really don't get that you are *pettily complaining* about Adler *pettily complaining,* *pointing fingers* at the left for *pointing fingers,* etc.

[Queen Amalthea]

It's up there with your 'the evil, stupid left just want disunity and division' shtick.

[Ben_]

^ No one cares

[Queen Amalthea]

I guess if your lack self awareness caring would be difficult.

[James Pollock]

"No one cares"
At least he's not TOTALLY divorced from reality, and remembers this key fact.

[Krayt]

You are pettily complaining about someone pettily complaining about someone pettily complaining. And you double down on it.

I don't care, but am happy to point this out.

[Rev. Arthur L. Kirkland]

Sen. Hawley is lathering rubes. Knowingly. Cynically. For perceived partisan profit.

Josh Hawley is not a half-educated, superstitious, bigoted yahoo. He merely plays one for cameras and microphones. He is superstitious. He is a bigot. But he is a prep schooler and an establishment climber, too.

Josh Hawley's conduct is shameful and noteworthy. The disaffected right-wing rubes will applaud -- much as they hug Marjorie Taylor Greene, who talks about bullets in Nancy Pelosi's head, Jew-operated space lasers, and QAnonsense -- but decent, educated, modern, reasoning people will find Josh Hawley repulsive.

Those who know Hawley are describing this. Half-educated bigots and superstitious clingers object to that conduct -- the descriptions, not the bigoted, mendacious nonsense.

Carry on, clingers . . . but only so far and so long as your betters allow.

[Dr. Ed 2]

"Marjorie Taylor Greene, who talks about bullets in Nancy Pelosi’s head, Jew-operated space lasers, and QAnonsense"

As opposed to Alexandria Ocasio-Cortez's hysterics about hiding, in fear of her life during the Capitol riot while she was safe -- in another building -- at the time.

But let's look at MTG's purported crimes.

She -- or more likely one of her interns -- clicked "like" on a comment about Pelosi. Compare that to Raphael Warnock (D-GA) who was arrested for impeding a child abuse investigation.

The Rothchild (not "Jewish") Space Lasers was an admittedly bizarre tangent from several very legitimate issues of inquiry involving the $86 Billion (with a "B") Train to Nowhere, poorly-maintained PG&E equipment igniting major fires, and the potential corruption that will inevitably be involved with any major governmental land acquisition.

Heaven forbid that we look into any of this.....

[Noscitur a sociis]

an admittedly bizarre tangent from several very legitimate issues of inquiry

Well if Dr. Ed says it was legitimate...

[Formerly Known as Stash]

Did not know that saying "Rothchild" instead of "Jewish" changes an antisemitic conspiracy theory into no more than a "bizarre tangent." Obviously, if Omar had been smart enough to say "its all about the Rothchilds" instead, Dr. Ed would have been fine with it--as merely a "bizarre tangent" in her discussion of otherwise legitimate issues.

As Nikki Haley said (of Omar): "This CANNOT be tolerated in our own Congress by anyone of either party. In a time of increased antisemitism, we all must be held to account. No excuses.”

But now it is okay in the GOP. (BTW I did a quick search, and it appears that Haley has said nothing about it.)

Omar: "I unequivocally apologize.” Greene mentioned Qanon and her 9/11 trutherism, but say "Rothchild" instead of "Jew" and no apology is necessary in today's GOP, at least per Dr. Ed.

(Where's Dr. Bernstein when you need him?)

[Rev. Arthur L. Kirkland]

"(Where’s Dr. Bernstein when you need him?)"

Prof. Bernstein is where he wishes to be, I expect. Sitting this one out.

[James Pollock]

"Josh Hawley’s conduct is shameful and noteworthy."

On the plus side, at least we know he isn't positioning himself for his post-political career.

[Dr. Ed 2]

It's beyond petty, it's unbecoming.

The underlying issue of what Robin Hood (and apparently others) did and the public policy implications thereof can and should be debated. But I am sick and tired of wholesale ad hominum attacks on Team MAGA.

Our heroes have feet of clay just like yours do....

[James Pollock]

Your hero. You can keep him.

[Al S]

I'm not Catholic (or, indeed religious at all), so will not comment on the religious aspect of the criticism. But is seems to me on the question of whether there was a "Big Tech conspiracy" to take down the redditors, Hawley is WAAAAY more right than Lambert is. Ain't no "liquidity crisis" involved in shutting down a Discord server. And of course Robinhood said nothing about any "liquidity" issues when it first prevented buying the stock. Most likely you've a post-hoc rationale for doing what Citidel told them to do, and a cover-up for the elite hedgefunders that is being vouched for by elite media and elite academia.

[loki13]

"And of course Robinhood said nothing about any 'liquidity' issues when it first prevented buying the stock."

Hey guys! So, the reason we are doing this is because ... uh, well, we don't really have a lot of money. I mean, sure we are TOTALLY a viable business concern. But you know, just a viable business concern that doesn't have, like, cash, to keep operating.

Just wanted to put that out there!

[Al S]

And yet, this is what they attempted to claim, post hoc.

[loki13]

Because it's true.

You seem to be amazed that they weren't trying to publicize it at the time.

None of this is rocket science.

[Al S]

What an odd position you're taking. "It would have been totally unreasonable for Robin to say on the day the halted the trading what they said the next day!"

Yeah, if they halted trading in the stocks because of regulatory requirements, I would have expected them to say "hey, we're halting trading in these stocks because of regulatory requirements".

INSTEAD what happened was:
-- Discord server shut down (DAMN those margin requirements at Discord!!!)
-- Trading shut down
-- Robinhood says "Our mission at Robinhood is to democratize finance for all. ... we restricted transactions for certain securities ... We fundamentally believe that everyone should have access to financial markets"
-- Ummm ... time passes
-- Robinhood says yeah, it was, um regulatory requirements that caused us to do this, yeah.
-- Meanwhile, the "regulatory requirements" caused the clearinghouse to ask them for $3 billion -- wait, strike that -- $1.4 billion.

Odd "regulation" that has the "regulator" drop its requirements by $1.6 billion. Who controls the clearinghouse, again?

[loki13]

Isn't it weird how financial markets work?

Wait, no, it's not weird.

MUST BE CONSPIRACY!!!!!!

[David Nieporent]

I'm still trying to figure out why he thinks that Robinhood controls Discord.

[Al S]

Big Tech controls Discord. And Robinhood.

[David Nieporent]

Um, no?

[James Pollock]

"Big Tech controls Discord. And Robinhood."

That sounds complicated, like lots of details to keep straight. Better to just stick with "THEY control everything."

[Brett Bellmore]

I assume it's because Discord acted to help Robinhood.

Big Tech Bites Back: Robinhood Suspends Trading, Discord Bans ‘WallStreetBets’ Over GameStocp Surge

[NToJ]

How does Discord banning /r wallstreetbets castoffs "help" Robinhood? Robinhood's customers are on wallstreetbets.

Do any of y'all actually spend any time on wallstreetbets?

Use your fucking brain. Two theories. One is that Reddit faked an outage on its subreddit so that the subreddit evacuees could go to Discord, and then the two in cahoots (with Robinhood? And Citadel?) had Discord shut them down too. The other is that a subreddit got flooded with a bunch of users who were unfortunately displaced by the totally predictable influx of users brought on by having major media outlets report on an interesting phenomenon, and when the subreddit briefly went down, Discord got overrun by over a million new users immediately, and that the wallstreetbets and Discord moderators got overrun by the influx of users, contrary to Discord's terms of service.

You wouldn't think this is a conspiracy if you spent one second at /r wallstreetbets. The moderators are swamped because of all the attention. They are posting for help and asking users to be patient. By the way, /r wallstreetbets banned users and were slow to give permission to new ones. Is your theory that /r wallstreetbets is in bed with Citadel, too?

[De Oppresso Liber]

They banned the r/wallstreetbets discord channel that had 500,000 users. The timing made it obvious what their intent was. I'm willing to believe that RH suffered liquidity issues at some point, but there are corrective steps for that that were available to RH, and again, the timing and apparent coordination with discord and other trading platforms and exchange trading halts (on price rises, but oddly not when the price started dropping much faster) made it pretty obvious to me that there was coordination going on in an attempt to lower the price of GME. If you trade frequently and watch live orders, you would notice that the order patterns throughout the squeeze looked a lot like laddering, which is another method of price fixing.

In short, there may have been a liquidity issue at RH, but that does not mean that there was not also coordinated price fixing.

[NToJ]

@De,

"The timing made it obvious what their intent was."

What is it you think "their intent was" and why does the "timing" make it "obvious"?

Why do you think Discord has an interest in preventing WSB from making trades? And if Discord has such an interest, why would they help WSB moderate their own Discord channel? (The Discord WSB channel was back up on the 28th, one day before GME went to its second highest peak?) What is your theory? That Discord had shorted GME?

[Tilted]

De Oppresso Liber:

"...and exchange trading halts (on price rises, but oddly not when the price started dropping much faster)..."

I've seen this claim before, but it's not accurate. Last Thursday when things went crazy, there were multiple limit down halts on GameStop. Some of them came so quickly after the previous ones that they kinda blurred together and I couldn't keep track of how many limit down halts there were. There were at least 6 and may have been a few more. There were also multiple limit up halts that day.

There have been more limit down, as well as limit up, halts since then.

[Union of Concerned Socks]

Yeah, you're talking through your hat.

[Kevin Smith]

I don't find it odd at all. If you are late for work for an embarrassing reason, do you immediately admit the reason to everyone, or just say "sorry I'm late" and hope your boss doesn't ask any followup questions?

[Union of Concerned Socks]

But is seems to me on the question of whether there was a “Big Tech conspiracy” to take down the redditors, Hawley is WAAAAY more right than Lambert is.

Hawley is 100% wrong, and he is using his 100% wrong assertion to push an agenda for his own political gain.

If you know anything about securities trading and account settlement, you know exactly what happened. If you don't, you're talking through your hat.

[De Oppresso Liber]

RH halting purchases but not sales on cash (not margin) accounts has what to do with account settlement?

[Jason Cavanaugh]

Do yourself a favor and learn a thing or two about stocks and how the transfers are settled and by whom before speaking again.

[Union of Concerned Socks]

And just as a footnote: the hedgies who were involved in this trade got slaughtered. SLAUGHTERED. As in billions of dollars in losses, with funds down 40% for the month.

Go ahead and Google "gamestop hedge fund losses". Best laugh I've had all week. Those guys were idiots-- just like the retail kids who took the other side of the trade-- and they got what was coming to them, good and hard.

[dwb68]

As a rule, whenever nearly the entire market is on one side of the boat (trade, in this case short gamestop), the boat tips and people drown. You cannot predict when the boat will tip, of course. This is why people track stats like "short interest" and "put call ratios" to try to glean when the boat will tip.

At least one hedge fund made 700 M long gamestop. Funny how no one mentions that.

[BrotherMovesOn]

Shouldn't that be 700 MM?

[dwb68]

And M here, an M there, and soon you are talking about real MMMoney

[BrotherMovesOn]

Haha!

[dwb68]

Hey, i am insolvent, can I borrow some money. I promise if i borrow the money I will be solvent again!

I accept bitcoin.

[James Pollock]

No deal, Mr. Trump. Not this time.

[dwb68]

I work in the banking industry.

Robinhood trade restrictions were a consequence of the extreme market volatility, which raised deposit requirements. The WSJ piece is accurate. In the lingo of Wall Street deposit requirements are "margin" requirements, and every brokerage and exchange requires them.

"Brokers therefore are subject to strict financial requirements, including that they maintain large security deposits at the clearinghouses. When risk rises, clearinghouses raise their requirements, even intraday. On Jan. 28, when GameStop dropped from $483 to $112, the clearinghouse DTCC raised requirements by an aggregate $7.5 billion. Brokers had to post that money to DTCC whether or not their clients had it.

Brokers facing liquidity crunches have two options: raise capital (which Robinhood apparently did) or reduce clients’ risky trading. This is a more plausible explanation for their actions last week than any desire to protect hedge funds. Brokers love their clients and want them to flourish. But they don’t want to go bankrupt."

Robinhood did both: restricted trading and raised capital.

I should add:
* margin requirements are a good thing, they not only decrease substantially (not eliminate) the odds of bankruptcy, but also decrease the odds that a bankruptcy will have a folllow-on effect and cause someone else's bankruptcy (systemic risk). For example, if company A trades on the brokerage, and the broker goes bankrupt, company A might not be able to access their trades and could also get into a liquidity problem.

* Margin requirements are not arbitrary. Typically margin requirements automatically ratchet based on a mathematical function of market volatility. Does not matter that its Gamestop - it could be commodities (oil), metals, stocks, stock options, interest rate futures....

* The Feds started requiring banks to post initial margin on derivatives like interest rate swaps. Again, this is a good thing. Had derivatives been cleared or had banks posted margin on trades during the 2007/08 financial crisis, the "crisis" would have been much less of a crisis for banks. Margin substantially reduces the odds that a bankruptcy at firm A like Lehman or Fannie Mae will transmit firms B,C, D - because firms B,C,D have collateral the can post vs risk.

[dwb68]

I should also add: some people complain Robinhood did not mention the margin requirements and need to raise capital.

Companies almost *never* advertise this except directly to people who need to know (investors). Advertising a liquidity problem scares people away, and makes it harder (sometimes impossible) to raise capital. Public companies would likely be required to file an 8-K. Robinhood is closely held as I understand it, so they did not need to disclose it except to their shareholders (there may have been a confidential filing with the SEC, we will never know). If I were senior management of Robinhood, I would have advised people to keep it confidential too.

[James Pollock]

"If I were senior management of Robinhood, I would have advised people to keep it confidential too."

If you were senior management of Robinhood, you'd have been in on the conspiracy. Stop trying to hide the obvious conspiracy against whoever it is that you're against.

[Union of Concerned Socks]

^ This x 1000. Thank you for posting the factual backdrop.

[dwb68]

Sorry one more point: Hedge funds need to post margin at brokerages too. Margin requirements are symmetric. So the hedge funds got blasted too. They raised capital, largely by selling other positions, which is why it spilled into the broader market a little.

[loki13]

Excellent breakdown. It's always a pleasure to see some fact-based information.

[Rev. Arthur L. Kirkland]

" It’s always a pleasure to see some fact-based information. "

That is why nearly all of the fun to be had at a right-wing blog involves mocking the clingers.

[Ridgeway]

Is there a reason we still settle trades T+3? It seems like a relic of a bygone age. If trades settled real time, wouldn't most of these brokerage liquidity issues go away? I know there would still be risks on their own margin loans to their customers, but there would be none of this 3-day float that brokers are required to support.

[dwb68]

THIS is an excellent question, lol. why tf are we still doing T+3.

This is the kind of shit we are still dealing with in 2021: https://www.bloomberg.com/opinion/articles/2020-08-25/citigroup-s-900-million-revlon-loan-error-is-still-perplexing

"did not manually select the correct system options" what in the actual fuck?

Believe it or not, a lot of large scale corporate customers are still using the ten finger data entry method, and can only do batch processing overnight. lmao.

[Brett Bellmore]

If they close transactions in real time, the "float" goes away.

[Dr. Ed 2]

How is a three day float different from check kiting?

I seem to remember some firm getting into trouble for that back when there was a float for checks.

[dwb68]

"How is a three day float different from check kiting?"

- this is precisely why brokers have deposit requirements (for both sides of the trade )!!!

[StellaLink_the dog]

Correct me if I'm wrong. Three days to settlement is on both sides of the trade. Securities don't have to be presented, but the seller doesn't actually get his money either. To use the money before the three days expires, the seller must either use the money to buy securities, where the money isn't needed until after the settlement of the previous trade, or the seller needs to borrow the money from the broker, or somebody, to be paid off at settlement. It's the broker's responsibility to insure that the seller isn't in a "kiter."

Is that roughly correct?

[James Pollock]

Some people actually hold their stock positions directly, via the old "I have a certificate" method, rather than holding it in a brokerage account. At any given time, there are billions of dollars worth of stock that are held up by the fact that a new certificate has to be printed and physically delivered to the new owner of the shares. They aren't all just electrons and magnetic states in a computer somewhere.

[Dr. Ed 2]

OK. Assuming this is all true, why couldn't Robin Hood have said "no more margin" -- i.e. you can buy but only if you pay 100%.

Personally, I thought that buying stock on margin ended in 1929 -- I didn't know it had returned... 🙁

[dwb68]

"margin" here means deposit or collateral requirements, not borrowing money to trade.

[Brett Bellmore]

No, I get it: I see a stock I want to buy at $30 a share, I give Robinhood $150 and they tell me they're buying 5 shares.

Only, they don't buy five shares. They put my $150 in an interest bearing account, and buy five shares a couple of days from now, and pocket the interest. After all, the stock is as likely to go down as up, and the interest is a sure thing.

Only along comes a bunch of people bidding up the price of the stock, on Robinhood, and while Robinhood has the money they paid in that interest bearing account, the stock price goes up a LOT, and Robinhood stands to lose a lot of money.

But, how is that my fault? I didn't tell them to wait a few days before buying it. I told them to buy it right away. Maybe they should have just gone ahead and bought the stock, instead of gambling on the market with my money?

The problem here isn't the customer, it's the "float", and "settlement period" and all sorts of crap like that, that kind of made sense in the 1930's, but in an age of electronics is just an excuse to gamble with other people's money.

[dwb68]

no, 100% wrong

[Ridgeway]

Don't sell Brett short. He pulled a GME here and actually got it 140% wrong.

[StellaLink_the dog]

The interest on that $150 amounts to about .8 cents. If you have an account with a broker, you should get that .8 cents, not the broker. That's the way it works with Vanguard and Schwab and Usaa and Scottrade, when they were in the broker business.

[David Nieporent]

Brokers are not charities. They have to make money some way.

[jb]

Because the broker still has to be able to have capital on hand to cover the purchase during the 2 day settlement period and CANNOT use customer funds for this. So even non-leveraged new positions require additional capital by the broker.

[bernard11]

Thanks for introducing some facts.

[loki13]

I read the whole twitter thread (ugh, I still can't believe that's a thing).

Ouch. Yeah, that is more in sorrow. The fundamental problem is that there is significant advantage to be gained by lying to people. By telling them what they want to hear.

That's not to say that people can, in good-faith, look at the same facts and come to different conclusions. But it is troubling when, as this thread notes, people increasingly believe that the end justifies the means; achieve power by lying (telling people what they want to hear) ... but once you achieve that power, then what? You are boxed in by those very same lies that brought you there.

Of course, there is something almost poetic about Ted Cruz (Prep School, Princeton, Harvard, CoA and SCOTUS Clerk) and Josh Hawley (Prep School, Stanford, Yale, CoA and SCOTUS Clerk) duking it out to be the leader of the Trumpist, anti-intellectual wing of the GOP.

So, there's that?

[dwb68]

Please make sure to be fair and include *all* the politicians lying to people for political advantage. There are 538 of them in Congress.If you dont understand that, you fell off the turnip truck yesterday. Hawley might be bad, but no worse than Elizabeth Warren and Bernie Sanders.

[Ben_]

Pointing fingers is really important to leftists. They tear down other people and anything anyone else built because it makes them feel big.

[Union of Concerned Socks]

Leftists, and Hawley.

[Queen Amalthea]

Again, the total lack of self awareness. Wow.

[Ben_]

^ Dumb and repetitive.

[De Oppresso Liber]

You really don't see the irony in this statement: "Pointing fingers is really important to leftists."?

[Ben_]

Nope. Nothing important about my comment. Merely a concise reply to yet another dumb irrelevant personal attack.

Too bad some people never learned to be quiet when the only thing they have to offer is extremely dumb ad hominems that zero people would ever be interested in reading.

[De Oppresso Liber]

You are a very smart boy.

[Jason Cavanaugh]

"Too bad some people never learned to be quiet when the only thing they have to offer is extremely dumb ad hominems that zero people would ever be interested in reading."

He said unironically.

Poor Ben.

[James Pollock]

"Nope. Nothing important about my comment."

Still true.

[loki13]

Hey! Remember that deal? Because we don't like each other and I don't like your fact-free comments?

Maybe don't post in my comment threads because you really just want to "indirectly" respond to me, if you'd like me to honor it too. KTHX!

[Life of Brian]

"my comment threads"

LOL, grumpy. Today I'd like to introduce you to the interwebs.

[loki13]

Aw, it's that guy! You know, the one who doesn't know what he's talking about, yet feels the perplexing need to insert his opinion because he's just ... that ... stupid ... and thinks people want to know what he thinks.

Hey that guy!

[Life of Brian]

LOL, grumpy. When did you first realize that the world had failed you?

[loki13]

I don't agree with that, at all.

I tend to the right when it comes to economics, but we need to distinguish between different positions that people can take.

For example:
Classical economics can explain quite a bit, especially at the macro level. It helps, for example, inform opinions. "Rent control is a classic example of a price ceiling, and will restrict the supply of housing assuming standard conditions." That is the type of information that should inform policy, but it doesn't dictate it.

Two people might reasonably disagree about whether the normative impact of rent control, and the type of rent control, might have positive or negative impacts in certain ways, while still acknowledging the underlying fundamental issue.

It's the same thing with a lot of issues; say, needle exchanges. I have a memory that during the Clinton administration, competent evidence was presented to the administration about the beneficial effects of needle exchanges in terms of public health; this was rejected because of normative political and moral reasons.

For the people you cite, I'm sure they have made misstatements, and they have normative opinions that I disagree with strongly (and given that you are in banking, I can imagine you disagree with them even more strongly). That said, I don't think that they are lying to people about the underlying facts.

Most politicians (well, maybe until recently!) don't actually "lie" - I know it's a common image, but they used to go to great lengths to avoid it. Weasel words, avoiding taking positions, and so on. Lying used to be a pretty bad thing!

[Krychek_2]

I understand that all (or at least most) politicians lie, but talking about 538 of them means not talking about any of them. This thread is about Josh Hawley.

[Brett Bellmore]

Still more, "Your shit stinks", and trying to rule out anybody pointing out everybody's shit stinks.

I swear, the left and context, it's almost like vampires and garlic.

[Krychek_2]

It's not context; it's an attempt to derail. It's an attempt to make it impossible to have a conversation about anything anyone on your side does.

As I've said before, if we need to have a conversation about something some Democrat did, fine, let's have that discussion, but on its own and not as an attempt to derail a conversation about Josh Hawley.

[Life of Brian]

It’s not context; it’s an attempt to derail. It’s an attempt to make it impossible to have a conversation about anything anyone on your side does.

This, after a solid week of "TRUUUMP yo" when trying to discuss whether Biden's 10x+ the typical range of executive orders in the first few days of office might be a touch excessive.

I swear I can't keep track of whether whataboutery is in or out these days.

[Krychek_2]

You didn't hear "But Trump" from me when the Joe Biden executive orders were being discussed. And my response would have been exactly the same: Whether Trump or Biden issued too many executive orders is a standalone issue for each of them.

[Sarcastr0]

No, LoB. The issue there is it's transparent bad faith to just look at the number of EOs and call it bad.

Some things are properly done by EO, some things are improper. Not engaging with that - not calling out specific EOs but just going with BIG NUMBER mean you don't care about your argument being true, just that it might convince someone who doesn't know better.

[Life of Brian]

The issue there is it’s transparent bad faith to just look at the number of EOs and call it bad.

Oh yeah, that's how it's always gone, right, O Even Handed One? So good to get a better sense of what the next 4 years' ruleset looks like.

[StellaLink_the dog]

If you want "to get a better sense of what the next 4 years’ ruleset looks like," you should pay more attention to what Arthur Kirkland writes.

[Sarcastr0]

So you're proud of your bad faith, and don't care about the truth, with the excuse that I'm bad.

That won't wash. Either defend your statement or quit lying.

[James Pollock]

"This, after a solid week of “TRUUUMP yo” when trying to discuss whether Biden’s 10x+ the typical range of executive orders in the first few days of office might be a touch excessive."

It's almost like there's a need to take note of who came before when discussing the initial actions of a new President. If you take over as pilot during level flight in calm weather, you don't need to do much to keep flying level. On the other hand, if you take over as pilot during a tailspin in a hurricane, achieving level flight is going to take some doing.

[bernard11]

Still more, “Your shit stinks”, and trying to rule out anybody pointing out everybody’s shit stinks.

But if the response to "X is a liar" is always, "Well so is Y," then no one can criticize anyone.

Further, you lose all context and perspective. That's your typical approach, of course. Trump shoots someone on 5th Avenue and you point out that Pelosi once got a parking ticket, so what's the big deal?

[Dr. Ed 2]

EXACTLY!

And advocates for the poor often were not poor themselves -- FDR and the Kennedys come to immediate mind. And by contrast, Nixon, Ford, & Reagan all came from lower middle class origins.

[StellaLink_the dog]

What you fail to understand is that Cruz and Hawley are not traitors to their elite brethern. They are creating an illusion so that they can manipulate the Alex Jones, Roger Stone, and Trump fans into supporting policies that will benefit the big money interests, the hedge funds, the insurance conglomerates, the extractive industries, etc., at the expense of the very people that they are trying (and likely succeeding) to dupe.

[NToJ]

Hawley came very close to capitalizing on a cynical strategy of lying to catapult himself to the highest echelon's of American politics. His fall from grace brings me joy not because of schadenfreude, but because it offers the slimmest hope that maybe the arc of history does bend towards justice. The fact that he's still taking cuts is embarrassing for him, but less worrisome for the rest of us, now. I hope others with his ambition take note.

[Ben_]

Drama alert

[NToJ]

lol look at this fucking nerd, he opens the thread talking about "petty" and now he's concerned about drama

[De Oppresso Liber]

QA nailed him with the most unaware person in the world title, and he is determined to live up to it.

[James Pollock]

" The fundamental problem is that there is significant advantage to be gained by lying to people. By telling them what they want to hear."

This is not a recent development.

[Al S]

Can someone point me to the regulations setting forth the margin requirements applicable to Discord servers?

kthx

[NToJ]

What does Discord have to do with Robinhood?

[Brett Bellmore]

Sorry, still not persuaded. So, tell them they can't buy on margin, but let them buy all in. This WAS about protecting the big boys.

This debacle brings up painful memories; In the early 80's, right out of college, I bought a universal life policy. It had a fabulous guaranteed rate of return, 9 percent! The insurance company had bet on inflation continuing to be high, I had bet on it dropping again.

I got the better of that bet, and was investing every spare cent I had in the policy, looking at early retirement. Until the insurance company went to court and had the terms of the contract unilaterally altered to their benefit, and my detriment.

Would the court have altered the terms of the contract in MY favor, had the insurance company been right about inflation trends? Not a chance. I'd thought a contract was a contract, but it turns out a contract is only a contract if the right people are on the winning side of it.

Were the small fry investing in Robinhood protected against losses, even ruinous losses? No, of course they weren't. Only the important people were.

[Queen Amalthea]

Brett not persuaded that a conspiracy theory isn't correct? Must be a day that ends in y.

[Brett Bellmore]

What's being described is a conspiracy. It's just argued that the conspiracy is mandated by regulators, and is a good conspiracy, not a bad one. Not a secret one, an open one.

But it's still the big boys getting together and agreeing that only the big boys will be protected. It's only natural that the big boys would think that right, and good, and necessary.

But it's not like there weren't approaches to resolving the liquidity issue that would have gone easier on the little guys, and harder on the big boys. They were just off the table because it was the big boys calling the shots.

[Queen Amalthea]

My point is you tend to take to conspiracy thinking like a duck to water, so your being unpersuaded is hardly remarkable.

[loki13]

"What’s being described is a conspiracy. It’s just argued that the conspiracy is mandated by regulators, and is a good conspiracy, not a bad one. Not a secret one, an open one."

I was watching the football game, and the referees called a false start on my team! It's a CONSPIRACY!

Sure, I know that the penalty is mandated by the NFL, and the referees called the rule correctly ... but that just makes it a good conspiracy. Not a secret one, an open one, with published rules and everything!

What will they think of next?????? Wait, I know... maybe they will publish laws, and stuff, that let them STEAL THE ELECTION WITH MORE VOTES???!!!????

[dwb68]

Deposit (e.g. collateral) and liquidity requirements for brokerages, exchanges, and banks have been around in various forms for a very long time, mostly because they are a really good idea. Had derivatives been cleared (with deposit requirements) in 2007/08, fewer banks would have been in trouble, including smaller banks. I don't want to repeat myself, you can read my other posts.

[Brett Bellmore]

And had they told the banks, "Too bad, so sad, this is why we have FDIC." the depositors would have been fine, and the surviving banks would have shaped up and cleaned up their acts.

[James Pollock]

" the surviving banks would have shaped up and cleaned up their acts."

Is that before or after the FDIC ran out of funds to insure deposits?

[James Pollock]

"But it’s still the big boys getting together and agreeing that only the big will be protected."

LOL at the ardent Republican whining about an old boys' network.

[dwb68]

No on many accounts.

First, the contract with brokerages and exchanges sets out how clearing deposit requirements change. Deposit requirements a brokerages and exchanges can and do change often.

Second, the deposit requirements also apply to hedge funds. Hedge funds needed to post more against their trades too. They raised capital (by selling other positions) and reducing trades too. Deposit requirements are sometimes harsher for short sellers because of the higher risk and need to borrow shares. So, the increased deposit requirements may have hit hedge funds harder. Hedge funds just aren't crybabies in the media, and generally dont discuss these things.

Third, you are conflating "margin" with its many (unfortunate) uses in different contexts. "margin" can mean i have borrowed money to trade, or mean I need to post collateral (regardless of whether i have borrowed money). In this context, the "deposit requirements" at a brokerage are collateral, has nothing to to with people borrowing money to trade. "margin" here means collateral posted to guarantee trades.

[Ridgeway]

It is not the customer margin that was the problem (or at least not all of the problem). RH had to post ever-higher collateral amounts at the clearinghouse, and the more their customers were net long (even in non-margin trades), the more that collateral requirement increased.

I agree that RH could have done a heck of a lot better job of explaining this to their customers, especially once they had lined up their emergency bridge financing.

[dwb68]

minor point: shorts like hedge funds also had to post additional collateral, they just dont cry about it in the media. Collateral (deposit) requirements are symmetric in the sense that both longs and shorts have to post it. Shorts reduced trades (contributing to the short squeeze), and raised capital by selling other positions (that is why the volatility spilled over a bit to the broader market).

[bernard11]

Right.

Allowing traders to go short without posting collateral is a can't miss recipe for disaster.

[NToJ]

"Sorry, still not persuaded."

Why would any of us take the advice of someone who just admitted that they're emotionally compromised because they lost a lawsuit? You aren't thinking straight. (Which we could have surmised immediately after you told us that you purchased a life insurance policy for the ROI.)

[Rev. Arthur L. Kirkland]

Brett Bellmore is not persuaded.

My experience as president of an investment advisory firm persuades me that Brett Bellmore’s comments are comprehensively stupid.

[Dr. Ed 2]

Exactly!

[StellaLink_the dog]

In the early 80s, the feds were issuing 30 year bonds with 13% (as I recall) interest and the bonds were not callable. They were commonly known as "Ron's Bonds." If you were a college graduate in the early 80s you should have been clever enough to understand that "investing" with an insurance company is bad economics. Buy term insurance, if you need insurance, and invest the remainder with someone not out to screw you.

[Dilan Esper]

Jonathan Adler forgest to spell check his headline.

[Dilan Esper]

BTW, I strongly disagree with Lambert that it is wrong for Harvard types to argue that their own class should have less power and influence. Indeed, we want Harvard types to do that.

This doesn't mean Hawley's version of the argument is good or right, but Hawley isn't bad for being a traitor to his class. We need more of that.

[loki13]

???

That is not his argument. At all. His argument isn't about people of his class, Dilan. I am somewhat shocked that you (you?) would mischaracterize it as such.

Briefly:
1. Hawley is lying.
2. Hawley is knowingly lying in order to rail people against the "coastal elites" in the hopes that this will endear him to regular folks.
3. This is part and parcel with several recent opinions Hawley has put out, which are also knowing lies.
4. The reason that this is concerning is because the writer knows Hawley to be a good man who "desires to glorify God by doing the right thing."
5. Therefore, the fundamental issue is that Hawley is taking an "ends justify the means" approach, which is profoundly un-Christian (Seek ye first the kingdom of God and His righteousness, and all these things shall be added unto you).
6. More importantly, Hawley is advancing this argument in First Things magazine, which is from CS Lewis- "Put first things first and we get second things thrown in: put second things first and we lose *both* first and second things."
7. So the writer is unhappy, both because of the magazine, but also because his friend, who he believes to be a good person, is no longer a truth-teller.

It is NOT about being a traitor to his class. UGH.

[Dilan Esper]

Railing against coastal elites is good and necessary. Coastal elites have way too much money. The Ivy League has way too much credentialing power.

The problem with Hawley isn't that he rails against coastal elites. It's that he does it in a phony way and does not propose to actually take money and power away from them and distribute it to places and people who are shut out.

As for Hawley's religion, I don't really care. 1 percent or less of the religious population actually tries to follow the rules.

[loki13]

Regardless of your own personal opinions of what is, and isn't, good to rail against ...

you don't get to make up what the argument is. Next time, read it.

[Dilan Esper]

"But that fact doesn’t support @HawleyMO ’s campaign to rail against the sort of coastal elites that, like him, went to schools such as Stanford and Yale and now, like him, have amassed power. This campaign, he hopes, will endear him to regular folks."

That's what he said. That Hawley is making a phony argument against coastal elites and powerful schools that he knows isn't true because he is a coastal elite from a powerful school, and this argument is an attempt to endear him to regular folks.

That is unmitigated crap. Arguments against coastal elites and powerful schools are GOOD. And we need coastal elites from powerful schools to make those arguments. Not because they "endear" them to the masses, but because we need to strip coastal elites and powerful school graduates of a fair amount of their money and power.

So I highly dislike that comment. There's NOTHING wrong with an Ivy League graduate railing against Ivy League graduates. The only problem is Hawley doesn't actually propose to effectively shift power and money away from those folks.

[loki13]

First rule of hole, Dilan. You are conflating different issues, because you are ignoring the entirety of the argument (which I went to great lengths to point out).

You like populism? Good for you! I mean, it's not like populism has the best history, for a lot of reasons, but knock yourself out. Advocate away!

That said, I do love the fact that you wrote this without irony:
"Arguments against coastal elites and powerful schools are GOOD. And we need coastal elites from powerful schools to make those arguments."

It's like an ouroboros, isn't it? Coastal elites and powerful schools SUCK. But the only people that can make those argument are ... coastal elites from powerful schools. Because maybe for whatever benighted reason, that's how our system works? When you succeed, you tend to end up in "coastal places" as an "elite," don't you?

Anyway, the point of the argument wasn't about the propriety of being, or not being, a coastal elite .. California Boy ... it was about knowingly lying to people. That's it. The primary problem with populism, as it is commonly practiced, is that "good" populism is hard. It's much easier to get people riled up by telling them what they want to hear, than by explaining that things are difficult, and nuanced, and not easily reducible.

[NToJ]

"Arguments against coastal elites and powerful schools are GOOD."

Shouldn't this be "Persuasive, true, internally consistent arguments against coastal elites and powerful schools are GOOD."?

[StellaLink_the dog]

Even better: "Persuasive, true, internally consistent arguments are good."

[James Pollock]

But persuasive, true, internally consistent arguments are HARD. Bumper stickers are easier, and THEY WORK.

[NToJ]

"Coastal elites have way too much money. The Ivy League has way too much credentialing power."

However you define "too much" and their share, if Ivy League elites have too much power, it is because of people like Hawley who manipulate non-Ivy League elites into voting in favor of Ivy League elites (like Hawley). Does anybody think Hawley's end game is to secure the Presidency and help out non-Ivy League constituents?

[Dilan Esper]

No.

But I don't want politicians who went to Ivy League schools and then denounce the Ivy League to be called phonies. We need that.

Fundamentally, what Ivy League graduates do is a form of theft and discrimination. There are so many doors closed to anyone who goes to Cleveland State, or Texas A&M, or Central Florida, including very smart people. There are so many ways in which we can direct government and private sector investment away from the big cities that don't need it and build out in places that do. The whole country and system is rigged for these people.

[David Nieporent]

But I don’t want politicians who went to Ivy League schools and then denounce the Ivy League to be called phonies. We need that.

I mean, we don't; that's just stupid. The kind of argument we'd expect from someone who wasn't elite enough to go to an Ivy League school to make. But even if by some miracle you were right, he's not a phony because he denounces the Ivy League; he's a phony because he leaves out the part about him being a member of said Ivy League elite.

Also because he's lying about things like Robinhood.

[NToJ]

I am not persuaded by the argument that we need to empower power-hungry phonies from Ivy Leagues who criticize other phonies from Ivy Leagues to ensure that phonies from Ivy Leagues consolidate less power. The easier solution, in my view, is to just call out phonies from Ivy Leagues. Actually it seems easier if we just focus on calling out phonies regardless of which schools they attended.

[StellaLink_the dog]

And when the little people like Ken Paxton (Baylor) and Louie Gohmert (TX A&M) fight back and try to return the presidency to it's rightful owner, they get slapped down and humiliated by all those members of the coastal elites, except for people like Cruz and Hawley who go all gaga.

[James Pollock]

Louie Gohmert gets slapped down a lot mostly because he keeps saying stupid things.

[James Pollock]

" I don’t want politicians who went to Ivy League schools and then denounce the Ivy League to be called phonies."

No matter how phony they are.

[Dr. Ed 2]

Define "lying."....

[loki13]

Knowing that a is true, and then saying "not a" in order to make yourself look better.

For example, if I were to say, "Dr Ed usually knows what he is talking about," because, for some strange reason, I wanted to curry favor with Bob from Ohio, I would be lying.

[NOVA Lawyer]

Loki,

Thank you.

[Bob from Ohio]

"Briefly:"

[writes 195 words]

I don't think you have a good grasp on "Briefly"

[loki13]

You should see the longer version.

It comes with its own appendix.

[James Pollock]

"I don’t think you have a good grasp on 'Briefly'"

And I don't think you have a good grasp on relativity (not the Einstein one, although it wouldn't shock me to learn you don't have a grasp on that, either) but the notion that adverbs like "briefly" imply a comparison.

[Sarcastr0]

Thanks for this, especially dwb68.

I'd not been following too closely, and was absolutely down the Robinhood was acting at the behest of hedge funds rabbit hole.

[De Oppresso Liber]

There was a coordinated effort to bring the GME price down, though. From CNBC to discord to the NYSE, there was false statements, 500,000 user-channel bans, and trading stops on price rises but not on price falls.

RH might be off the hook, but I find their excuse to be rather convenient. Citadel is a major source of revenue for RH, and citadel was on the other side of the trade as most of RH users. That relationship bears inspection, and there should be an investigation as to whether or not RH used the liquidity excuse to restrict trading (which is understood to lower prices artificially from demand level), rather than seeking other means of net liquidity increases.

[David Nieporent]

I mean, there was a coordinated effort to bring the GME price up.

It's kind of rich (pun intended) to complain about "artificially" affecting the price of the stock in this context. There's nothing at all about the company to justify a valuation of hundreds of dollars a share.

[De Oppresso Liber]

People making individual decisions to buy and hold a security that is over shorted does not mean any definition for price fixing. The actions of the other side of this trade were taking actions that fall into price fixing. Trading pauses in one direction only, for instance, is blatant bias for negative price movement.

[NToJ]

"People making individual decisions..."

If these people were making individual decisions, why did they need to gather on subreddits and Discord to make these decisions?

[James Pollock]

" why did they need to gather on subreddits and Discord to make these decisions?"

The best decisions are informed ones, so gathering information before making decisions is good.

[James Pollock]

"There’s nothing at all about the company to justify a valuation of hundreds of dollars a share."

There was one thing, a lot of people having taken a short position on it. Kind of like pointing out that there's nothing in Normandy that would justify spending thousands of American lives to take it.

[David Nieporent]

It’s not kind of like that at all, and you’re wrong.

[James Pollock]

Love your research.

[James Pollock]

"There was a coordinated effort to bring the GME price down, though."

Perhaps because it isn't actually worth anything?

[Rev. Arthur L. Kirkland]

This is a standard Volokh Conspiracy comment collection -- the hard-righters advancing belligerent ignorance and conspiracy theories; others attempting to steer the discussion toward reality; Prof. Volokh silently pondering whether to switch his endorsement from Ted 'You're On Your Own, Heidi' Cruz to Josh Hawley.

[bernard11]

Lambert,

I know @HawleyMO
to be a good man. We’ve discussed matters of faith, and I truly believe he desires to glorify God by doing the right thing. So why does he say things that he knows are not true and that so harmfully divide people?

Why? Because you are mistaken, and he's not a good man, despite your conversations, and his expressed desire to do the right thing is phony.

[Rev. Arthur L. Kirkland]

Choose reason. Every time.

Choose reason. Especially over sacred ignorance and dogmatic intolerance.

Choose reason. Most especially if you are older than 12 or so. By then, childhood indoctrination fades as an excuse for gullibiilty, ignorance, backwardness, bigotry, and superstition. By adulthood -- this includes ostensible adulthood -- it is no excuse, not even at a Republican committee meeting, militia gathering, or Federalist Society event.

Choose reason. Ever time. And education, progress, tolerance, science, modernity, inclusiveness, and freedom. Avoid superstition, ignorance, backwardness, dogma, insularity, authoritarianism, bigotry, and pining for good old days that never existed. Not 50 years ago. Not 150 years ago. Not 2,000 years ago.

Choose reason. Every time. Be an adult.

Or, at least, please try.

[Dr. Ed 2]

Kirkland, read _Brave New World_...

And then there is this old saying:

Nietzsche said "God is dead."
God said "Nietzsche is dead."

[JasonT20]

When quoting someone, it can be useful to think about a few things:

-When did they say it?
-Where did they say it?
-Who was the audience?
-What was the context?

The idea is to be sure that it is a real quote, and not just someone trying to put their words in the mouth of someone with more authority. (Or the opposite, to put controversial words into the mouth of someone they would oppose.) We see this frequently with the Founders and other sayings attributed to Mark Twain, especially.

God did not say, "Nietzsche is Dead." A person wrote that thinking it was funny. But it really just shows the truth. That every word that has ever been attributed to God originated from a person. Those people just figure that what they want to say would sound better or would carry more weight if it was thought to come from God rather than Joe Shmoe.

[Rev. Arthur L. Kirkland]

Gullible, superstitious clingers are among my favorite culture war casualties.

They deserve everything that is coming to them in America.

[DaveM]

Why are people talking only about Robinhood? TD Ameritrade and Charles Schwab also placed restrictions. Is the argument that those firms also had to restrict trading because of the clearinghouse?

[dwb68]

"Is the argument that those firms also had to restrict trading because of the clearinghouse"
essentially, yes.

Everyone was subject to higher clearinghouse deposit requirements: Robinhood, TD Ameritrade, Schwab, even the hedge funds.

Hedge funds, bear in mind, *also* had to reduce trades and raise capital (mostly by selling other positions).

My educated guess is that TD Ameritrade and Charles Schwab being around longer (since dot.com bubble era) and having a broader customer base, had more flexibility. Firms can raise capital or restrict trading. The more capital available, the fewer restrictions. For example, if only 5% of your clients are in Gamestop and AMC, higher deposit requirements constrain less than if 35% of your clients are in GME.

Both TD Ameritrade and Schwab have been around in some form since the dot.com bubble era era . Robinhood is a new entrant. New entrants often have growing pains when the market gets volatile, I would chalk this up to growing pains.

[loki13]

"My educated guess is that TD Ameritrade and Charles Schwab being around longer (since dot.com bubble era)"

Fun facts-
Schwab has been around for 50 years now. Yeah.

And TD Ameritrade was founded the same time. But now they are, effectively, the same company (Schwab bought TD Ameritrade, and TD Bank got a minority interest in Schwab).

It's all related.

Personally, I'm one of those annoying, "Vanguard and forget it" types.

[StellaLink_the dog]

“Vanguard and forget it"
Vanguard offers margin accounts and options trading as well as the low cost funds for which it is most known. If you have a margin account with them you can sell short, if that's your bag. I doubt if a day trader would find their platform sufficiently anti-stodgy, but that may be by design.

[jb]

This is a pretty good post on the whole topic (despite the sketchy-looking URL): https://stu2b50.dev/posts/why-robinhood-d3580b

This extract is particularly relevant to this discussion:

These brokers halted buys of GME

- Robinhood
- Webull
- M1 Finance
- Public
- E-Trade

While others only halted options

- Interactive
- TDA
- Schwab
- Tradeing212

Hmm, see a pattern? The former group includes companies like Robinhood (2013), WeBull (2017), M1 Finance (2015), while the latter has TDA (1975), Schwab(1971), Trading212 (2004).

(Okay, E-Trade is actually old too, but I guess they're just cash-strapped right now?)

Looks like young brokers with a limited capital resources to me.

[M L]

There are reports that RobinHood unilaterally sold some of its users shares around a day's low, and the shares were not bought on margin. I don't know if that's true, any idea? Would seem bad and goes beyond the bans and near-bans on buying.

Can we know for sure what the HFs lost on their positions, exactly when they closed them, the timing of each margin call etc?

I would think that the actions taken here mitigated the extreme effect of the short squeeze. Compared to the alternative of having a more extreme squeeze, there are winners and losers to this.

[jb]

"There are reports that RobinHood unilaterally sold some of its users shares around a day’s low, and the shares were not bought on margin. I don’t know if that’s true, any idea? Would seem bad and goes beyond the bans and near-bans on buying."

Every example I've seen of a forced sell by Robin Hood has been a margin call. I agree it would be extremely bad if they were force liquidating positions otherwise, but haven't seen any evidence of such.

[NToJ]

Merrill Lynch briefly wouldn't allow Gamestop purchases, either.

[Dr. Ed 2]

IS it true that the initial hedge fund(s) had shorted more than 100% of the Gamestock shares in existence?

IF that is true, isn't *that* problematic?!?

Isn't it inherently fraudulent to promise to sell something that doesn't exist? Margin is problematic enough (and I didn't know we even still had that) but how can you be trading shares that do not exist?

[dwb68]

It sure was a problem for the shorts who were dumb enough to pile in, get squeezed, and lost a lot of money.

If someone wants to do something dumb with their own money, who am I to blow against the wind?

[NToJ]

"Isn’t it inherently fraudulent to promise to sell something that doesn’t exist?"

No. Assume there are 10 gumballs. Tom owns them. Tom has an agreement with Phil which allows Phil to borrow gumballs from Tom. The agreement also allows Phil to sell the borrowed gumballs, so long as Phil will replenish any gumballs he sells, so that when Tom asks for his gumballs back, he gets 10. Tom lends his 10 gumballs to Phil. Phil sells the gumballs to Clint. Clint has an agreement with Robert that allows Clint to loan the gumballs to Robert (similar to the agreement between Tom and Phil). Robert borrows the 10 gumballs from Clint. In this transaction, 20 gumballs have been lent, but only 10 exist. There is nothing fraudulent about any of these transactions.

What you are conflating is a physical thing in the universe (a stock) with a right to purchase or have the thing. A transaction that says at some point in the future you will give me a stock does not require either side to have the stock today. Borrowing works like this. I don't have the money to buy a house, today. I borrow the money from a bank, with a promise that in the future I will deliver them money (that doesn't exist in my checking account, today). It exists in the world, and I'll go find that money (or its equivalent). But there's nothing fraudulent, necessarily, about borrowing.

[Dr. Ed 2]

Yes, but "the money exists in the world."
The excess shares of stock don't.

Look at it this way: Say Dr. Ed Inc. wants to buy all the shares and purchases all the promises to sell shares in the future. At some point these promises will convert into an actual obligation to physically sell the physical shares -- and there ain't enough "in the world" to deliver.

[loki13]

Well, then you can get a situation like the VW squeeze. Right?

It's not even a question of "in the world," it can be an issue of whether or not there is liquidity; sometimes, the stocks can be tied up (government or institutional investors, for example).

[bernard11]

At that point the price will rise so high that Dr. Ed will change his mind about buying all those shares.

[James Pollock]

"At that point the price will rise so high that Dr. Ed will change his mind about buying all those shares."

Never make the mistake of underestimating Dr. Ed's stupidity.

[Jason Cavanaugh]

You don't understand what you're ranting about, to the surprise of...nobody.

The shorts did not all expire on the same day.

[NToJ]

If it's easier for you to understand, imagine ordering specially fabricated material that does not yet exist in the world. Did the person who promised to deliver you a specially fabricated material commit fraud?

[bernard11]

Isn’t it inherently fraudulent to promise to sell something that doesn’t exist?

Remember the old poem about short-selling:

"He who sells what isn't his'n
Must buy it back, or go to prison."

[Cal Cetín]

If that's what he's getting from his friends, what are his enemies saying?

[jb]

The notion that this is a "Big Tech" conspiracy is so stupid. If there's a Big Tech player in the mix, it's Reddit. Robinhood is a pure creation of the finance industry. Just because someone has an app doesn't make them a tech company or have anything to do with the broader tech industry.

[Ben_]

I choose to divide things into categories different than you. So you’re wrong.

What if we all just decided not to make that sort of argument?

[jb]

Well, it matters a lot when Hawley is trying to make this part of a "Big Tech" conspiracy narrative along with his pandering around Section 230.

Guess what? Reddit is on the same team as Google, Facebook, etc. on Section 230 and Robinhood gives absolutely no shits about it. So Hawley's narrative is fundamentally backwards.

If Hawley were instead arguing about a Big Finance conspiracy, he'd be a lot closer to the mark. I'm not sure "conspiracy" is the right description here, but the events of the last couple of weeks have reinforced again how a lot of our modern financial systems are designed to extract cash out of the system for bankers at pretty low risk to themselves while providing little or negative additional value to the broader economy.

[Ben_]

Why should we care what he calls it?

(Why should we care about anything some random politician says about some random news drama?)

[jb]

Because when you lump two totally different problems together it's going to make it less likely that you are able to devise a solution to them. See loki13's discussion below about conflating this problem with "content moderation". If you tell everyone that you need to repeal Section 230 and treat Google and Facebook as monopolies to fix Big Tech, and then you tell everyone that Robinhood is another example of the same problem, they're going to expect that if you repeal Section 230 or change antitrust law it's going to somehow prevent a repeat of the GME debacle. Whereas if you say that the problem with Robinhood is asymmetric power in the financial markets, then people might expect/support changes to the financial markets to fix that problem, which would actually work.

[M L]

How would Josh Hawley know that there was no intent to manipulate markets for profit behind any of this? How does Thom Lambert know? This seems to be a bit overstated.

[dwshelf]

A "liquidity crisis" is always two sided. Always. A winning side and a losing side.

Robinhood chose a side.

[dwshelf]

I bought and sold a share of GME during the crisis, just to see whether I could. On Fidelity. Not everyone was involved in this rigging of the market.

Made $62.

[dwshelf]

The problem with much of this analysis is that what Robinhood did was patently intended to manipulate the market for GME, intended to lower the price.

That can't be avoided.

Then you get to "why would they do that?", and there are no pretty answers.

[ReaderY]

You don’t believe their explanation? Why not? Their explanation sounds plausible to me.

They say that the clearinghouses which settle the trades demanded that they deposit billions of dollars in order to continue trading because the high volume and sharp price changes increased the risk that traders’ (virtual) checks would (virtually) bounce and the clearinghouses, which guarantee the trades, would be stuck putting up the money, which they would then take out of Robinhood’s deposit account.

Robinhood says that because they didn’t have the money to make the deposit, the clearing houses refused to settle their trades. And you can’t trade without a clearinghouse guaranteeing it. So they had no choice but to curtail trading to fit within what the money they could deposit would cover while they begged investors for more. They say they raised several billion, but it took them several days to raise all they needed.

[dwshelf]

You don’t believe their explanation? Why not? Their explanation sounds plausible to me.

They say that the clearinghouses which settle the trades demanded that they deposit billions of dollars in order to continue trading because the high volume and sharp price changes increased the risk that traders’ (virtual) checks would (virtually) bounce and the clearinghouses, which guarantee the trades, would be stuck putting up the money, which they would then take out of Robinhood’s deposit account.

If they had said that you have to have 100% money in your account before you can buy GME, I would have found it plausible.

If they had said "GME settles instantly", I would have found it plausible.

What I don't find plausible is that having money in your account and spending it on a stock creates a liability for your brokerage. If it's a matter of timing, they could address it as a matter of timing.

Instead, they endeavored to lower the price of the stock.

From the outside looking in, it sure seems likely that 10s of $millions was chump change to get this problem solved, and Robinhood was well positioned to be one of the fixers.

[ReaderY]

It’s clear that Robinhood restricted trading because of large deposit demands imposed on it by its clearinghouses.

But it’s open to ask whether those demands were based on legitimate systemic risk needs or were imposed at the behest of others, e.g. hedge funds. After all, Citadal the clearinghouse is owned by the same principal as Citadal the hedge fund.

Until the reasons for the capital deposit demands are better explained, it seems to me that conspiracy theorists are free to speculate that it’s the latter.

[ReaderY]

As a general moderate who usually implicitly trusts the system, I’m inclined to think the clearinghouses probably had legitimate reasons, since after all increased volatility and wild price swings does increase the risk of people not being able to meet their obligations and sticking rbe clearinghoises.

But it is open to question.

It’s also reasonable to ask why Robinhood had no plan covering such a situation and got caught flat-footed, given how critical maintaining continuity of trading is to its business. It’s certainly a legitimate criticism that its management’s performance was amateurish and below standard for a major trading platform that people depend on.

[Rev. Arthur L. Kirkland]

"It’s also reasonable to ask why Robinhood had no plan covering such a situation and got caught flat-footed,"

Perhaps everyone was sick the day the contingency planning committee was scheduled to discuss 'what do we do when a bunch of unsophisticated, gullible, inexperienced, grievance-driven, reason-deprived, low-asset retail traders bid up an obscure stock with a politically driven campaign of coordinated, massive, delusional trading that disregards profit motive?'

[ReaderY]

They needn’t have anticipated this particular event. But large price swings and volatile trading happen on Wall Street from time to time, amd clearinghouses femand larger deposits when this happens. Even though (and I agree with you on this) they couldn’t have anticipated this specific event, they could have anticipated that once a decade or so, some very unexpected event or other would happen and require a big deposit demand.

It’s a bit like earthquakes in San Francisco. The unexpected doesn’t happen very often. But it happens often enough that if it will kill your business if you don’t have a plan to deal with it, you need to make a plan to deal with it.

[loki13]

So ... you know Silicon Valley, right?

Move fast and break things?

RH was founded in 2013, but it launched its app in 2015.

It's doing great, but compare the assets under management and the equity to firms like Schwab or ETrade (which is Morgan Stanley) and you'll quickly realize that they aren't of the scale to deal with something like this.

[dwb68]

Trying to tell optimistic entrepreneurs to tie up billions in capital for rare event is a lot like banging your head on the wall, except you have better chance with the wall. Dont ask me how I know.

Also, its not uncommon for new companies to be short on working capital.

In the end, they raised capital, they did it, and its done. Growing pains.

[dwb68]

"ask why Robinhood had no plan covering such a situation"

They raised capital pretty quickly, that seems to have been the plan.
But, I chalk this up to growing pains. For Schwab, and others, most of which have been around since the dot.com bubble, this was not their first Rodeo. For Robinhood, this may indeed have been their first rodeo.

[dwb68]

see my posts above:

Generally "deposit," or collateral demands are based on risk-based or rules-based mathematical algorithms that ratchet based on market volatility. When a stock (bond, futures contract etc) goes up and/or down a lot (volatility increases), the formulas spit out higher requirements. There are thousands of academic papers on this.

What you and others seems to be missing is that hedge funds are also subject to deposit/collateral/initial margin requirements. Deposit requirements are symmetric in the sense that both shorts and longs are subject to requirements. In point of fact, in many risk based algorithms, shorts have higher collateral requirements because of the increased risk, its more likely they will fail to deliver shares. Hedge funds had to meet the higher requirements too- by reducing their positions and selling some others to meet the calls. Many a hedge fund has gone insolvent during a volatile market, thats why requirements exist in the first place.

[loki13]

So here is the fundamental problem with Hawley's article, and his faux populism. You can't solve problems by lying to people.

The crux of his article is in this paragraph that I will quote:

"So when GameStop traders decided to call Wall Street’s bluff—when the elites’ stock options house of cards started tumbling down—Big Tech did what it does best: It shut down their Discord server and closed off the Robinhood purchases. This wasn’t market manipulation, of course. It was just content moderation."

Notice what he has done; he is conflating anger at Wall Street with his new hobby horse, Big Tech, and then throwing in "content moderation" because that's his Section 230 buzzword (I am shocked he didn't manage to get cancel culture in).

Imagine you know nothing about the underlying facts, or didn't bother to read the WSJ or even dwb68's excellent posts (credit where it is due). So what you now think is that there is a conspiracy, aimed against you, from everyone from Wall Street to CNBC (why not Fox Business?), and when they conspiracy is exposed, then Big Tech will keep you from doing anything about it, or discussing it (content moderation, Section 230).

Why is this wrong? Well, there is no conspiracy. Everything is out there in the open. All of it. That doesn't mean it's right- people can, and do, argue about all sorts of features of the stock market, and the fairness and unfairness of some of those features to retail investors (to name one issue). But it's not a conspiracy.

And Section 230 (content moderation) has nothing to do with the inability of people to purchase stocks from Robinhood, even assuming Robinhood and Citadel (!!!) are BigTech; to the extent that lawsuits can be brought, Section 230 would have nothing to do with it because it's between the customer and Robinhood (but I'm better the agreement between the customer and Robinhood might say something ....).

These are basic and simple points.

Now, maybe Hawley really wants to "reform" Wall Street, and this is really an overture to Senator Warren. Do you think it is? Because I don't.

Or maybe he truly understands that the protection of Section 230 is what has allowed the explosion of free speech that did not exist before it (for those us who remember those days!) and the strength of America's tech industry, but he is unable to articulate a coherent idea for moving forward? Again, I don't think that's the case either.

Instead, what I see is someone lying to people about what happened in order to stir emotions, but unable to say the hard truths. This is all by the book. If you don't like it, if you think, as he claims, "something seems off" with Wall Street, then maybe he is proposing some regulations ... which are hard, because regulating financial transactions in any way that is helpful, without causing damage to our position in the world markets, is exceptionally difficult. Not impossible, but hard!

And it's the same with Section 230- the same issues that people complain about (mostly, "Wah, someone got banned from facebook") have nothing to do with Section 230. To the extent that you have a ... well, a Warrens/Sanders belief that Facebook, Twitter, et al. are too big and need to be regulated, Section 230 isn't the issue.

And on and on. When you lie to people, it is easy to give them simple, easy-to-understand, wrong solutions to complex problems. Which doesn't actually solve the problems.

[James Pollock]

"You can’t solve problems by lying to people."

Sure, except sometimes you can. Not particularly often but also not never. Example: suppose you run a 1930's American bank. Word on the street is that you might have some non-performing loans. This causes many depositors to rush to your bank, to withdraw their funds before the bank goes bankrupt which is itself creating a possibility that the bank will go bankrupt. You could tell them the truth, which will only increase the run on your bank, and drive it into bankruptcy. Or you can tell the depositors that their money is safe in your bank. If you convince enough of the depositors, the run on the bank ends and the likelihood of bankruptcy diminishes. So that's one way lying to people could solve a problem.

[Bob from Ohio]

"consider a friend"

With a "friend" like this, one does not need an enemy. His tweets reveal more about his character than the senator's.

[loki13]

Yeah, terrible lefty.

Clerked for Jerry Smith on the 5th.
U Chicago Law.
Teaches antitrust and corporations.
Most recent article is a classic "law & economics" rebuttal of people who want to go after institutional investors (like mutual funds) who have stockholdings in multiple companies under antitrust law.

Also? The guy who recruited Hawley to teach there.

At a certain point, you have to stand up for what is right. Either the GOP has principles, principles worth stating and fighting for (other than "We support Trump"), or they don't.

[Bob from Ohio]

Did I call him a "lefty"?

He is just a faithless "friend".

Friendship is more important than politics. Like I said, his tweets reveal more about his character than the senator’s.

[loki13]

" Like I said, his tweets reveal more about his character than the senator’s."

You mean that he is a man of principles and integrity, and that he hopes that his friend can stop being a lying weasel?

Yeah, you're right Bob. Oh wait, you're the guy who would support corrupt police protecting people on their "team," so that really says it all.

[Rev. Arthur L. Kirkland]

Bob from Ohio seems to like liars nearly as much as he likes bigots.

[loki13]

It's not that Bob "likes" or "loves" liars, bigots, terrorists, and child molesters, it's just that Bob believes that they must be protected if they are on team GOP!

It's kind of amazing coming from someone who used to yell about moral relativism. Is that still a thing? Is it all cancel culture now? I can never keep up.

[David Nieporent]

Friendship is more important than politics,

Integrity is more important than friendship.

[Bob from Ohio]

People who betray their friends have no integrity.

[David Nieporent]

Calling out one's friend for lying is not "betraying" him, because no duty ever existed to support his lies.

[Bob from Ohio]

Plenty of other people were and are criticizing Hawley.

This dude is trying to leverage his supposed friendship to give his comments more heft. That is a betrayal.

I would never publicly call out my friends and respect no one who does.

[NToJ]

That's because you're a disgusting piece of shit. Do you think the rest of us are worried about getting respect from disgusting pieces of shit? (Do you think even think any of your "friends" do?)

You're also just lying. You'd call your mother out publicly if you thought it would support your political cause.

[Bob from Ohio]

Tsk. Tsk. So mad.

[NToJ]

And here I thought we were friends.

[Rev. Arthur L. Kirkland]

"I would never publicly call out my friends and respect no one who does."

Chapter Forty-Seven in 'Why Bob From Ohio Is A Disaffected, No-Count, Character-Deprived Culture War Loser.'

[James Pollock]

"I would never publicly call out my friends"

I'm sure they'd appreciate that, if any of them existed in the real world.

[Jason Cavanaugh]

You're clearly confused by the concept of integrity.

If your friend does something wrong, integrity demands that - at minimum - you don't support it.

Maybe your problem is a lack of friends, leaving you with only your fantasy of what a friend might be like with which to form your opinions on proper friendships.

[Bob from Ohio]

"integrity demands that – at minimum – you don’t support it."

He doesn't have to support it, just not attack in public.

[Jerry B.]

Falsehood = Anything a Liberal doesn’t agree with.

[David Nieporent]

I don't think that's the definition of falsehood at all. Are you lying?

[Jimmy the Dane]

When everything you believe is relative (a la liberalism) then it is impossible to believe in anything false. So although inaccurate, it is quite accurate.

[James Pollock]

"When everything you believe is relative (a la liberalism)"

How about when everything you believe is relative to liberalism, as in "if you all are for this, then we're agin it!"

[Cal Cetín]

I won't pretend to know the ins and outs of Wall St. maneuvering, but someone slightly more knowledgeable than I suggested to me that - surprise! - the established players were getting better treatment than less-experienced interlopers. Is that true?

[Cal Cetín]

I vaguely recall studying the 1920s when the stock market was supposedly more democratic with everyone buying stuff and earning profits...until they didn't. Regulators in the New Deal concluded that the average Joe and Josephine Six-Pack shouldn't be playing the markets without supervision.

[loki13]

"but someone slightly more knowledgeable than I suggested to me that – surprise! – the established players were getting better treatment than less-experienced interlopers. Is that true?"

Well, yes. Of course.

Depending on your definition of "better treatment."

If you're investing long-term in mutual funds, index funds, etc., it's not big deal. Stock market works like it is supposed to. Same with long-term value investing (the Warren Buffett model).

But think of it this way. A person can "pro se" represent themselves. Does the court system "treat" lawyers better? Well, the rules are the same (and more lenient for non-attorneys). The rules are published and knowable. But if your job is to know the law, know the rules, know the differences between your different judges, know the local procedures, then you'll have an advantage.

Same here. If you work in the industry, you start with a leg up just because you know what you need to know. You'll have access to information. You'll often have access to information more quickly than regular traders - companies pay hundreds of millions of dollars for cables to give them milliseconds of an advantage. You might have computer trading to allow you to access arbitrage opportunities others would not be aware of.

Then there are the trickier issues- like information asymmetry. Do you have access to all the same sources of information, at the same times, as Wall Street?

Then there are the transaction costs (something RH was trying to help "solve") that are a much bigger factor for frequent traders in the retail area.

It's not so much that the game is rigged, as retail investors are less able to take advantage of things that institutional investors can.

I'll let dwb add his thoughts to this, if he's still following.

[dwb68]

i dont even know what the question is, lol.

[jb]

The ability to pay for a faster connection to the exchanges is actually a pretty good example of Wall Street taking advantage of an "arbitrage" opportunity that allows them to profit at the expense of regular investors, and without adding any value whatsoever to the economy.

I think margin requirements are a bit more neutral (and have a more defensible purpose), but as ReaderY suggests elsewhere, we should take a look at all of these things with a skeptical eye and see if there's ways to craft rules that minimize institutional advantages rather than reinforcing them.

[James Pollock]

"I won’t pretend to know the ins and outs of Wall St. maneuvering, but someone slightly more knowledgeable than I suggested to me that – surprise! – the established players were getting better treatment than less-experienced interlopers. Is that true?"

It's generally true that people who understand how a system works get better results than people who don't know how anything works, but read this reddit post on the subject once.

[Jimmy the Dane]

1. It probably was a "conspiracy" to the extent collaborating with any other person can make a conspiracy by definition.

2. No one cares. The result is being corrected by market forces and which was always going to happen. Other then it being an interesting piece of news for a few cycles, it is nothing more.

[dwshelf]

2. No one cares.

Some might find it troublesome that a cabal of brokerage firms could suddenly agree to force the price of a security down.

[StellaLink_the dog]

Some find it troublesome that a "bunch of unsophisticated, gullible, inexperienced, grievance-driven, reason-deprived, low-asset retail traders bid up an obscure stock with a politically driven campaign of coordinated, massive, delusional trading that disregards profit motive."

Personally, I take no side in this mess. Doesn't sadden me a bit that some hedge funds got a hard and unpleasant squeeze in the shorts. Neither does it bother me that trading in Gamestop was restricted probably for good reason as explained by others. What is going to be painful for some is when all the dust settles and the artificial demand for Gamestop stock evaporates -- when all the juice has been squeezed out of the hedge fund shorts. When the music stops, somebody is going to be left holding long and it's not going to be pretty. One can only hope that not many have been raiding their college funds to finance this 21st century version of a tulip bulb buying frenzy.

[James Pollock]

"Some might find it troublesome that a cabal of brokerage firms could suddenly agree to force the price of a security down."

Depends. Are they driving it down below it's actual value, or driving it down below a grossly-inflated value. Gamestop is a dying business with no real plan to modernize. Operating Gamestop is not a good long-term business to be in. Nothing about these facts was secret, insider knowledge, it's quite plain that in the short term, Wal-Mart and Target are absolutely eating Gamestop's market share for new retail product, and the long-term prognosis is for Sony, Microsoft and Nintendo to eat it in the future as online sales replace retail.

[Noscitur a sociis]

What does that have to do with Robinhood?

[De Oppresso Liber]

It has to do with price manipulation, which has to do with Robinhood if you think there is a case of coordinated price manipulation.

[NToJ]

What does Discord have to do with Robinhood's alleged price manipulation?

[James Pollock]

"

What does Discord have to do with Robinhood’s alleged price manipulation?"

It's all a big conspiracy, duh. The tech companies (any tech companies) are all allied against us decent people.