‘Casino capitalism’ not in jeopardy despite guerrilla action of investors

Apr 1, 2021

The guerrilla action of amateur investors alarmed the establishment a month ago but it is about Wall Street’s everyday life. Simply, stock trading has long had nothing to do with productive investment. But, let’s start from the beginning of the story… Unprecedented event took place Extreme stock price volatility has the potential to expose investors to serious losses and undermine market confidence, which will require action to protect them when abuses or manipulations prohibited by federal law are actually proven. Paraphrased, this sentence is in fact the conclusion of the US Securities and Exchange Commission (SEC), an independent agency established in 1934 with the aim of preventing stock market rampage. The aforementioned conclusion was announced by the SEC at the end of January, after several extremely volatile days on US stock exchanges, but this time not to protect ordinary people from speculators, but vice versa. Then, an unprecedented event took place in which amateur investors, gathered on the Reddit forum, carried out an action of mass purchase of shares of practically shut down video game company GameStop (who was selling video games of which some found their way on topcasinoexpert.com/online-casinos/), thus thwarting the plans of big players to make money on its demise. The beginnings of the action date back to mid-2019 when a member of Reddit’s subforum WallStreetBets, known by the nickname ‘Roaring Kitty’, announced that he had invested money in the shares of a company struggling with financial problems through the online free trading platform Robinhood. Last summer, a ‘legitimate businessman’ also invested in the company, with a plan to help it get out of trouble. After ‘Roaring Kitty’ was joined in the purchase by thousands of other forum members, the value of the GameStop stock began to rise sharply. But then some hedge funds smelled blood and launched an action called “short selling” in stock market jargon. It is a speculative strategy in which big players loan stocks they believe will fall in value after they sell them at the current price. When the value of a stock falls, investors then buy them again, repay the loan with interest, and the split remains as earnings. Common occurrence in stock market turned into something opposite But, what was supposed to be quite a common occurrence in the stock market turned into something quite the opposite; amateur investors on Reddit have stood firmly, determined not only to make money but also to defeat the big players in their game. By massively buying GameStop shares, they inflated its price and inflicted huge losses on the big players. The total value of Melvin Capital’s hedge fund fell by more than $ 4 billion, and Citron Research had to cover a 100-percent loss. Analysts note that amateur investors will also lose money as soon as the share price of GameStop falls to a ‘rational’ level, which has already begun to happen. Additionally, and no less important, in this whole fuss with GameStop, probably the world’s largest fund management company, BlackRock, earned more than three billion dollars because it already owned 13 % of the company’s shares. In other words, nothing has happened that could fundamentally jeopardize the system, except that amateur investors have once again carefully demonstrated what ‘casino capitalism’ looks like every day on Wall Street and from which big players make billions despite companies fall apart and millions of people lose their jobs. Alarm to establishment As expected, this guerrilla action alarmed the establishment and led to all sorts of analyzes, explaining it as “millennials’ revenge on boomers” or as a destructive herd of rebels similar to anti-vaxxers who, unlike institutional investors, act on impulse, abusing society. In addition to government leverage, such as the SEC, online companies have been involved in stabilization by restricting trading in GameStop shares and some other companies that Reddit members have since begun buying. Also, an online platform Discord has even banned WallStreetBets from accessing its servers for hate speech, although it did not do so in cases of forums where, for example, white supremacists gathered. The GameStop case also highlighted the fact that stock trading has long had nothing to do with a productive investment such as factory construction or job creation, which is usually done through so-called initial public offerings (IPOs). According to the data mentioned these days, in the last 20 years, companies have collected a total of $ 657 billion in IPOs. In the same period, the 500 largest companies, according to the S&P stock index, spent $ 8.3 trillion on buying their own shares in order to increase their price, which only their owners benefited from.

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