The Blog

2021-

2021-01-31 b
DOES POCAHONTAS ♥ HEDGE FUNDS?
"Please describe the impacts of disorderly, inefficient, and unfair prices in securities markets on communities, consumers, workers, and investors."

Unfair Prices? Give me a break, Pocahontas.

Sen. Warren, a.k.a. Pocahontas, wrote a whiny letter to the SEC (Securities and Exchange Commission) on Friday. Is she upset the rabble got rich at billionaire's expense or that the curtain was ripped away and more Americans now see Wall Street as a rigged market?

Methinks the Communist doth protest too much.

Dear Acting Chair Lee:

I am writing regarding the recent surge in share prices for the video game retailer GameStop, whose stocks are “up 1,700 percent this month, including Wednesday’s climb of 135 percent” – driven by what one expert called a “flash mob with money.” These wild swings in value of GameStop and other companies that are subject to similar bets by traders are “detached from the factors that traditionally help establish a company’s value to investors,” I am deeply concerned that these casino-like swings in the value of GameStop and other company shares are yet another example of the gamesmanship that interferes with the “fair, orderly, and efficient” function of the market, raising obvious questions about public confidence in the market and those trading in it. I am writing to seek information on how the SEC intends to address these concerns and prevent these and future incidents of potential market manipulation.

Hedge funds, such as Melvin Capital Management, have bet that GameStop’s shares would fall in the hopes of reaping substantial profits. In recent weeks, however, share prices for GameStop began to rise, with a dramatic surge in recent days fueled not by any changes in the company’s economic fundamentals but by anonymous traders on the Reddit forum r/WallStreetBets.

... The stock market is not reflective of real economic conditions felt by communities across the country, and traders treating securities markets as casinos exploit these growing disparities and the companies and workers that underlie their gambles.
The SEC has a mandate to “protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation,” and “promote a market environment that is worthy of the public’s trust.” The Commission must review recent market activity affecting GameStop and other companies, and act to ensure that markets reflect real value, rather than the highly leveraged bets of wealthy traders or those who seek to inflict financial damage on those traders. To protect and restore public trust in sound securities regulation and enforcement, the Commission must identify gaps in existing securities laws and rules and ways in which the Commission can improve its enforcement capabilities.

... Do the wild swings in value of GameStop and other companies affected by similar trading schemes present any systemic concerns for financial systems or the stock market?

... What steps will the SEC take to ensure that securities markets better reflect prices that are in line with the intrinsic and fundamental value of underlying companies?

(read more)

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