Conspiracy or kludge?

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The unfortunately named Anthony Denier says,

in reality, what’s going on is that there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days. And because of the volatility of stocks, DTC has made the cost of the collateral of the two-day holding period extremely expensive.

…So the brokerages or the clearing firms have to go into their own pockets to do it. And they simply can’t afford the cost of that trade clearance. That is the reason why these stocks are coming off. It has nothing to do with the decision or some sort of closed room cigar– smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market.

Pointer from Tyler Cowen.

This reminds me that back in the housing market collapse a lot of the foreclosure paperwork was flawed. This was not some conspiracy on the part of lenders to improperly foreclose on homes. It had to do with the mismatch between the mortgage securities market, where the lender of record could in some sense change in seconds, and the antiquated housing title system, where records are stored at a county courthouse, often in paper format, with a cumbersome process for updating that could take. . .almost forever.

I would bet that the two-day settlement delay in stocks is as anachronistic as the real estate title system. When you have a system that wants to be instantaneous but incorporates a process that hasn’t been updated in decades (or longer), this is what you get.

Once again, I am violating one of my norms, which is not to pile into the latest news. But here goes:

1. This seems like partly a Charles Kindleberger moment. In Manias, Panics, and Crashes, he adapts the Minsky model to major historical financial manias. Kindleberger’s thesis is that when there is a major shock that shifts a lot of wealth to a particular population, manias can ensue. The tulip mania is the classic example.

Over the past twenty years, we have seen a massive shift of wealth toward the tech sector and finance. Then the virus hit, accelerating these trends. Then the government printed enormous amounts of paper wealth as “stimulus.” All of this was enough to fuel asset bubbles.

2. This also seems like partly a Martin Gurri moment. Individual investors were participating in the financial equivalent of the Capitol riot. Some of them do not care whether or not they make a profit–they are in it for the schadenfreude.

In fact, I think this is an even more severe blow to American prestige than the Capitol riot. The U.S. can station enough troops in DC to convince the world that Congress cannot be invaded so easily. But there is no straightforward way that I can see to reassure investors of the integrity of the market.

Right now, large investors are scared of what small investors can do, and conversely. How do you ease the fear on one side without increasing the fear on the other side? How much does the market rally of recent years depend on small investors, and what sort of reversal could we see if those investors bail out because they believe that the system is rigged against them?

50 thoughts on “Conspiracy or kludge?”

  1. “In fact, I think this is an even more severe blow to American prestige than the Capitol riot.”

    I’m quite pleased to take the other side of that argument. I think the GameStop (et.al.) short-squeeze is a shining example of American financial market operations at its absolute finest.

    A group of little known (outside of very closed circles) hedge funds “short” 136% of the outstanding stock of an evidently viable company (companies) – and got caught in their stupidity (hyper-risk) by a group of vocal, but “small” investors.

    No “Government” declaration of stupidity required.

    Or would you prefer that “Government” establish the non-stupid “value” of all the financial assets in the U.S. markets?

    • I agree with you. Arnold is wrong, very wrong. It’s both conspiracy and stupidity. You explained why the show is a good example of what Cipolla called stupidity. And it’s a conspiracy because it’s an attempt by the new ruling politicians and their armies of clowns to deflect attention from the sudden changes in laws via executive order. I’m not surprised that Tyler Cowen and Martin Gurri are willing to be part of the show but I was expecting much more from Arnold.

  2. “Some of them do not care whether or not they make a profit–they are in it for the schadenfreude.”

    So, call me a horrible, no good, very bad person, but I’ve been enjoying my popcorn the last few days while watching this unfold. A bunch of billionaires just got royally PWND.

    When the elites attempt to drive markets, it’s called “capitalist efficiency,” but when the mom-and-pop investor does it, it’s called “market manipulation.” Loving to watch the regulators and politicians fall all over themselves while they try to find a way to wordsmith their way through this and to limit the blood letting of their donor friends.

    https://www.businessinsider.com/the-hedge-fund-presentation-on-olive-garden-is-a-masterpiece-2014-9

    • What’s ironic about your opinion is that the controlling forces of the equity markets–the cozy nexus of the Street, its corporate paymasters and well-connected long funds, operating within an environment made safe for them by Vanguard, Black Rock, the other passive-investing gargantuans and various types of government policy–want you to believe that the Reddit mobs destroying a short-seller (or an instance of short-selling) is “giving it to the man”. Anything that makes short-selling harder, less practiced, etc, allows the real power to go about its business of rigging markets and increasing its wealth in relative peace.

      In actual fact, short sellers are a disruptive, highly beneficial force for market integrity. The really important players weren’t owned in this case; they had their bidding done for them by the Reddit mob.

      • I’m neither pro/con short/long. Actually, don’t really care one iota. In the short/medium run, it’s just a transfer from one party to another with no probable real effects. And, I’m a long-term equity investor.

        As noted, my concern is with the perceived lack of a level playing field for investors to volley back and forth to determine the real economic value of a firm. In this particular case (but, certainly not most cases as you aptly point out), it’s the shorts that are vying for the economic rents.

        Honestly, my primary concern right now is whether I’m gonna burn my popcorn in the microwave while watching the festivities.

        • Nice reply, thanks. If you’re a long-term equity investor, my view is that you should be concerned about recent developments as they imperil the continued existence of robust short-selling. Short-selling is critical to the health of equity markets.

          • Is that really the case?

            I get that it helps a bit with market efficiency, reducing any bid/ask spread and helps get information into prices, but how much would it matter to someone who buys a shares in several single names each month, or who just buys VTI all the time?

          • Short-selling is critical to the health of equity markets.

            If we had real short selling. What I’ve seen/heard is that the big players load up short positions on weak/new entrants; who could have weathered a regular market storm; and crush them with pure trading effects.

          • I’m sorry that I don’t seem to be able to reply to the two posts directly below mine, so I’ll do so in this post…

            Justin: the “forest-fire” analogy I used in another post addresses the health-of-the-markets angle. Without an effective and substantive expression of bearish viewpoints on stocks, the market will tend to become increasingly overvalued, until the overvaluation can’t be ignored. The problem then is that the recognition is likelier to trigger a panic that will have more damaging consequences than if the overvaluation were dampened over time via the activity of short sellers.

            As to bomag’s post, market rules and other institutional features associated with short selling, especially access to, and cost of borrow, prevent a company’s stock price from being crushed by “pure trading effects”. If the company is in fact fundamentally flawed, the short-sellers’ viewpoint is presumably something the market should know about.

  3. Some economist (I can’t think of his name, but he went to MIT) once said “Markets fail. Use markets”. He also said with respect to the the banking system that the regulatory system should allow for quick failure, rather than allow things to drag out and cause a bigger failure.
    Both of these apply here.
    This is clearly a small bubble contained with just a few stocks. The last thing we need is for this to spread and cause a major market crash.
    Short selling is a speculative investment. It’s not the end of the world if a number of Hedge Funds go bankrupt. Neither is is the end of the world if a small number of investors loss their money buying a stock for at least 10 times what any rational person would value it at.
    The decision to stop trading of Gamestop will certainly have a bad effect on trust. The stop only applies to buying more stop, not selling. If people sell but nobody can buy, the price will crash. This will give the small investors an excuse to blame the “system”. However the fact is that the prices of Gamestop are not sustainable and would fall with or without a brokerage firm stopping trading.
    My hope is that this will be a minor event that we laugh about in a few years. Full disclosure: I just retired and have a lot of money in Index funds. If the whole market crashes I’m not going to be happy.

    • >> It’s not the end of the world if a number of Hedge Funds go bankrupt

      Correct. In fact, we should expect risk taking ventures to get stung every once in a while. That’s an expected outcome. As a certain coach going to to Superbowl next week likes to say, No Riskit No Brisket. I would love to see some info on the turnover of hedge funds over time. My bet is that chun is going down, which I don’t think is a good thing.

  4. Despite what is obviously one of the most wealth destroying years in my lifetime, the price of everything is up. My house, which I closed on six months ago, is already up 12% according to the appraisal I just got for a refinance (which I’m doing because rates went down that much over six months). The stock market is at record highs. I’m convinced by all those people who say an unprecedented volume of money has been printed lately. Unlike last eras, it appears to go into asset prices rather than the CPI, but inflation is still is.

    —

    The last time I owned real estate it was an easy process in terms of loan servicing. This time around it’s been a nightmare.

    They failed to pay my property taxes from the escrow account. Then I had to get transferred over the phone several times, be told to send an email, get a reply from the email saying to send a message to them through their web portal, have the web portal tell me to send a fax (who the hell uses faxes), call again, be told to send an email to a totally new address, have the person misspell that email address to me and have to send it again. Still hoping they pay it before the second late fee.

    When I talk to people on the phone, both the impression I get and what they tell me is that the mortgage servicing industry is just collapsing under the weight of its complexity and the stresses of COVID.

    • The mortgage servicing industry was wiped out in 2008. The companies, which operated on very thin profit margins, were ordered by regulators to undertake the very resource-intensive process of “working with troubled borrowers.” The consequences were easy to foresee, and I foresaw them.

      • Do people actually still pay property taxes and insurance through an escrow? If so, why?

        • I did a post-2008 mortgage refinancing, the paperwork burden was easily five times the amount of the original construction loan and mortgage shortly before the 2007 timeframe. Yes, the lender required an escrow for real estate taxes and homeowners insurance, despite the low ratio of loan to equity in that deal. The mortgage servicing people told me they would be unable to get final placement with any lender subject to the then current level of scrutiny.

          • Helpful, thanks. Had a jumbo pre-2008 and a conforming loan post-2008. Impounds were never required. Hmm…maybe just a California thing?

        • I was never given the choice to pay my own taxes and I don’t live in CA. It was conforming and I put down a lot more than 20% so that shouldn’t have been the problem.

          • Sorry, my fault for not being clearer. Other way around. I lived in CA, which was and is very “pro-consumer” (whatever that means). Impounds were not required for either insurance or prop taxes and I’m thinking that it might be somewhat confined to that state.

  5. I wonder what your thoughts on this historian approach to Tulip Mania.
    The Jolly Swagman Podcast – Rational Minds Part 2: The Myth Of Tulip Mania – Anne Goldgar https://player.fm/1BEqTLc

    Reminds me a bit of Coase on lighthouses in economics… the facts and the exemplar don’t seem to match up to a fair degree because no one looked at the actual facts on the ground.

  6. I don’t understand why retail investors were not allowed to buy, but were allowed to sell.

    Someone was taking the other side of those orders, why were they still able to buy?

    • These are rule changes to protect the rich who wrongly bet on the price going down – if the reddit investors can buy, the price doesn’t go down from $300.
      If the price does NOT go down, the short sellers who sold it at maybe $200, or maybe $100, those sellers have to either
      a) deliver the underlying shares, or
      b) pay the difference in the $200 they sold it at and the $300 current price – this is the usual casino payment process with fewer shares actually changing ownership. So a short seller would typically just pay $100 per share “sold”.

      This is often done in commodities – who really wants pork bellies?

  7. The fact that buyers were able to prevent their shares from being lended out was a major contributor. That resulted in the short-sellers having their stock called back and being forced to liquidate their positions. In a sane market, it would be much easier to sell a stock to help keep bubble from forming.

  8. If there was some source of reliably accurate information on what is happening it would be nice. Does anyone know if the claims of unauthorized sales of shares are accurate? https://redstate.com/scotthounsell/2021/01/28/robinhood-app-force-sells-investors-gamestop-stock-n318132

    Personally, the Dakota Pipeline EOs seem much more damaging to US prestige. I can’t imagine how the arbitrary cancellation of construction permits will not scare away foreign investment for decades. The establishment is back in charge less than a month and already the country is floundering. Can’t say it was unexpected.

    • I don’t think that will be a big deal.

      It’s an easy way for Biden to get a win for environmental activists on a project that has been controversial for years.

      It may put a chill on pipeline/fossil fuel investment, but that’s probably a feature rather than a bug for the Democrats.

      • Yeah, I figured stopping pipeline const. (for now) will reduce the supply pressure from Canadian crude in this depressed market.

        If oil was high, I’m guessing the Dems would let it flow.

  9. If hedge funds weren’t shorting stocks, none of this would happen. Maybe they can protect themselves by having no shorts (so to speak) except for strict hedging.

    Some financial economists are convinced that short selling is an essential part of a functioning market. But I worry about coordinated “bear raids.” Did bear attacks take down major banks in 2008? That is, did a planned round of shorting make a fortune for some traders while blowing up the banking system and causing a recession? This issue does not seem to be investigated enough, perhaps because it doesn’t fit the narrative that big budget deficits or greedy mortgage brokers caused the crisis.

    The same type of bears wanted to make some more profit taking down GameStop. But gamers at home with idle cash and computers had different ideas. The bears suddenly found themselves chased by a pack of angry wolves.

    From a regulation standpoint, I wonder if we should ban naked short selling.

    I don’t care about the value of GameStop, but if leverage is used to go long or short on any stock, there is risk to the banking system. You can announce a no bailout policy, but if there is too much leverage, there will be a bailout. We learned that from 2008.

    LTCM was a leveraged hedge fund making big bets in 1998. The Fed had to call its creditors in to arrange a workout. The Fed was not willing to allow LTCM to go broke. What happens with the next big hedge fund making leveraged bets?

    • Short selling should NOT be banned – but the SEC and/or DTC should make it more expensive as the short % of the free float increases.

    • Market rules make it virtually impossible to effect a “bear raid”. Unlike long manipulators, who can advance their own manipulation by continuously buying stock to inflate the stock price, in turn making it more difficult for short sellers to maintain the position from a margin perspective, short sellers cannot continuously sell a stock to exert downward pressure on the stock price. This is barred by the uptick rule. Ethical short sellers can only win by convincing other market participants of the correctness of their thesis.

      As I mentioned in a post above, robust “naked” short selling is an important part of a healthy equity market, sort of like controlled burning in heavily forested areas to prevent devastating fires. Short sellers put capital at risk and suffer the consequences if and when they’re wrong, and consequently spend a great deal of time, effort and money in researching their views. Why wouldn’t you want those views to be expressed in the market?

      The discipline is important. If you doubt it, I encourage you to look up Wirecard, the German regulator’s dereliction of duty and the valuable role played by short sellers and the Financial Times (press involvement in exposing public-market corporate malfeasance is an increasing rarity).

    • I don’t think shorting blew up the banking system.

      In 2008, on top of concerns that capital levels were inadequate in face of high but uncertain losses, there was a lot of intrabank risk exposure through things like credit default swaps. No one had any idea of which banks had which exposure as it wasn’t being monitored, so no one really knew what might happen if any given bank failed. A bank which looks okay today might have billions of notional exposure through derivatives to a bad bank which fails tomorrow. Short sellers weren’t relevant to any of that.

      If the banks were fundamentally sound and had adequate capital things wouldn’t have gotten out of hand. A group of redditors could decide to short JPMorgan today, for example, and all it would do is provide an excellent entry price for long term investors.

  10. Arnold, thanks for choosing to be current on this hour-by-hour “news” changes topic.
    https://finance.yahoo.com/quote/GME/key-statistics
    How many shares of GME (Game Stop, not the other smaller Australian company) are there? some 69.75 m shares
    What is the “free float”? 47 m (rounded) [shares available to public trading, not in locked-in institutions, owners, gov’t, etc.]
    How many shorts?
    Short % of Float (Jan 14, 2021) 4 226.42%

    *** How can there be so many shorts??? Over 200%! (of float)***
    Fiat short share creation!
    A company has 100 shares. A short seller borrows 60 to sell short. (Now 160 available). Another short seller borrows some of these and more sell 80 short. (=240)

    Short sellers, in this case, should just …
    take it in the shorts!

    Short sellers make money when the share prices fall – and they also push the market price down by selling. Just like long-buying investors make money when the price goes up, and push the price higher by buying.

    Todd is right- Shorts are good for the market for liquidity, and faster, less expensive adjustment. BUT …
    Shorts are bad for companies who become big targets of shorts because the target is chosen because of some market weakness, in this case, Sony-PlayStation & Microsoft-XBox saying they are going digital, so console sellers like GME might be in the VCR selling place.

    “Everybody knows” GME is going to fail, so let’s at least make money on its death. So say the Excel (or more complex) models used by hedge fund manager analysts. How to make money on company near death? Shorts. The selling of which makes the company weaker, and more likely to die.
    Vulture investors. Usually rich.

    I’d be happy, Very Happy, if more of the rich hedge fund Vultures took it in the shorts.
    I’m weird that way, Henrich WEIRD – willing to pay some/ not get a benefit in order for more justice.

    Economics can be positive sum – but short / long trading competition is very much zero sum. And the shorters only win if the long investors, like founders & owner managers and happy customers who own shares all lose.

    Poor Denier, “It’s not my fault – it’s the DTC…”
    How convenient for the rich, to be protected by the more obscure and secret and richer controllers of the DTC (Depository Trust Company).
    https://www.investopedia.com/terms/d/dtc.asp
    $54 trillion in shares (probably more).

    Who are the decision makers who increased the costs? And based on what criteria?

    Why didn’t they increase the cost of “borrowing” the stocks in order to short them? Before the amount of shorts was over 100%?
    Because the rules they use are the rules in order to make the rich get richer, fast.
    And if the mostly undiscussed rules fail, those rules need to change to get back towards the rich getting richer faster.

    Wish I had followed the reddit group earlier –
    https://www.reddit.com/r/wallstreetbets/

    They say the SEC will protect the retail investors.
    Let’s look at the rule sausage – and how it’s made.

    The Flying Skull Rules (from Beavis & Butthead in dot.com bubble times, ’90s)

    • Just a couple quick observations on some of your points. Short sellers cannot exert the same sort and magnitude of pressure, in this case downward pressure, on stock prices by virtue of their own selling as can long buyers in the opposite case. The uptick rule, limit-down constraints, etc prevent the action of short selling itself from creating lucrative profits. As I said elsewhere, short sellers must convince other market participants of their case, and incur a great deal of risk in the attempt to do so.

      The short selling of a company’s shares doesn’t make the company weaker, the company’s weaknesses do. Short selling pressure, in and of itself, can only impact the price so much. If the market isn’t persuaded by the short sellers’ case, the stock price won’t be negatively impacted for long, and if the company’s condition is mistakenly assessed by short sellers, they, and not the company, will suffer.

  11. The trouble is “internet-coordinated big mobs”. ICBMs.

    Just like the emergence of the old, physical ICBMs completely changed the calculus of strategic warfare and geopolitics, the emergence of new, digital ICBMs creates very distinct and novel challenges and risks.

    Seems to me that few people were really thinking early enough and seriously enough about the problem of ICBMs, and even after it became apparent that this was going to become a major issue in all kinds of domains in the new, very-online world, few people really perceived that the speed, size, and severity of internet mob activity would post problems for which we needed completely different solutions.

    Nowadays it looks like we are groping and flailing in trying to get a handle on the issue whenever a new ICBM problem pops up in a new domain “unexpectedly”. But we should definitely expect it to pop up in every corder of human activity. If some domain hasn’t been threatened by ICBMs yet, it’s just a matter of time until some new mob figures out how to use its strength in numbers to disrupt that field too, much to the surprise, embarassment, and at least temporary loss of prestige of that domain’s incumbent elites.

    • Sorry Todd, I don’t quite believe you:
      “The uptick rule, limit-down constraints, etc prevent the action of short selling itself from creating lucrative profits.”

      The uptick rule means that the share price needs to go up before those selling short can sell short. In a bouncy stock, bouncing down, there are big downs and smaller ups. This does, strongly, reduce the ease of driving down a share – unless there is coordinated pause in short selling with a short term push to drive the share price up enough to allow more short selling.

      Limit down constraints weaken the uptick rule so that it only applies if the stock price has declined 10% or more that day.
      https://www.investopedia.com/ask/answers/011315/what-kinds-restrictions-does-sec-put-short-selling.asp

      You should be linking articles which give more details about what you say you’re talking about, so as to reduce misunderstanding; that’s what I try to do.

      Here’s a negative abstract:
      https://www.cfainstitute.org/en/research/cfa-digest/2016/03/the-real-effects-of-short-selling-constraints-digest-summary

      They conclude that the source of negative market reactions may be a result of increased downside risk because firms in the pilot group became more sensitive to bad news than firms in the control group. In addition, the authors note that the probability of coordinated short-selling attacks on stocks is higher.
      …
      Furthermore, it is likely to scare away bankers who may be unwilling to provide capital for new investments.”

      These experts, which I’m not, note that short-selling attacks on stocks exist. It looks like over 100% of free float is being shorted – I’d call it an attack.
      Todd, Do you believe a short-selling attack is possible?
      What metrics would show one?

      New lower share prices, meaning the “market” thinks the firm will die, make it harder to borrow money from banks. This certainly hurts the company, and makes a weak company weaker.

      • Today, the share price of a company called iRhythm Technologies fell by something like 33%. It’s a company that has a well-known short thesis involving questionable coding of their technology for reimbursement purposes, with news today that validated the thesis. Did the price fall because of pressure exerted by short sellers shorting the stock today? Of course not! The price fell because ***long holders*** were fleeing the sinking ship, short sellers already having positioned themselves at higher prices hoping for this outcome. The company’s fundamental weakness leads to the weak share price, not the other way around.

        Thanks for your previous posts!

    • “ICBM” is great – too great. Already too iconic.
      Maybe.

      oops – my reply to Todd went here instead of there.

  12. I would bet that the two-day settlement delay in stocks is as anachronistic as the real estate title system. When you have a system that wants to be instantaneous but incorporates a process that hasn’t been updated in decades (or longer), this is what you get.

    Two day settlement allows for only partial collateral with DTCC, whereas instanteneous settlement will require 100% collateral.. in case of securities sales it will require 100% of shares to be available immediately for sale.. with 2 day settlement in order to sell u just need X% of the trade value in money.. so it is not anachronistic but on the contrary very convenient

  13. Sorry, Arnold, too much hypocrisy. Cuomo’s NY killing fields are ignored. Biden’s executive order on climate change is ignored. What else are you going to ignore that may affect your beloved grandchildren?

    • Sorry EB-Ch, while I like many of your comments, your insults to Arnold about his grandchildren are not polite.
      The first one was a little rude.
      Each “grandchildren” comment seems even more rude.
      To me.
      Maybe not to Arnold, but maybe he’s hoping you’ll get tired of such insults.

      They make YOU, not him, look bad.

      • Sorry, Tom Grey, the past 10 months I have seen the dark side of humanity too close and intense, and despite my age, I’m ready to fight to contain it. It’s different from other times in which I had to deal with local outbreaks of darkness (I have lived in several countries, including China where I learned a lot about submission as fake reconciliation). Today I have two grandchildren living in the U.S. who have joined the barbarians after attending expensive private schools and colleges, and I can see how much damage their malice and stupidity do to others. I regret the hypocrisy of those that signal how virtuous they are and how much they love others, in particular, their children and grandchildren.

        You may argue that I’m wrong about what is going on. I think Arnold and others close to him (claiming to be some sort of libertarians) are failing to understand the new threat to humanity and they have chosen to continue entertaining themselves with word games (these games are neither philosophy nor science). They are old but tired, or worst, too much invested in relations with the barbarians.

        Yes, you are right. I’m not polite with Arnold. I’m trying to wake him up.

        • So, I have the least status of anyone on this site. I hold the ignominious record for the most bans from commenting here during the virus era. Hans Gruber was like my fifth choice.

          But here goes…

          The grandchildren/barbarian stuff was/is hilarious…however, it may be misinterpreted or get old with our host.

          (BTW – I have no clue why any couple would want to reproduce in this environment. The prospect of grandchildren in some distant future isn’t going to get me there…ever. Just buy a dog already).

        • Waking Arnold up? He’s busy. Thinking, and thinking about WHO to think about.

          If I were him, I’d be skipping your posts, mostly, due to insults. It’s a bit like F* speech. For effect. But doesn’t gain intellectual respect. I wonder if Hans really thinks they’re funny or also thinks Arnold is sleeping.

          My own son, newly a doctor, is pretty much more willing to be critical of his parents’ ideas (me and wife), rather than his med-student / now doctor friends.

          • The shtick was definitely funny at the beginning, but has lost its luster. Probably time to find something new.

            No, Arnold is definitely not asleep. On the contrary, I’ve called him courageous many times here and I sincerely mean it.

            But, if EB-Ch wants to compete with me for the worst commenter award, then…

            In terms of your son, don’t worry about it. I’m 45 and still rebelling against my parents. That doesn’t mean that I don’t love them and cherish everything that they’ve done for me. Unfortunately, it’s just part of the dynamic. They actively opposed our move from California to Texas and it still annoys me to no end 3 years later. Parents just don’t get any slack, particularly when they are wrong :). Revenge is coming for me once our young daughter becomes an adult.

  14. Even if the “collateral call from DTC” excuse for screwing the longs is “technically accurate” it is still a load of road apples, because the only risks of non-delivery lay with the (short) sellers! The retail brokers don’t let buyers bid without funds. Since those brokers had the buyers’ funds in hand and everyone knew it, they should not have had to post a lot of collateral to guarantee the buy side of their customers’ deals, and if collateral were unreasonably demanded, they should have been able to borrow it at a trivial cost since they already had (from their clients) the cash to settle.

    It was especially damning to see the restrictions the retail brokers imposed on their customers at the behest of their “big player” buddies: they told retail customers they could not buy, but only sell. That alone reveals the essential dishonesty of the “DTC collateral call” story for the reasons I have explained. DTC is controlled by the big players and if it demanded collateral in the absence of risk that was just engineering a legal excuse for the mistreatment of the retail investors.

  15. If it is already addressed: will read through and find it and update my priors.

    But there seems to be some disconnect on Denier’s denial of bad behavior by brokerages: when a retail investor puts an order in, the brokerage immediately debits/locks/escrows the money by the limit price/quantity from the retail investors’ linked bank account (or) a fixed amount if already prepaid into the brokerage. Isn’t it? So why would they have to fund for 2 days – they already got the funds!

  16. Very important points about a short squeeze — becoming a gamma squeeze.
    https://www.nasdaq.com/articles/gamestops-gargantuan-gamma-squeeze-2021-01-26

    https://www.fool.com/investing/2021/01/28/what-is-a-gamma-squeeze/

    One of the important facts mostly not mentioned is how many shares WSB have?
    It seems they mostly were buying call options, which help push the squeeze, but not as strongly.
    Another question is who else owns big chunks? Like Ryan Cohen, of Chewy.com, RC ventures.
    List of owners:
    https://news.gamestop.com/stock-information/institutional-ownership

    (Better than Nasdaq from Sep)
    https://www.nasdaq.com/market-activity/stocks/gme/institutional-holdings
    *I thought Ryan Cohen had bought from FMR, but he got 9 million shares from other sellers.

    I don’t know why the other sellers are not yet selling, but suspect they, too, want to punish the short sellers who were trying to sell 138% of the shares.

    Some short sellers might be going bankrupt – from greed AND carelessness.

    Having the short sellers who shorted “too much” go bankrupt would be the best “regulation” the market could get. That’s part of my hope now.

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