Reddit vs. Robinhood: Lawmakers from both major parties criticized Robinhood after the firm announced it restricted customers’ ability to buy stock in certain companies. To have stories like these and more delivered directly to your inbox, be sure to sign up for our newsletter. Photo credit: Gage Skidmore, Ted Cruz. Dimitri Rodriguez, Alexandria Ocasio-Cortez.
Top Story: Reddit vs. Robinhood
From CNBC: “Lawmakers from both major parties criticized Robinhood on Thursday after the California-based financial services firm announced it had restricted its customers’ ability to buy stock in GameStop and other companies whose shares have been driven up by retail investors organized online. Investors from the message board had sent shares of the video game retailer up 1,500% in recent weeks, in the process pulling off a calamitous ‘squeeze’ for hedge funds who had bet the company’s shares would continue to slide. In a reversal, shares of GameStop tanked on Thursday after the restrictions were put in place.” Here’s what both sides are saying and why this story matters:
On the Left
Democrats and progressives are furious about Robinhood’s decision to restrict the trading of certain companies. They think it’s unfair that retail, “mom-and-pop,” investors were blocked from trading shares of these “meme-stocks” while hedge funds continued normal operations. In a statement about Robinhood’s move, California Democrat, Ro Khanna, a progressive who represents Silicon Valley, called for “more regulation and equality” in financial markets. “While retail trading in some cases, like on Robinhood, blocked the purchasing of GameStop, hedge funds were still allowed to trade the stock,” Khanna said. “Instead of investing in future technologies to help America win the 21st Century, Wall Street poured billions into shorting this stock to crush this company and put workers out of business. The future of this country lies in that access and equality across every sector of our economy,” Khanna added. Rep. Rashida Tlaib, D-Mich. chimed in later saying Robinhood’s move was “beyond absurd” and amounts to “market manipulation.” As a member of the Financial Services Committee, she is calling for a hearing. “They’re blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who’ve used the stock market as a casino for decades,” Tlaib said. Fellow “squad” member, Rep. Alexandria Ocasio-Cortez, D-N.Y., who sits on the same committee, said she would support a hearing, calling Robinhood’s move “unacceptable.” This is where things get interesting.
On the Right
Some on the right shared the same concerns as their colleagues on the left. Sen. Ted Cruz, for example, a conservative Republican from Texas, replied to a Robinhood tweet from 2016 that said, “Let the people trade,” adding a bemused emoji-face on top of his response. Cruz then reposted Ocasio-Cortez’s tweet from above saying that he, “Fully agrees.” (The love affair didn’t last long). Donald Trump Jr. also shared his thoughts saying: “It took less than a day for big tech, big government and the corporate media to spring into action and begin colluding to protect their hedge fund buddies on Wall Street. This is what a rigged system looks like, folks!” Dave Portnoy, founder of Barstool Sports, posted a screenshot of Ocasio-Cortez and Donald Trump Jr.’s nearly identical rebukes of Robinhood’s decision saying: “When @AOC and @DonaldJTrumpJr are on the same side you know you f***ed up @RobinhoodApp.” The New York Post outlined Portnoy’s own thoughts about Robinhood’s actions. In an “emergency press conference” Portnoy blasted hedge fund billionaires like Ken Griffin of Citadel Investments, whose firm processes orders for Robinhood. “They’ve got their mansions and everything else — It’s ok for them to risk money,” Portnoy fumed. Portnoy added that Robinhood is claiming that it is “protecting its users from over leveraging and getting burned,” but that somehow it’s okay when “hedge funds do the same exact thing.”
Who knew that a tribe of Reddit traders banding together to take on massive hedge funds would unite our country? The phrase “new normal” is meant to help us cope with the fact we are now living in a pandemic-driven parallel universe, but this story is otherworldly. It seems fictional, although it’s not and it matters because it somehow managed to bring together people from both sides of the aisle while touching on a host of hot-button topics: Wall Street vs. Main Street, Millennials vs. Boomers, Stimulus Checks vs. Institutional Capital. The list goes on. One note: the “David vs. Goliath” lens through which most of the media is viewing this story isn’t 100% correct. A lot of hedge funds lost a lot of money, but a lot of hedge funds also made a lot of money by joining the momentum trade. Billionaire Wang Jianlin saw his net worth jump by more than $450 million after AMC Entertainment stock popped over 310%. In terms of what’s next, Robinhood was hit with a class-action lawsuit. Filed in the Southern District of New York, it claims that the trading app “purposefully, willfully, and knowingly removing the stock ‘GME’ [GameStop] from its trading platform in the midst of an unprecedented stock rise thereby deprived retail investors of the ability to invest in the open-market and manipulating the open-market.” Keep an eye out for a hearing in the Senate as well.