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GameStop Saga Shows that Crony Capitalism Is Alive and Well
Townhall.com ^ | February 3, 2021 | Bob Barr

Posted on 02/03/2021 9:13:31 AM PST by Kaslin

Once upon a time, stock trading served as a way for businesses to raise capital and for traders to make investments. If companies flourished, stocks rose and investors made money; if not, stocks fell and investors lost money. This was the way the stock market was intended to function. Over time, however, more and more rules and regulations were added, each to address something that at the time was thought necessary to prevent cheating and manipulation. Just like the proverbial “Road to Hell,” Wall Street became paved with regulatory good intentions.

Instead of eradicating cheating, manipulation, and fraud every new “rule” or “failsafe” implemented by Congress or government regulators simply created new ways for inside players to game the system. Thus, an event like the “GameStop” phenomenon last week -- where the coordinated efforts of a social network group (Reddit’s “WallStreetBets”) drove up the price of GameStop’s stock, thereby costing short-sellers tens of billions of dollars -- is both unsurprising and was entirely predictable. The only surprising element was that the new kids on the block (retail investors) quickly turned the tables on the supposed Grand Masters.

“Short selling” occurs when an investor borrows stock from a company and immediately sells it, hoping when it is time to buy stock in which to return to the company, the price has gone down resulting in profit for the investor. On the other side, a “short squeeze,” which is what the Reddit group of retail investors instigated last week, involves buying-up stock to drive the price higher, forcing short sellers to abandon their position before taking a potentially astronomical loss. Normally this too is done for profit, but it appears the folks behind WallStreetBets did it to “teach” Wall Street a lesson.

Once upon a time, stock trading served as a way for businesses to raise capital and for traders to make investments. If companies flourished, stocks rose and investors made money; if not, stocks fell and investors lost money. This was the way the stock market was intended to function. Over time, however, more and more rules and regulations were added, each to address something that at the time was thought necessary to prevent cheating and manipulation. Just like the proverbial “Road to Hell,” Wall Street became paved with regulatory good intentions.

Instead of eradicating cheating, manipulation, and fraud every new “rule” or “failsafe” implemented by Congress or government regulators simply created new ways for inside players to game the system. Thus, an event like the “GameStop” phenomenon last week -- where the coordinated efforts of a social network group (Reddit’s “WallStreetBets”) drove up the price of GameStop’s stock, thereby costing short-sellers tens of billions of dollars -- is both unsurprising and was entirely predictable. The only surprising element was that the new kids on the block (retail investors) quickly turned the tables on the supposed Grand Masters.

“Short selling” occurs when an investor borrows stock from a company and immediately sells it, hoping when it is time to buy stock in which to return to the company, the price has gone down resulting in profit for the investor. On the other side, a “short squeeze,” which is what the Reddit group of retail investors instigated last week, involves buying-up stock to drive the price higher, forcing short sellers to abandon their position before taking a potentially astronomical loss. Normally this too is done for profit, but it appears the folks behind WallStreetBets did it to “teach” Wall Street a lesson.

Interestingly, Rep. Alexandria Ocasio-Cortez proposed what so far has been the only reasonable government action in the GameStop saga, which is to ensure that Robinhood -- the trading app used here by retail investors -- did not act unlawfully or against its Terms of Service by suddenly placing limits on users trading stocks caught up in the short squeeze. Beyond that, however, only trouble looms for those looking for Washington to save their bacon, except, perhaps, for those with enough pull to grab a seat at the table when the new rules are crafted.

Ultimately, the GameStop drama is a metaphor for how far the stock market has strayed from its original purpose. While the government does have a legitimate responsibility to investigate and prosecute stock fraud, the role of the Securities and Exchange Commission is not to pat big investors on the back and help them out because they consider themselves, or are considered by the government to be, “too-big-to-lose.”

Whether hedge fund manager, day-trading hobbyist, or Internet activist, investing comes with inherent risks; risks that only increase when government starts meddling with the rules to make things more “fair.”


TOPICS: Business/Economy; Culture/Society; Editorial
KEYWORDS: aoc; bigtech; cronycapitalism; gamestop; investing; investments; regulations; sec; wallstreet

1 posted on 02/03/2021 9:13:31 AM PST by Kaslin
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As long as there’s no taxpayer bailout, I don’t care. The worst capitalist is better than the best communist.


2 posted on 02/03/2021 9:18:20 AM PST by proust (All posts made under this ip are, for the intents and purposes of the author, considered satire.)
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To: Kaslin

No such thing as “Crony Capitalism”. That is a Leftist made-up concept that tries to take the spotlight off the REAL culprit - the mostly unconstitutional and corrupt Federal Government.

There’s no “crony capitalism”, only Government Scandal awash in unconstitutional and criminal bribery.


3 posted on 02/03/2021 9:19:13 AM PST by Jim W N (MAGA by restoring the Gospel of the Grace of Christ (Jude 3) and our Free Constitutional Republic!)
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To: Kaslin

If we only had one regulation, not only should it not be that Congress is exempt from insider trading, but that they are held to an even more restrictive inside trading standard than the general population (along with anyone who might receive information from them)


4 posted on 02/03/2021 9:20:07 AM PST by chrisser
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To: Kaslin

The lesson learned from this event is that rules are made to be broken.


5 posted on 02/03/2021 9:25:28 AM PST by blueunicorn6 ("A crack shot and a good dancer”)
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To: Jim W N

Sorry, but many corporations are even LESS loyal than some of the swine in our government. Look at the relationship between Big Tech and politicans. Look at the weapons industry and it’s lobbying effects on foreign policy. There is no society anywhere that is free from political and economic entwinement. That’s why economics for the longest time was called “political economy”. To be honest, that is what it should be called today. If you don’t see Crony Capitalism, then you’re kinda like the people who don’t see electoral malfeasance. You ain’t lookin’ hard enough. There’s nothing Left-wing about the term “Crony Capitalism”, but even if there were....who cares if it’s true.


6 posted on 02/03/2021 9:33:42 AM PST by Bishop_Malachi (Liberal Socialism - A philosophy which advocates spreading a low standard of living equally.)
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To: proust

The worst capitalist is better than the best communist.

Excellent!


7 posted on 02/03/2021 9:45:42 AM PST by MV=PY (The Magic Question: Who's paying for it?)
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To: Kaslin

The GameStop Rebellion had no beef with shorting stocks; it had EVERYTHING to do with the fact that the rules are different for different participants in the markets.

Melvin Capital is a big enough fish that they are permitted to “naked short” stock: take a short position WITHOUT ACTUALLY BORROWING THE STOCK. The average investor is not allowed to execute that sort of trade, and therein lies the impetus for the buy-up these internet groups orchestrated.

The entire episode was a Richter scale protest against the existence of the naked short, a painful demand that it not be legal. That the short position rules be THE SAME for all participants in the markets.

Put simply: *** END THE NAKED SHORT ***

[I should note that this is NOT the same sort of animal as a minimum asset requirement for prospective participants in certain ventures, because such requirements APPLY TO EVERYONE, and are safety barricades preventing too-small investors getting in over their heads in risky moves.]


8 posted on 02/03/2021 9:55:42 AM PST by HKMk23 (The days of my sojourn have been few and evil, and I have not attained the staure of my forebears.)
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To: Bishop_Malachi
Corporations as well as individuals are free. They don't have to be "loyal", just make a profit and in doing so benefits all without realizing it (Adam Smith's "Invisible Hand" in his book The Wealth of Nations).

That's what are country's is all about. Freedom. The Free Market is the goose that laid the golden egg and made America the wealthiest and mightiest nation in the world. And the Left hates it.

Look at the relationship between Big Tech and politicans.

Right, and the Left wants you to focus on Big Tech, not criminal Big Government which is constitutionally forbidden from taking bribes which is what all this "subsidy" and "lobby" is all about.

Free Enterprise will take free money and take whatever advantages are given to them. They'd be stupid not to. And individuals and companies are free from constitutional limitations. ONLY the feds are restricted. The Left doesn't want you to know that.

The only entity that is NOT free is the Federal Government, greatly limited by the Constitution which created the feds which now are mostly unconstitutional and, thus, mostly engaged in tyranny.

Wake up and recognize who the REAL enemy is my FRiend. It is not Free Enterprise, it is the tyranny of the now basically totalitarian Federal Government.

9 posted on 02/03/2021 3:59:46 PM PST by Jim W N (MAGA by restoring the Gospel of the Grace of Christ (Jude 3) and our Free Constitutional Republic!)
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To: Jim W N
Corporations as well as individuals are free. They don't have to be "loyal", just make a profit and in doing so benefits all without realizing it

Who is "all"? People in China? Or America?

10 posted on 02/03/2021 4:00:38 PM PST by dfwgator (Endut! Hoch Hech!)
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To: dfwgator

dfwgator, you have to understand benefits of marketplace free from government interference. But it’s very hard to get around fictional political presumptions, prejudices, and paranoia. You’ve read my posts. You know I love America and hate her enemies. But WAY too may are clueless about how TRUE economics works.

Aside from valid military restraints towards an enemy like China, the marketplace free from government interference threatens no one, although countries like China ALWAYS feels threatened by it and well they should because the Free Market strengthens the push for freedom from tyranny.

It is the Free Market that made America the wealthiest and mightiest nation in the world. Leftist terms like “Crony Capitalism” are straight from the pit of hell from whence all their lying delusions emerge.


11 posted on 02/03/2021 4:14:54 PM PST by Jim W N (MAGA by restoring the Gospel of the Grace of Christ (Jude 3) and our Free Constitutional Republic!)
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To: Jim W N

You say that corporation as well as individuals are free. You then proceed to say that corporations do not have to be loyal. Do individuals have to be loyal? Do individuals who seek to make a profit benefit all without realizing it ALL THE TIME? Does the US defense contractor who sells its secrets to China or Iran get pass? Does someone who decides to start a child pornography business get a pass because they are “creating new jobs” and “lowering unemployment”?

I use these examples to prove a point no person (and no business) operates in a vacuum (a.k.a. independant of other moral considerations). If one gives businesses a pass to do what ever they want under the delusion that their profit-seeking will broadly benefit all, then they are proceeding under a short-sighted, cult-like mentality.

There is no doubt that a market oriented economy is superior to a command economy, but that is a far cry from letting business RULE and do whatever they want under the assumption that everyone is always better off no matter what the business does.

If recent years have taught us anything, it is NOT that government is the enemy, but rather government under the control of the wrong people is the enemy. Trump’s protectionist policies (including the Wall to prevent illegal immigrations) are government policies. Those policies are certainly not “leaving things to the free market”. It would be different if these businesses respected US sovereignty, workers, political speech, and traditional values....but they don’t. Are we gonna sell our souls to the market so that we can get the next generation iphone? A better processed, frozen dinner? A softer pair of socks?


12 posted on 02/04/2021 5:31:17 AM PST by Bishop_Malachi (Liberal Socialism - A philosophy which advocates spreading a low standard of living equally.)
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To: Bishop_Malachi

Re-read what I wrote there, Bishop. I said ASIDE from limitations of military concerns which of course includes military contractors.

Because of a deliberate lack of education and training, many are without a basic understanding of freedom vs. government.

Freedom requires faith in God. An absence of faith in God creates a vacuum that is filled with trust in man and his government (the worldwide spiritual pandemic that began around 1900).

Just as spiritually grace and the law are polar opposites (Romans 11:6), so politically freedom and government are mutually exclusive. The very definition of (political) freedom is the absence of government interference and coercion. The more government and laws, the less freedom.

Government works by force and coercion, whereas the Free Market works by the voluntary cooperation between buyers and sellers - freedom in action.

As our inspired founding document, the Declaration of Independence [FROM GOVERNMENT TYRANNY] says, freedom (liberty) is every individual’s God-given right and NO ONE has the right to abridge another’s freedom without just cause.

So where does true constitutional government come in? The only legitimate purpose of the FEDERAL government is basically to PROTECT our God-given freedom mainly from invasion without (U.S. Const., Art. IV, Sec 4). What about wrongdoing within? Other than crimes by federal government officials, protecting individuals from wrongful abridging of individuals’ freedoms is up to the people of each STATE government, constitution, and laws.

Within this framework of limited and localized government, the marketplace free from government interference thrives and so does the society. And before you say this is not factual realty, what I’ve described was America in the 1800’s. This is reality. What we have now is a gross perversion of what America was and needs to be again - a Free Constitutional Republic.

So what about this “crony capitalism” fiction? Again, business must profit to survive so if government going to give them hand outs, a business would be stupid not to take it. Nothing necessarily wrong with business doing that. But government handing out and taking bribes is another story. That is expressly forbidden in the Constitution. So all this “subsidy” and lobbying (bribes) are criminal on the government side, not the free enterprise side. So it’s Crony GOVERNMENT, not “crony capitalism”.

Of course there should be laws that protect against child pornography and the like. You use extreme examples to argue against freedom in favor of government tyranny.

But what has FEDERAL government tyranny (defined as unconstitutional government laws and acts) brought us?
- The withdrawal of Bibles and prayer in schools.
- The elimination of teaching the Constitution and Declaration of Independence which frames the Constitution.
- Forced integration.
- Overturning state anti-abortion laws leading to the massive and bloody infanticide of the murder of tens if not hundreds of unborn
- Special political “rights” for sodomites and the like.
The list goes on and on. A Parade of Horrible brought to you by the government you say is not your enemy.

The fact is government is a potential evil necessary for narrow purposes mainly to protect from outside invasion. The Federal Government was created by the Constitution to be a wolf that guards the henhouse (America, her people, and her freedoms). The Constitution is the wolf’s chain. If the wolf chews off its chain, as the feds have, then the hens are in grave danger from the very wolf who is supposed to protect them.


13 posted on 02/06/2021 9:42:37 AM PST by Jim W N (MAGA by restoring the Gospel of the Grace of Christ (Jude 3) and our Free Constitutional Republic!)
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To: Bishop_Malachi
- Overturning state anti-abortion laws leading to the massive and bloody infanticide of the murder of tens if not hundreds of MILLIONS of unborn
14 posted on 02/06/2021 9:46:44 AM PST by Jim W N (MAGA by restoring the Gospel of the Grace of Christ (Jude 3) and our Free Constitutional Republic!)
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