Gamestop made me think of this. The moral of the story is that when you beat Wall Street at their own game, they will change the rules on you so they win anyway. Something to be cautious about in the current situation.
There's a general moral of the story here that isn't specific to Wall Street. If you think you've got a magic hack for some system, don't forget that the system might not be immutable, and that many people will consider the spirit of the rules not just the letter of them (even if this means changing the letter of them).
It's fairly similar to the risk of building a business by adding one feature to someone else's platform.
This holds true, even when the system assures you that it is immutable. I recall when a hacker noticed a vulnerability in some Ethereum smart contracts and used it to "steal" ETHs, the transactions were swiftly reversed and the whole concept of "the code is the contract" was thrown out of the window in the process.
Wasn't the blockchain forked? So technically there is still a version of Ethereum out there that makes it easy for hackers to steal your stuff, but for some reason nobody wants to use that version.
The bug was not in Ethereum, it was in the contracts. And before this incident, the philosophy of Ethereum was that "the code is the contract". The hacker did not breach the contract. They noticed a bug, or as one could say, a loophole, and used it to their benefit.
I don't know what the mechanism of enforcement was. Whether it was a fork or something else, the net effect was that a) the history was rewritten, the contract terms changed retroactively, and the monies were returned to their source; and b) the concept of code is contract was effectively showed to be an empty gesture and the philosophy was effectively abandoned.
It was a fork. Ethereum Classic, the original chain, is still in operation, and in that fork, the DAO fix never happened. But since the DAO affected the core Ethereum developers and early proponents and backers of the system, all the talent stayed with the chain that corrected the issue. To me, that's a fair outcome. Forkability is a necessary feature, not a bug, of immutable blockchains. Just like it is for open source.
Plenty of people still use ETC lol. That's crypto for ya, though.
This is such a great example, because it's an obvious case of "trustless for you but none for me thanks" -- if Vitalik believed that "code is law" was better than having the ability to amend the transaction, he'd just be on ETC dealing with the mess.
If grandma's life savings gets stolen, well sucks for grandma. When it's Vitalik, well, it's time to fork the blockchain.
I mean, it was up to the community at large to ultimately support the new fork. As an example, Bitcoin forked into Bitcoin Cash, but the community largely stuck with the main chain. It's really a market-driven decision which chains or forks thrive and which ones don't. At any rate, it's more and more expensive to do forks as a chain grows in maturity and adoption.
Sure, but do you think "the community at large" really makes such decisions in any meaningful way? Overwhelmingly, "the community" blindly follows a few leaders who happen to have a high profile or make the most noise in the right forums.
Which means that in practice, these "immutable" blockchains and their "code-is-law" contracts are immutable for the masses, but can be modified (in effect, by forking) when it's in the interest of a few powerful individuals/entities to do so.
Yeah. It is very rare that a clever rules-lawyer-style hack of a game will let you defeat people in power because they usually have enough power to hop up a level and beat you at the meta-game and you do not.
I don't believe it's possible to come up with a fixed set of rules that protects against market manipulation in both directions: the more one attempts to manipulation-proof in one direction, the easier it gets to manipulate in the opposite.
Wolfe Research firm is developing a tool that can scan large volumes of language text on subreddit forums
like wallstreetbets and assess which stocks are being targeted by retail traders. The article is currently at Market Watch.
>they will change the rules on you so they win anyway
Are you referring to how several popular brokerages prevented customers from opening new positions? That's due to them unable to fulfill deposit requirements on such volatile stocks, not because of some conspiracy by wall st to "change the rules on you so they win anyway".
> I guarantee you the interests of institutions on the short side of the stock factored in to the decision to raise deposit requirements.
Is there any evidence for this, other than the general feeling of "rich people are powerful, therefore they must have been some meddling by them"? The formula for determining the deposit requirements is publicly documented: https://twitter.com/kralctrebor/status/1354952686165225478, so the judgement call looks pretty straightforward to make.
And who sets the formula, who lobbies for laws to be passed to require it, who runs and owns the clearing houses? Hint: It's in the thread you linked.
> RH offered to open up stock market investing more broadly. They succeeded, clearly. But the regulations didn't change - there are still pro-Wall St, pro-incumbent rules and capital requirements. It's one of the most highly regulated industries in our nation. [0]
> So @aoc is right to ask how it can be that Robinhood stopped its clients from buying certain securities. And what she'll find is that the reason is that Dodd-Frank requires brokers like RH to post collateral to cover their clients' trading risk pre-settlement. [1]
> And it isn't the Fed or SEC who sets the rules. It's the Wall St owned central clearing entity itself, DTCC, that makes its own rules. So when the retail masses decided to squeeze the short-sellers, in the middle of crushing them, it was govt regulations which tripped them up. [2]
This last tweet in the thread was made about 13h ago, about a day after the previous last tweet in the thread. It's quite interesting, if you ask me.
> Update: the plot thickens ... @The_DTCC may have exercised its right to add additional margin charges for a set of these stocks. It's a Margin Liquidity Adjustment Charge. [3]
I find it curious when people give these institutions the benefit of the doubt. It flies in the face of the history of the industry and also what we know about basic human nature.
I've moved around these types of social circles to know that any levers that can be pulled will be pulled.
We also know that for large financial institutions, breaking the law is usually just a cost of doing business. Tangential, but GS was happy to facilitate 1MDB, and HSBC empower money launderers...
In any case it is speculation so my opinion carries no real weight over yours, but it does make me wonder what has coloured my world view to be so cynical/nihilistic
>I find it curious when people give these institutions the benefit of the doubt.
Is it any different than giving the election officials the benefit of the doubt rather than assuming that The Establishment rigged the election? not that I support the election fraud claims, but it's an interesting parallel to what's happening here.
Fair enough. Would rather not get into that one, but the world of finance doesn't exactly have a good track record of playing nice or even by the rules...
I suspect people who give these institutions the benefit of the doubt haven’t actually moved around in those circles. I certainly would have given them the benefit of the doubt 5 years ago when I didn’t actually know anyone from those institutions.
And it's an open secret that Wall Street institutions colluding / bending ethics and the law is basically business as usual. (In this particular case I talked to a couple people I know who work in market makers and hedge funds and they took it as given that the requirements would have been put in place to protect short selling institutions)
> Depending on the net of buys/sells, RH is on the hook to pay or recieve that net cash. That’s credit risk.
Except in RH case, their customers have already transferred money from their bank account to RH. RH should have 100% of the money they need for normal buys. The reasoning given doesn’t actually make sense.
(unless it was margin accounts that were the problem, in which case RH should stop issuing margin. or the “instant deposit” feature. They could just disable that until they could afford it again.)
And we just can't afford-- well, we're not a clearing firm, but our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it.
>(unless it was margin accounts that were the problem, in which case RH should stop issuing margin. or the “instant deposit” feature. They could just disable that until they could afford it again.)
It's not as simple because due to settlement rules, a lot of normal transactions actually require margin. eg. selling stock A and buying stock B with the proceeds the same day. Due to T+2 settlement the money isn't actually yours until two days later.
it's literally written. the average wsb user might not have known that discount brokerages were going to fail them, but it's hardly "changing the rules".
> when you beat Wall Street at their own game, they will change the rules on you so they win anyway
It's not just Wall Street.
This explains the Republican demands for even more onerous voting restrictions. Even though those same Republicans have certified - under penalty of perjury - that there was effectively no fraud in the recent elections.
One solution would be for management to raise capital by issuing boatloads of new shares. They could explicitly say the capital is to pay themselves bonuses to buy mansions and yachts.
Clearly the moral path is to let the market fail and implode. </s>
When the market is in danger, it’s foolish not to act to stabilize it. If robinhood collapsed into receivership, the outcome would be far worse for their customers.
When I saw this thread "Business Adventures" was the first thing I thought of. I bought a copy when it appeared on one of Bill Gate's summer reading lists. It's a great book. The story of the Piggly Wiggly stock corner is great, as is the story of the creation of the Xerox machine. I think I lent my copy to a co-worker who I'm fairly certain never read it. They also never gave it back. Oh well.
For anyone looking for a book in a similar vein I recommend "The Deltoid Pumpkin Seed" by John McPhee.
> The stock went up wildly, reaching a high of 124. At this point the Exchange suspended further trading & postponed the short sellers' delivery deadline. This resulted in eventual bankruptcy for Saunders & he was finally forced to step out of the Pigp]y [sic] Wiggly Company.
Bizarre. What grounds did they have for doing this?
Prima facie there are some similarities between this and the GME situation, I wonder if the outcomes will be the same.
> Whether it was a direct $$$ bribe or a call-in to the good old boys, we will probably never have proof.
Which feeds into a lot of sentiment for millenials who haven't made it big with $400k a year jobs in SV.
Rich people - whose wealth has quadrupled since 1990, have spent the last 2 decades yelling at the poor to "work hard" - wages not having increased at all, but if the needle even threatens to point the other way for just a second, the rules are changed.
People working hard have seen their conditions deteriorate, house prices balloon, wages stagnant, and to top it all off yet another recession, this time one to protect old peoples health (very little risk from covid for under 45s)
In the last year the richest 10 people have made $500b in the last year, if you don't see something wrong with that you need your eyes tested.
Gamestop isn't about making money, it not even about screwing over some people trying to make theater chains go bust, it's a cry for help. It raises wealth inequality up the list of issues.
If you're earning $30k a year and working 2 jobs to pay rent, or well in to your 30s and still living in your mom's basement, you see things like this and can't be blamed for thinking the entire system is rigged against you, and you're going to lash out in any way you can. People can say "let them eat cake" or "let them invest in the nasdaq", and usually come out on top. Occasionally though they don't.
I wish there were more details about how this resulted in bankruptcy. Was it an eventual lack of ability to pay for the interest on the loan he used to borrow the stock, or did he fail to corner it, so other sellers ended up letting the shorters out of their position, and his shares plumetted?
tldr - the short sellers were given five days to find the necessary shares (compared to the standard 24 hours). That's a lot of time in 1923, and enough shares came in to get them out of the corner.
Clarencr Saunders (the Piggly man himself) was left with no way to repay the loan that allowed him to set up the squeeze and was forced to walk away from a truly revolutionary business he had built.
Read Business Adventures, as mentioned in other comments. Cannot recommend enough.
The author expanded upon it in his book, Business Adventures.
Apparently, the only alternative was for short sellers’ to sell very large amounts of many other stocks, and the Exchange was afraid it would crash most of the other companies’ stocks.
The sentiment, from the book, appears to be that Saunders nearly caused a stock market crash all by himself, with his corner
This error is presumably due to failed OCR character recognition.
I can't access the original article (which is linked for subscribers) but it seems to be because the word is in italics? Or might the brand have had it's own stylistic ligature/logotype at the New Yorker?
A lot of people here are focused on the finance, but I had no idea that Piggly Wiggly was the first self-service grocery store. Its also interesting that it had a single maze-like path through the store.
The exchange didn't suspend trading, several brokers widely used by small investors did. And some of them didn't suspend all trading, just purchases (sales were still allowed).
There may or may not have been malicious intent, but the EFFECT is much stronger and less fair than a hault to trading would have been: it forces small investors (but not big ones) to push the stock in a particular direction.
In this case the retail brokerages have suspended or greatly curtailed opening new positions on GME, which has a similar result: stabilizing prices.
Just as the buying might be coordinated effort by readers of reddit, the suspension of buying new positions in GME is the coordinated effort by multiple large retail brokerages.
