Opinion: The good guys in the GameStop story? It’s the hedge funds and short sellers.
Opinion by Sebastian MallabyContributing columnistJan. 30, 2021 at 3:35 p.m. EST
Sebastian Mallaby is the Paul A. Volcker senior fellow for international economics at the Council on Foreign Relations and a contributing columnist for The Post. He is the author of “More Money Than God: Hedge Funds and the Making of a New Elite.”
The particular targets of the GameStop crowd are hedge funds and short sellers. Here, a couple of definitions may be useful. Generally speaking, a hedge fund is a small-to-medium-size company that makes money by choosing smart investments. There is nothing nefarious about this. To the contrary, if you don’t like too-big-to-fail banks that get backstopped by taxpayers, small-enough-to-fail hedge funds ought to be celebrated. If you worry about complex financial conglomerates with corrupting conflicts of interest, single-purpose investment boutiques are simpler and healthier. On the online forums where the GameStoppers congregate, you read complaints about hedge funds being bailed out during the crisis of 2008. Actually, banks, brokers, insurers, mortgage providers, money market funds and even car companies got rescues. Hedge funds got nothing.
“Hedge funds make money by making smart investments?”
Uh, isn’t that the definition of how everybody is supposed to be able to make money in the stock market?
Hedge funds can also be small to medium companies that are setup by oligarchs or by groups such as organized crime.
The rest of the paragraph is just garbage filler.
What about short sellers? These are specialists who research stocks that might go down, sometimes because bosses are illegally covering up bad news about their companies. When short sellers identify a case of fraud or similar, they borrow and sell the stock, hoping to buy it back at a lower price later. Again, there is nothing evil about this. To the contrary, it’s a way of keeping prices honest. A market without short sellers is like a political system without investigative journalists.
Don’t all stocks have a risk of going down? If anybody knows of stock that can only go up, I’m all ears.
How do short sellers find out things that “bad people” at publicly traded companies don’t want people to know? Insider information from other people inside the company? They use insider information to pick stocks? Uh, that’s illegal for sure. Unless of course, you’re a Senator or Congress-critter.
When short sellers discover fraud they don’t notify the authorities, instead they buy the stock and just hope it goes down so they can profit, just like Jesus would do. Not notifying the current stockholders they are being defrauded in order to make a profit for yourself isn’t evil?
How does short selling keep prices honest again?
Company X’s stock is selling for $10/share. If I sell a bunch at $10/share and just hope it goes down how does that keep anybody honest? Maybe I can sell it for $9/share? Can I do that? Why would I want to do that if people will still give $10 for it? I’ll be taking a loss right away for no reason, unless… Maybe I can get other people panicked about the company, maybe by going on a friend’s show on a business TV network that has 4 letters in its name and start shit-talking the stock so much people start getting nervous even though there is no objective info for them to base their fear on. Maybe I can get some business journalist friends to pile on and start bad-mouthing the stock too. Now the stock goes down to $4/share for no reason other than I could make it drop. Now I can sell and pocket a $5/share profit. I can’t see where the word “honest” comes into play at all in that scenario, but then again, I’m not a finance expert.
Of course I’m not writing opinion columns at the WaPo either.
So, again, just my opinion. Not a financial expert. Not a journalism expert either, if such a thing exists. Which it doesn’t. In my opinion.