Democrat Senator Elizabeth Warren (NY) said on Sunday that the GameStop saga is just the latest of many problems with Wall St. As a result, she said that the Securities and Exchange Commission needs to come in and fix it.
Problems with Wall St
Warren compared the current stock market to a casino, where big money players manipulate the markets. For example, they engage in schemes like pump-and-dump and stock buybacks to bring share prices up. “We need a market that is transparent, that is level and that’s open to individual investors. It’s time for the SEC to get off their duffs and do their jobs,” she said during an appearance on the “State of the Union” show on CNN.
The New York senator blamed Reagan-era SEC policy changes that allowed companies to buy back their own stocks and manipulate prices. Despite the SEC proposing rules on stock manipulation, Warren said it needs to do more. In fact, the agency needs to examine the roles played by companies and hedge funds playing in the markets. “Then, they need to put the rules in place to stop it and grow a backbone to enforce those rules,” she said.
The GameStop Issue
The GameStop saga continues to sow chaos in the markets. When Robinhood began limiting trading of GameStop shares, not only were retail investors up in arms. In addition, the move earned the ire of both Democrat and Republican lawmakers. Senator Bernie Sanders (VT) doubled down on his accusation that Wall Street’s business model is a fraud. As a result, he suggested that the government investigate “illegal activities and outrageous behavior” of hedge funds and other trading firms.
In the case of GameStop, the wild volatility of a stock is a result of a tug-of-war between hedge firms who want to short the stock versus retail investors who oppose them. Critics accuse Robinhood and other trading firms to take the side of hedge firms. They see the limits as a way to prevent the continued rise of share prices, which increase the short seller’s loss. Meanwhile, Warren noted that even as Robinhood and other brokerages began limiting trades, Wall Street players remained able to trade those stocks. She said it was “just wrong” to prevent retail users from buying GameStop in the middle of a trading session. “We actually don't know who all the players are in all this — whether there's big money on both sides. That's why we need an SEC investigation,” Warren added.
An Opaque Marketplace
However, Warren did admit that she remains unsure of what Robinhood is doing. “It can't be trying to help the hedge funds at the same time it pretends to help individual investors,” she remarked. This is why she believes the SEC should investigate the problems with Wall Street, specifically GameStop. Hopefully, this will ensure nobody is manipulating the market and treating it like a casino. More importantly, it should not prevent everyday investors from also winning the free markets.
“Understand: What's happening with GameStop is just a reminder of what's been going on on Wall Street now for years, and years and years. It's a rigged game. We need a market that is transparent, that is level, and open to individual investors. It's time for the SEC to get off their duffs and do their jobs,” she exclaimed.
“The truth is the hedge funds, many of the giant corporations love the fact that markets are not efficient. They love being able to manipulate these markets because they get better returns and individual investors lose out,” Warren said. Consequently, the SEC should “grow a backbone” and enforce its own rules.
Watch the CNBC Closing Bell interview with Senator Elizabeth Warren, who thinks we need clear rules on market manipulation:
Should the Securities and Exchange Commission launch an investigation into the problems with Wall St? GameStop saga? Do you believe it’s a fair fight between hedge funds and retail investors? Or, do you think that the small investor is at a disadvantage? Let us know what you think about the issue by sharing your comments below.