1889 Institute: What GameStop can teach us about Good Governance

What GameStop Can Teach Us about Good Governance by Mike Davis (1889 Institute) The law doesn’t govern most interactions. Everyone gets in line at the grocer; that’s what we’ve always done. We rely on unwritten rules of fair play, trusting they will be observed. What happens when we rewrite those rules? Escalating rule-changing that makes everybody worse-off. The recent kerfuffle with GameStop is illustrative, and it should serve as a warning to those willing to erode governmental traditions for short term wins. Robinhood, a website that lets users trade stocks without a per-trade fee, froze its trading of GameStop and other highly-volatile stocks. The everyman Robinhood traders were locked out, while elites still had access through traditional hedge funds. Outrage was swift, and Robinhood reversed its decision. But these actions didn’t happen in a vacuum: GameStop was volatile because of a targeted attack– a short squeeze. Many hedge funds were short-selling GameStop and other stocks that have been hit hard by lockdowns. Short selling, in very simple terms, is a bet that the price of a stock will go down. If it does, the short-seller makes money. If it goes up, they lose money. A group of Robinhood traders bought shares of GameStop, driving up the price. Hedge funds lost billions of dollars. Traditional brokerages seemingly have a justifiable bone to pick. But do they? Read more » by Jamison Faught - April 03, 2021 at 10:05AM

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