Finance

A Not-So-Free Market

While the U.S. is allegedly built on a free market, the market is only free to be manipulated and profited off of by the wealthy.

By Maya Cohen  
on

Last month, Reddit users sent a multibillion-dollar message to hedge funds, investment banks, and the U.S. economy in general: you don’t control the market. Acting together on a massive scale and in response to the Reddit forum “WallStreet Bets,” Reddit users pushed the GameStop stock price to astronomical levels, resulting in small-time individual shareholders earning hundreds of thousands of dollars and creating massive losses to hedge funds that shorted the stock.

The reaction from Wall Street and the U.S. government has clarified one major thing, while the U.S. is allegedly built on a free market, the market is only free to be manipulated and profited off of by the wealthy.

An easy way to see this is through the way that hedge funds operate. Hedge fund managers meet with each other, whether at Davos, or Michelin-starred restaurants to talk about the market, to suss about weaknesses and areas which can be exploited for their benefit. When these discussions lead to massive gains for any one individual or the hedge fund in general, they are praised and considered to be outsmarting the rest of the market.

But isn’t this exactly what happened with Reddit, just on an online platform, and perhaps more importantly, for lack of a better word, by regular people? Over the past six months, while no one was watching, 2.3 million Reddit users analyzed the market, met with each other online, and discussed how to take advantage of the weaknesses and blind spots of the market. And yet the reaction from Wall Street, the government, and even online trading platforms such as Robinhood, designed to help individuals trade, was outrage. How could it be that regular people figured out how to take advantage of the stock market?

The Reddit GameStop takeover has raised a lot of issues about regulation, many of which are valid concerns, like is it legal or ethical to collude to push up share prices, and further, what does it mean to collude to push up share prices. For example, whenever Elon Musk tweets about a certain stock there is almost an instantaneous impact on the share price of that stock. Before Elon Musk, whenever Warren Buffett spoke about a stock, it would shoot up in price the following day. And yet, Reddit users posting about GameStop and its potential has been seen as collusion.

If our market is truly free, everyone should be able to manipulate it as much as they can or want, but if it is meant to be controlled and stable, then hedge funds, investment banks, and the like need to be equally controlled. Because the only difference between what happened with GameStop and what hedge funds do on a daily basis is who did it.

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Maya Cohen is an associate at Balestriere Fariello and has a background
in international law and arbitration. She focuses her practice on
complex litigation from investigations to trials and appeals. You can
reach her via email at maya.cohen@balestrierefariello.com.

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