Congress And The SEC Are Getting Basically Everything Wrong In Trying To Respond To ‘Meme Stocks’

from the the-man-can't-meme dept

As you’ll recall, a year and a half ago, much of the world who didn’t live on the WallStreetBets forum were introduced to the concept of meme stocks. As we discussed at the time, much of the embrace of such stocks by retail investors was really about people who were fed up with feeling like the entire financial system was rigged against them, and in favor of those already rich and powerful. The underlying concept that drove much of the meme stock effort was about every day investors trying to assert some pushback on the underlying system.

That’s not to say that the meme stocks worked out well for everyone. Plenty of people did lose money, because that’s part of the nature of investing. There’s an underlying myth that the entirety of meme stock investing was about ignorant investors doing silly things, but doing so en masse to effectively counter for their own ignorance. And, surely, there were some retail investors who just went along for the ride, for the lolz, or whatever. But especially with the original meme stock, GameStop, the core of that deal was a retail investor who had done a ton of research, had a real game plan, and a real argument for why the stock was undervalued.

Ever since then, however, there’s been scrambling by “the system” to deal with “the problem” of meme stocks. And, yes, there are a lot of questionable underlying assumptions that meme stocks are, indeed, a problem. A few weeks ago, the SEC launched its very, very weird response to the whole meme stock thing by trying to create a meme of its own, with a very, very cringeworthy video called Investomania.

So… a few comments on this. First off, encouraging anyone who is looking to invest to do some research is a reasonable enough message on its own, but this is the exact wrong way to deliver this message. The people who are into meme stocks quite reasonably mocked the SEC mercilessly for this nonsense.

And, yes, I’m sure you can piece together the sad logic by SEC folks that resulted in them taking this approach: these are meme stocks, so the people who are interested in them like memes, so let’s create a meme! That’ll do it!

But, again, that totally misunderstands what’s going on here. The general focus of the meme stock world is sticking it to the system that is rigged against them. The SEC is the system. The SEC is the Man. Having the system you’re trying to stick it to, then turn around and suggest that everyone investing in meme stocks is an idiot who doesn’t do research not only gets the message wrong, it targets the message in exactly the wrong way.

The Man can’t meme about why those trying to stick it to the man shouldn’t fall for meme stocks.

Yes, people investing in stocks should do research, and you’re very likely to lose a lot of money just chasing after dumb ideas, but this video is not actually targeting the people who just go along for the ride, but rather the people who are doing their research and are trying to make a difference against the underlying rigged system — while the SEC seems to be pretending that the system is fine, it’s just you stupid retail investors who are the problem.

And… now it’s getting worse, because Congress is getting involved.

The U.S. House Committee on Financial Services on Friday called for the SEC, along with other regulators, to do more to protect the markets from similar events.

The impetus for change came from the so-called “Reddit rally” of January 2021, in which GameStop Corp and other “meme stocks” popular on social media surged to extreme highs on buying from investors trading heavily through Robinhood and other commission-free retail brokerages.

The intense volatility led to big losses for hedge funds that had bet against the meme stocks.

Notice the language here. “Protect the markets.” Because it was “the markets” that suffered? No, as later noted, it was some hedge funds that had bet against these stocks that lost. They don’t need to be protected.

All this kind of thing does is make people even more sure the system itself is rigged against the everday retail investor.

Now, there are reasonable concerns that the SEC has about “payment for order flow” and how that creates potentially questionable incentives for firms like Robinhood, which really pioneered the zero commission trade setup after realizing that they could just sell their deal flow through Citadel, allowing that firm to pre-run the market. The main issue there is that companies like Robinhood get paid more for a larger order flow, which gives them incentive to, in turn, encourage retail investors to trade more.

But, it’s reasonable to be skeptical about whether the SEC’s and Congress’ actual concerns are about systems that may encourage retail investors to trade too much… or if it’s really about “protecting the market” in the form of protecting the hedge funds that lost a bunch of money.

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Comments on “Congress And The SEC Are Getting Basically Everything Wrong In Trying To Respond To ‘Meme Stocks’”

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This comment has been deemed insightful by the community.
That One Guy (profile) says:

'Won't someone think of the rich people?!'

Angry people: The system is broken and rigged against the non-rich.

Angry people: Proceed to show how the system is broken by using it against the rich.

Congress/SEC: We must prevent this from ever happening again, some rich people lost money and that is unacceptable!

Yup, that’ll certainly regain people’s trust in the stock market and show how it’s definitely not just a tool for the rich to abuse for money, rigged against the majority of people…

This comment has been deemed insightful by the community.
TheDumberHalf says:

Apes Strong Together

Some of us are not in it for the money, but to expose the corruption of the entire system. We’ve seen proof of actual stock manipulation and the SEC doesn’t care. Even if something is done, it’s a 2mil fine for a few billion dollar gains. Between naked shorting (illegally trading shares that don’t exist) and using off market trades to move stock price, there’s no question of the manipulation. Just a few weeks ago, the self regulation agency DTCC has been waving billions in fines for these crimes. There are events on the horizon that threaten a lot of wealth. Either 2 things will happen; Retail traders will get the shaft, or the entire global market will crash.

Anonymous Coward says:

People realised that the stock was over shorted if they bought gamestop the stock would rise
The stock was shorted 160 per cent
this is covered on the slate TBD podcast.
So some ordinary investors bought the stock. And made money the company that shorted the stock lost money
That’s how the system is supposed to work
The difference is oridinary people can use apps to buy stocks without paying a fee
And they can look for stocks that are over shorted

I don’t know how the market allows people to buy 160 per cent of a stock
And all this helped gamestop to survive the loss in sakes due the pandemic

Paul B says:


Shorting a stock is a promise to sell a stock at some point in the future at today’s price. Stock goes up, your out the diff, stock goes down, you make money.

Now if 160% of the stock is short, it just means that there are more promises then stock trading but since they all have different time horizons they can everything can coexist. Its just a bunch of promises for future transactions.

WarioBarker (profile) says:

One thing I noticed about those adverts is a lack of specifics, instead painting with a broad “this stuff is bad, period” brush.

“Investing is not a game”? Tell that to the rich people who can afford to let a few million dollars ride and may have the connections to manipulate the market, thus “gaming the system”. Plus, investing has winners and losers just like many games.

Presenting this as a game show, though… it’s amusing in that rigging a game show has been a felony since 1960 and pretty much everybody at the networks and production companies take that seriously – unlike, it seems, the SEC’s attitude toward rigging and corruption in the investment sector.

Given that, it’s perhaps no surprise that the fake game show is pretty much rigged against its contestants (barring that weird “I’m gonna do my research on my phone” bit which wouldn’t be allowed on any legit game show) – the game board has only bad investment prompts and players lose money for making bad investments, meaning that the only winning move is not to play.

Anonymous Coward says:

Stocks have always been this strange mechanism that appeared little more than somehow legalized gambling, that people can make millions simply by throwing money at the right people. But if you’re not already flush with cash to start playing the game, it’s simply not a game for you. Dan Olson’s conclusion from his documentary rings true here. Really, the government doesn’t care all that much.

“In 2008, the economy functionally collapsed. The basic chain reaction was this: bankers took mortgages and turned them into something they could gamble on. This created a bubble, and then the bubble popped. When you drill down into it you realize hat the core of the crypto ecosystem, the core of Web3, the core of the NFT marketplace, is a turf war between the wealthy and ultra-wealthy… it’s a catfight between the 5% and the 1%. Ultimately the driving forces underlying this entire movement are economic disparity. The wealthy and tenuously wealthy are looking for a space that they can dominate, where they can be trendsetters and tastemakers and can seemingly invent value through sheer force of will…

And that’s how [NFTs] draws in the bottom: people who feel their opportunities shrinking, who see the system closing around them, who have become isolated by social media and a global pandemic, who feel the future getting smaller, people feeling pressured by the casualization of work as jobs are dissolved into the gig economy, and want to believe that escape is just that easy.

It’s a movement driven in no small part by rage, by people who looked at 2008, who looked at the system as it exists, but concluded that the problems with capitalism were that it didn’t provide enough opportunities to be the boot… Our systems are breaking or broken, straining under neglect and sabotage, and our leaders seem, at best, complacent – willing to coast out the collapse.”

Lostinlodos (profile) says:

Missing the whole of the point!

The point of stock is NOT to get rich! It is to help invest in an idea and guide that idea for a percentage of return on that idea.

GameStop-gate may have started off as a Reddit idea, but it was propped up and solidified by real gamers that wanted it to survive. What started as a meme became a real mission.

Grips like rich turds and the sec have lost sight of the real reason stock exists. To nurture development with Shared distributed risk.

As for those that “bet” against stock? Those that actively invest to kill a company… sick individuals who should be publicly hanged.

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