Personally I have no issue with what the redditers did. It is a gamble (which alot of them will lose) but they are forcing the market to do what they want it to do. Usually they are not operating on margins like the short sellers they are screwing.
I dont believe the clearinghouses should have stepped in, they should have allowed this to play out like it eventually will. Those properly margined short sellers will be just fine when the price hits $5 or Whatever price they were aiming for, those funds that were gambling the short will lose out big.
The fact that a bunch of small investors ran up the cost of a shitty stock should not be something that either the govt intervenes in or the clearing houses which are booking the sales. Robinhood, TD Ametrade and others only shut down the small investors because short sellers had a fit that they were getting creamed on their buy orders for what they thought would be at a great profit.
Originally Posted by 1blackman1
So far nobody here has argued the government should intervene. I'm an agnostic on that -- I haven't thought it through and don't know enough to have an opinion.
The clearinghouses have every right to require brokers to increase margin deposits, when the potential liabilities of brokers go up because of increased trading volume and volatility. And brokers have every right to place restrictions on trading and increase margin requirements on their clients in response to increased volatility.
Really, the brokers and the clearinghouses have to do this, or risk going under. A good example of this was when the price of oil went negative in April, 2020. I believe one or two brokers went under because they didn't have sufficient margin or restrictions on trading when the price of oil went negative. Interactive Brokers had to shell over something like $100 million to clearinghouses because of money its clients lost.
Think back to 2008/2009. You had financial institutions go under, a big recession, and many people kicked out of their houses. A huge government bailout was required. How would this have played out if the banks and mortgage companies hadn't loaned money to people they figured were going to have problems paying it back? If the financial institutions had been required to keep a higher level of equity relative to their assets? If homeowners couldn't borrow in excess of, say, 5X their annual income? A lot better, that's how. Same principle here.
Back during that period, remember Democrats caught huge flack for requiring mortgage companies to loan to anyone, and Republicans for lightening up regulatory requirements on financial institutions. This is something we should learn from and not repeat. But politicians have short memories, as we can tell from what's coming out of AOC's and Ted Cruz's mouths.
