June 29, 2022

Market and Financial News

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How Civil War History Explains Memestocks

2 min read

The stocks’ prices crashed and the biggest zealots moved from r/WallStreetBets to a new subreddit, r/Superstonk, and began posting essays many thousands of words long that they called “dds,” short for “due diligences,” to explain what had happened.

These were ostensibly research reports, modeled, perhaps, after professional financial analysts’ publications. They made the baseless claim that securities regulators, brokerage houses and the people in charge of the market’s day-to-day functioning had gotten together and agreed to create fake shares of the stocks, which they were secretly passing on to hedge funds preparing to short them again.

To fight back against this supposed scheme, the Redditors pledged to buy as many more shares of GameStop and AMC as possible to bring about the “mother of all short squeezes,” or the MOASS for short, when short sellers would be forced to pay whatever price the Redditors asked — maybe even $1 million a share — to cover their bets.

Reality check: There is no giant conspiracy, there are no fake shares; there will be no MOASS. The January 2021 short squeeze did cause breakdowns in the stock market, the most dramatic of which occurred in the brokerage houses that eventually shut down trading in those stocks, not based on any moral authority, but because they were about to run out of money to cover failed trades.

But the Redditors accomplished something real. Like Jay Cooke, who pointed out how hard it was for most people to get access to investment products in 1861, the Reddit crowd highlighted structural problems in the stock market and prodded regulators to try to fix them. The Securities and Exchange Commission has since proposed several changes to stock market operations that would make them more visible and easily understood and faster.

Wall Street has long boasted that its great-great grandfather firms saved the Union during the darkest period of…

Emily Flitter

2022-04-02 05:00:15

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