LogFAQs > #950069590

LordoftheMorons posted...

What are you saying shouldn't be allowed here?

You realistically need intermediaries to facilitate trades; without them, I couldn't just say "hey, I want to buy a stock of GME at the current price" and have that happen; there's likely going to be a mismatch between the number of people buying and selling. So what actually happens is that I buy from/sell to a market maker and they figure out the other end of things. But if everyone wants to buy rather than sell because this thing is blowing up like crazy, the market maker's gonna be forced to short the stock themselves and take on a ton of risk unless they stop letting people buy (I guess Robinhood is not a market maker themselves, but they execute trades on behalf of the market makers). Then if they take on so much risk that they literally can't cover it and things fall through, everything's fucked.

It is true that allowing selling but not buying manipulates the market and I can see an argument that if they shut down one they should shut down the other, but my suspicion is that people would also have been mad about that (probably madder?)

LOTM, sorry, but you have no idea what you're talking about. It is not a market maker's job to set a price and eat liability if he can't find counterparties at that price. If there is a mismatch of buyers and sellers at a price point then then price has to move! If everyone wants to buy at $300 then the price should go up. There is a price at which there will be more long shares available to sell. A higher price. How much higher, I don't know, possibly very much higher in this case. At that price possibly some people who have made poor financial decisions will be going bankrupt.

What does that mean? They've already taken on too much risk - Robinhood or Apex or someone. They have not protected themselves for this situation which people on WSB have been publicly predicting would happen for months. They have failed as brokers or market makers (not really sure where the failure is). And the SEC or NYSE or someone should be regulating them to make sure they maintain appropriate risk management.

Something that this squeeze has made clear is that a bunch of supposedly smart people on Wall Street have no sense of risk management. Collectively, they have lost 20 billion dollars shorting a company that was worth 200 million or so at the bottom.

So yes, there are people who are taking risks they shouldn't, but it's not people investing a small amount of money they can easily afford and which they actually have on buying GME long stock. It's the short sellers who are risking an astronomical amount of money for a comparatively tiny possible gain. And that wouldn't be so bad systemically, but the problem is they are risking more than they have. And if they can't cover it, then others must cover for them, and the chain reaction of chaos starts.

But from a regulator's point of view - if a broker or market maker or anyone has to cheat or else they go bankrupt - they must go bankrupt and they must not be allowed to cheat. No more bailouts.


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September 1, 2003; November 4, 2007; September 2, 2013
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