OpEd: Democratized Markets Still Need Ethics, Right?


While everyone (at least it feels like everyone) has chimed in on whether “Wall Street” has been replaced by the masses’ purported democratization of financial markets, a good deal of questions have yet to be answered. A quick recap is in order (try to stay with me here).

A guy nicknamed “Roaring Kitty” claimed in the Reddit “WallStreetBets” chat room that he turned $50K into $48M buying the stock GameStop. That got a hoard of followers to “take on the man” (a hedge fund with a large short position) and squeeze the fund by running the stock up (eventually to over $400) to demonstrate the power of ordinary people in the financial markets. Robinhood, the “people’s” brokerage firm of choice, ran into capital problems, had to find $3.5B really fast which, of course, caught the eyes of regulators which called for House Financial Services Committee hearings to assess blame for……something. Whew!! That’s the very basic story.

Now (if you followed that), with congressional politicians in front of the cameras, the focus became evil hedge funds, nasty short sellers, financial billionaires, etc. and scores of things for regulators to “check in to” so it won’t happen again (snicker). So is this the new democratization of financial markets? Power to the people? Or, basically, same old , same old with a new name?

While regulators, lawyers, politicians and investors begin to sort out exactly what happened in this debacle, one thing is abundantly clear. Some people made a LOT of money and a lot of people LOST a lot of money. And the losers were not just hedge funds. Even though the original target, hedge fund Melvin Capital (who held the GameStop short position) lost billions, a good many small investors also lost a lot. The one BIG thing that always seems to be missing is responsibility and ethics. Ethics and financial markets aren’t usually thought of as compatable, but (just maybe) it may be time to begin thinking that way.

To be sure, there is nothing wrong (or illegal) in selling a stock short nor taking the opposite position of buying a stock to attempt to ‘squeeze’ a short. But, ethically, enlisting unsophisticated investors to “the party” for one person’s/group’s potential gain is a bit much.

Certainly “Roaring Kitty” did quite well with the trade even though he had nothing to do with the whole event (snicker, snicker). His own words, “My posts did not cause the movement of billions of dollars into GameStop shares.” And, “It is tragic that some people lost money, and my heart goes out to them.” In other words (mine), ‘I didn’t do anything, made a lot of money, too bad for the losers and democratizing financial markets is really cool.’

Maybe social media should stress more ethical behaviorism.

Nah, no money there.

Bill Taylor is Chief Investment Officer of Entoro Wealth, a long-time hedge fund manager and markets specialist, and an unabashed advocate of digital currencies