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Congress is mad as hell about the GameStop debacle. And they might just do something about it.
Liberal lawmakers are pouncing on the stock fiasco as their chance to clamp down on wild trading in the stock market. And in a rare sign of bipartisanship, some Republicans are also expressing outrage over the same issues.
The raised voices suggest newly-empowered Democrats—who now control both chambers of Congress and the White House—have found a new bette noir for long-standing grievances against Wall Street. They may now seek to impose new restraints on traders, including stiffer penalties for market manipulation or tougher protections for small-time investors.
Many lawmakers have used the opportunity to grandstand on social media. But Sen. Elizabeth Warren, a longtime adversary of Wall Street and former presidential hopeful, wrote to the Securities and Exchange Commission to ask exactly how regulators plan to fix this enormous mess.
“These wild fluctuations are just the latest indication that many private equity firms, hedge funds, and other investors big and small are treating the stock market like a casino, giving little consideration to the companies, communities, workers, and consumers that may be affected by these risky bets," she wrote.
The GameStop saga that has captivated Wall Street for days has pitted small-time investors against massive hedge funds in a battle royale over the share price of a piddly video game distributor called GameStop. Investors coordinating on Reddit page r/wallstreetbets sent the company’s shares flying through the roof, in a shift that squeezed massive hedge funds that had placed massive bets the shares would fall.
A day before Warren sent her demands, popular trading app Robinhood blocked users from trading the stock, which hampered the small-time investors but gave the embattled hedge funds breathing room and a fresh chance to exit their doomed positions. Robinhood users erupted in outrage. The app later returned service—but not before plenty of observers, including prominent voices in Congress, heaped scorn on the company for the appearance of favoring big trading houses over regular people.
Democratic Rep. Rashida Tlaib, one-fourth of the outspoken House “Squad”—blasted Robinhood for alleged “market manipulation” and called for a congressional hearing.
“They're blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who've used the stock market as a casino for decades,” Tlaib tweeted.
Democratic Rep. Ro Khanna of California also slammed Robinhood and said the move showed the gap between how small-time investors and big players are treated.
“We need more regulation and equality in the markets,” Khanna said in a statement on Thursday. “This also showed how the cards are stacked against the little guy in favor of billionaire Wall Street Traders.”
On Thursday night, liberal stalwart Rep. Alexandria Ocasio-Cortez, a Democrat from New York, live-streamed her concerns for over an hour on Twitch.
But what do you actually do?
For the moment, as the chaotic episode rages on, there’s little consensus on how changes should be implemented.
Rep. Ihlan Omar, a Democrat from Minnesota and another member of The Squad, said the episode showed the need for a new micro-tax on each Wall Street trade.
That idea has long been championed by liberals as a way to focus investors’ attention on the underlying value of businesses, instead of speculation. But it’s anathema on Wall Street, where fortunes can be made by trading huge quantities at lightning speed on razor-thin margins.
“A small tax—0.1%—on each Wall Street trade would reduce high frequency trading, a practice which drains profits from retail investors and benefits only the very rich,” Omar wrote. “We could use the close to $1 trillion it would generate to cancel all student debt and make college free.”
The next step will be Congressional hearings. Both the House Financial Services Committee and the Senate Banking Committee are now planning new sessions on the stock market in the wake of all the commotion.
“We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility and we must examine the market in general and how it has been manipulated by hedge funds and their financial partners to benefit themselves while others pay the price,” said Representative Maxine Waters, a Democrat who heads the House panel.
Republicans are mad too
While tamping down Wall Street’s animal spirits is typically a Democratic issue, some Republicans are also expressing outrage over Robinhood’s clampdown on trading.
Republicans, after all, champion the free market and argue it holds the keys to prosperity. And clamping down on some traders while letting others roam free hardly fits that ideology.
Republican Senator Ted Cruz of Texas tweeted out Thursday that he “fully” agrees with AOC’s criticism of Robinhood’s decision to block GameStop trading.
But the episode also showed just how fractured Congress has become in the wake of the January 6th Capitol Hill riot. Ocasio-Cortez slapped down Cruz’s outreach because of his support for the baseless election conspiracy theories that riled up the mob, saying she’d be happy to work with other Republicans who “aren’t trying to get me killed.”
Yet Cruz isn’t the only Republican who criticized Robinhood’s actions.
Trump-supporting GOP Senator Marsha Blackburn of Tennessee also called out for the company to “free the traders.”
Senator Pat Toomey of Pennsylvania, who’s set to become the top Republican on Senate Banking Committee, also took umbrage at the trade limitations.
“I find it very disturbing that a platform would suddenly freeze out investors,” Toomey said, according to Bloomberg News. “People should be free to make the investment decisions they choose.”