“…However, there’s an overarching issue that looms larger in this stock market saga and subsumes even the issue of protecting large inside players at the expense of the small investor.
What happens when you allow a small group of individuals or institutions—government figures and regulators, certain hedge funds, and Wall Street investment houses (perhaps acting on behalf of government regulators)—the power to determine the appropriateness of decisions made in the broader financial markets? And if certain players are given free rein in determining what constitutes appropriate valuations for a given company, where does that influence stop?
This “We know better than you” mentality quickly leads down a path toward greater government influence and determination on which companies are successful and, perhaps more importantly, which industries are successful.
Although it might seem far-fetched now, what happens if the government takes a dim view of an initial public offering (IPO) and effectively says, “No, we disagree. That IPO is being priced at too high of a level.”
What if the government doesn’t think a particular company—or a particular industry—deserves funding at all?
In effect, the government begins to decide where and how capital should be allocated. In many respects, this is already being done. Look no further than the billions already being spent in the name of “Climate Change.”
If a proverbial red line on outside intervention isn’t quickly drawn, we may find ourselves occupying a world in which the federal government believes it should be doing the capital allocation in place of open financial markets.
In some respects, the market has served as the ultimate arena of opportunity and free speech. Theoretically, it doesn’t matter what you look like or where you come from. We can all invest in companies we deem attractive, and if we’re wrong, the market quickly shows us the error of our ways.
But these recent events have exposed the extent to which this belief may be unfounded and the manner in which the financial system has been systematically weighted towards certain players, at the expense of others. And that’s what these small retail investors currently are fighting over.
The fundamental issue currently being fought over is who gets to have a role in determining financial value, access and outcome—who gets a seat at the proverbial table. Is it all the participants that make up the market? Or is it only the entrenched Wall Street players and the government regulators who want to step deeper into their role, exerting greater control and shaping desired outcomes.
Fox’s market analyst, Charles Payne, observed that “the stock market is not in turmoil—billionaire hedge funds are in turmoil.” And he’s 100 percent correct. The hedge funds got caught offside in this mess, and now that they’re feeling financial pain, they want to change the rules.
Instead of placing blame on the multitude of small investors, we should be looking at the risk management policies of the big hedge funds. Their risk controls—or lack thereof—allowed them to get into this situation.
And make no mistake, it’s completely normal for hedge funds to go after the weak or vulnerable positions of other hedge funds. They specialize in this. Using financial derivatives and other such instruments, they constantly stress-test situations and other firms’ holdings, even push companies into technical bankruptcies. This game has always been played.
But this time, it’s suddenly different because it’s the retail investors—the little guys—who are doing the pushing…”