Opinion: The Fed thinks stocks even threaten the financial structure; retail investors say that’s kind of the point

After detailed research, the Federal Reserve said on Monday it was starting to worry about recent and unprecedented volatility in shares of memes like GameStop GME,
-5.51%
and AMC Entertainment AMC,
-11.38%
create pockets of risk within markets that could create real problems for the entire US financial system.

On Tuesday, many of the self-proclaimed “monkeys” who created this volatility reacted to the Fed’s concerns about the actions of memes in a way best represented by, well, a meme:

Based on the actual text of the Fed’s most recent Financial Stability Report, commission-free trading apps and investors using social media to coordinate their trades have created a “militarized echo chamber in which retail investors most often find themselves communicating with others with similar interests and viewpoints. . “

In turn, according to the report, these like-minded investors are creating huge waves of volatility and risk that could create real problems for markets and the financial system during a downturn, especially with so many investors. these mostly younger retail investors face massive losses. using leverage and options to execute their trades.

But this risk can also be felt elsewhere. Fed Governor Lael Brainard wrote in a statement accompanying the report that he has already been seen in the saga of the Archegos Capital Management collapse and could spread.

“This highlights the potential for non-bank financial institutions such as hedge funds and other leveraged investors to generate significant losses in the financial system,” Brainard wrote on Monday.

But while the warning – which was not the first time Brainard sounded the alarm on the subject – could have worried Wall Street, retail investors were not shaken.

Instead, many retail social media investors spent Tuesday telling the Fed that using stocks to upend the existing structure of the financial system, causing hedge funds to bleed, has always been one of their goals, using volatility to reveal what they consider pervasive corruption.

After all, it’s no secret that Reddit’s Apes would love nothing more than to see hedge funds crippled by their own actions. Many people also expect the end result of this destruction to be a fairer system in which the little guy can thrive.

“How come the ultra-rich can basically PLAY in the stock market with over-leveraged positions, dark pools, insider information, etc. for YEARS and there is nothing to worry about,” one read. Very popular article on r / Superstonk subreddit.

“All of a sudden a group of people discover *** bulls that the ultra rich do to generate infinite money and BAM, HOLY S *** GUYS, ALL RISK MARKETS OH NO !!!! !! “

Elsewhere, the holds were even hotter.

“Yes, those are swear words from an entity that printed 33% of the money in one year and then claimed it wouldn’t lead to inflation in the long run,” user done_mest_up said. “They’re not quite handing over the power over the economy that Reddit is doing, I guess.”

But no matter how Redditors or other retail investors feel, it’s worth noting that Brainard’s involvement in the report should not be taken lightly. It was recently reported that she had been interviewed for the most senior position at the Fed and that her chairmanship may include a much more in-depth look at retail than President Jerome Powell has so far done. .

Speaking of scrutiny, let’s not let the day end without a little chat about Robinhood HOOD,
-3.37%.

The commission-free trading app may not have been named in the Fed’s stability report, but its presence has been felt everywhere. A careful reading of the report indicates that Brainard has plenty of questions about Robinhood’s impact on the savagery of 2021, and what he might do in the future.

As we have already discussed here, Robinhood has spent the last few months under siege on multiple sides and was defeated in the last quarter. Despite some political energy devoted to protecting its valuable order flow payment business model, regulatory pressure will not ease anytime soon thanks to Robinhood’s latest “Oopsie”.

The company revealed on its blog on Monday night that one of its customer service workers was tricked into giving a hacker access to part of its server forest on November 3. Approximately 5 million email addresses and the full names of approximately 2 million customers have been compromised. in the attack.

According to the blog post, the hacker demanded a ransom for the information and Robinhood did not clarify whether he paid or not.

After 10 difficult months for the company’s reputation, the hack has come at a bad time.

Google’s searches to “remove Robinhood” exploded on Tuesday as more users rushed to the releases of an app that has already faded to many fans of the stocks movement itself.

And while data from Robinhood’s latest Exodus probably won’t be available for some time, it was easy to find it Tuesday in a perfect spot for memes actions: a tweet from a memes action influencer.


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Marianne R. Winn

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