OK, so – a group of individual investors worked together via a Reddit message board to increase the price of shares issued by video game trader GameStop. They did so in part because they were aware that a number of hedge funds had ‘cut short’ GameStop, essentially that the company’s share price would fall. One of these funds, Melvin Capital, received an emergency stop investment from another, Citadel LLC, which hit hard.
And then, on another track, there’s an app called Robinhood, which trades on behalf of individual investors, including many of those who caused the rise in GameStop’s price to rise. Robinhood executes the transactions by tracing them other businesses to run in the actual relevant market (i.e. a computer somewhere). One of the companies that does this for Robinhood, and in fact pays Robinhood for the privilege, is Citadel Securities. Citadel Securities and Citadel LLC are both owned by the same megabillionaire.
On Thursday, Robinhood limited the amount of GameStop stock its users could trade. Some of these users immediately expressed their suspicion that they had done so to protect Melvin Capital – and thus the Citadel family of companies, from which Robinhood earns a large income – to lose even more money. There is credible reporting that this is not true and that Robinhood stopped GameStop trading for the legal reason that he did not have enough cash to handle the large amount of transactions; however, the Securities and Exchange Commission says it will look into the matter.
Regardless of the outcome of this particular case, the GameStop / Reddit fracas has put the issue of market manipulation – of what organized financial speculation may or may not be legal – on the radar of the Biden administration. One of the individuals who is expected to weigh in on the subject is Treasury Secretary Janet Yellen. Complicating the problem, however, is that since 2019, Yellen has been paid $ 7.2 million in speaking fees by a long list of corporations, including many large banks and investment firms. One of these is Citadel – her disclosure form makes no distinction between Citadel Securities and Citadel LLC – from which she received $ 810,000 for two speeches and a series of “webinars”.
As Ken Vogel of the New York Times notes, Yellen can stay up-to-date on the legal and formal by either asking the White House for an ethical waiver to discuss Citadel, or demanding her back from internal talks the company is holding. touched. (The SEC is, for the record, not part of the Treasury.) However, this begs the question: what is the use of having a Treasury Secretary who discusses the discussion of half of the businesses on Wall Street? agreed or should be excused?
Yellen’s defenders will say that as chairman of the Federal Reserve she has proved that she will make decisions that are contrary to the financial interests of big banks and that one – off payments do not give her any constant incentive to say whether Citadel is making its investment in Melvin Capital back. (It’s true that many progressive Democrats trust Yellen’s judgment.) (She also gave speeches and conducted free interviews.)
They probably did it rather because they thought it might ultimately make an important decision maker more accessible and more sympathetic to them with their concerns, even if it was just subconsciously. The point of ethical rules – and of concepts such as ‘conflict of interest’ and ‘occurrence of conflict of interest’ – is that no one can know for sure what is in a decision – maker’s heart when making decisions. Maybe even the decision maker does not know! But it’s easier to be neutral with someone if they have not given you six or seven figures to talk to them a few times.
Will the marked Robinhood users and GameStop investors trust Yellen to give Joe Biden good advice on their grievances? Will voters generally trust her to think about their lives and financial situations, rather than the people she knows at Citi, Magellan Financial Group, UBS, WealthVest, ING, PricewaterhouseCoopers, Credit Suisse, BNP Paribas, PIMCO, Bank of America, Barclays, Prudential Global Investment Management, Google, Stifel Financial, Goldman Sachs, Daiwa Securities and Deloitte, in a Crisis? Janet Yellen may be a straightforward shooter of impeccable integrity, but these kinds of questions were a real problem for the Obama administration, both practically and politically, in its response to the 2008 collapse. (A number of people in Obama’s economic team went to work at companies that benefited from their lifeline.) This was a real problem for Hillary Clinton, who led Goldman Sachs during her primary campaign against Bernie Sanders and her general election campaign against Donald Trump. At some point, you would suggest that leading Democrats would decide that the viability of their careers and their party was more important than pushing themselves to the top percent every time they left the civil service. But you just have to imagine it, because it has not happened yet.