![]() That changed on Thursday after the company curbed customer trading in the most popular stocks. In recent weeks, many online investors have used Robinhood to make bets that pushed up the price of GameStop, AMC Entertainment and other stocks that had been widely shorted - or bet against - by hedge funds. Some of these individual investors have reaped huge profits, while at least one major hedge fund had to be bailed out after facing huge losses… The New York Times offers the commonly accepted narrative, centering around the online brokerage Robinhood.Īn online army of investors, who have been on a mission to challenge the dominance of Wall Street, rapidly bid up the price of stocks like GameStop, entrapping the big-money hedge funds that had bet against the stocks. Cantillon observed that the institutional set-up of how money flows matters, and it can and does distort prices and power in a society.įirst, let’s briefly go over what happened last week. The Cantillon Effect is an observation by 18th century French economist Richard Cantillon on why money from bailouts reaches Wall Street before it reaches normal people (in his day it was gold from mines reaching aristocrats, but it’s the same thing). Just how has money, often borrowed, gone into GameStop shares via millions of retail investors? This flow is connected it to a basic problem in finance, something I’ve written about before, what is known as the Cantillon Effect. I’m most interested in the institutional story, of financial plumbing of our markets, and fundamentally, how money flows through those pipes, from the Federal Reserve into the financial system, and the real economy. There’s a political story, of populists fighting Wall Street insiders, an economic story of speculation and the casino-like nature of Wall Street, and a financial story of middlemen and con artists manipulating both sides. This controversy has drawn comments from dozens of high-profile politicians, billionaires, and even the richest man in the world.Īs with any complex event, there are multiple narratives at work. It’s hard not to be enthralled by the hilarious and slow motion train wreck that is the GameStop fight, a Wall Street battle over the share price of a small and unimportant in-store retailer of video games.
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