CNN’s Erin Burnett told millions of viewers that it was “amateur traders” who had taken on the powerful Wall Street hedge funds to pump up the share price of GameStop. The New York Post also called Keith Gill, the man who initiated the frenzy in GameStop shares, an “amateur investor.” But it isn’t so: Wall Street On Parade has confirmed that Keith Patrick Gill, a man holding highly sophisticated licenses to trade and supervise others on Wall Street, is the same man using multiple identities to promote GameStop on social media platforms.

Like much of the rest of the World at the minute, I’m running to catch up on this one. There’s the old adage that says ‘start at the beginning’; but as with so much in the 21st Century, it’s already tough to work who started this, and both when and where it began.

First of all, the WHAT

Robinhood is a free-trading app that lets investors trade stocks, options, exchange-traded funds and cryptocurrency without paying commissions or fees.

Reddit is a censorious anti-Trump social medium owned by Advance Publications (AP) the owner of Condé Nast and The New York Times. It has been used by amateur (often teenage) Wall Street traders to shore up their favourite retail brand GameStop.

GameStop is a bricks and mortar physical retailer of pc games that Reddit users have crowd-share suported against what they see as an attempt by internet-shopping investors to “short” GameStop (GS) – ie, place massive bets against it for gain.

The Securities & Exchange Commission (SEC) – is allegedly an investors’ watchdog. Late last night CET, the SEC announced an investigation into Robin Hood for “blocking stock purchases”. Something that needs a lot of explaining here is that a former Head Honcho at the SEC is also one of the prime movers at RobinHood.

Now read on…..

Here are two insider website headlines from today – a Saturday – trying to impress on their audiences the seriousness of the situation. Forgetting all technical trading garbage, this is the scale of the threat:

‘Something bad is about to go down at Robinhood’

‘We may have another “Lehman Weekend” situation on our hands’

Does Lehman Brothers ring a bell with you? Yup, it was indeed the “bank” that in 2009 got itself saddled with derivatives that others (for example, JP Morgan and Barcap) decided were worthless and thus withheld all liquidity. It was the start of Crash1. I remember it only too well: a few months before, I penned an article for Market Leader magazine pointing out that – minus its dodgy derivative holdings – Lehman didn’t have a business base as such. They hit me with enough writs to light a bonfire….but the bonfire turned out to combust at the expense of their vanities.

Liquidity is yet again the serious issue here. As an experienced manager told me this morning, “In a nutshell the settlement issues at Robinhood could spill over into the clearing system which is very poorly capitalised by all accounts, and we could be facing another bail out, but much much bigger”.

Is he right? Well, if this becomes more widely understood, then we will have an institutional panic on our hands. The kind of panic that will baffle algorithms.

This much we know: One day after RobinHood drew down on its bank lines and sought a billion Dollar rescue capital investment, the company found itself unable to allow anything more than a handful of shares to be bought at a time. Just before (ho, ho) the close yesterday, the company had to announce the draconian purchase limits.

You’re going to ask why is this happening, aren’t you? I feared you would. The most likely reason is that despite the billions raised overnight, Robinhood is now seen to be in another capital deficiency position. Or put another way, money and clients are leaking out of the Men in Tights faster than they can borrow it.

Now here’s the broader issue: the Clearing Houses (aka Bookies) who middle-man all this nonsense are systemically vulnerable. First, their calculations on what risk might be acceptable are at least a decade out of date; and second, whereas clearing houses used to be safe because circular trades netted off on settlement, by aggressively netting off at the margin stage under the present day model, they are no longer as safe. In fact they are hugely exposed to potential client collapse.

The chances are (I judge, but I could easily be wrong) that a combo of fire-sale prices, White House pressure and Wall Street feeding frenzy will bring a greyish sort of Knight into the mix as the saviour of those in the Greenwood.

Which is dandy, but still leaves a lot of questions unanswered. However, here comes my favourite Buddhist adage again – “Everything is connected”.

GameStop is a video game chain where customers can buy, sell and trade their games, consoles and gaming accessories. It’s something of a gilt-edged Mall brand name. However, the rise of buying online and next-day Amazon delivery has made the situation tricky – and the Covid19 Lockdown insanity has devastated their business. See how those suspects in Red just keep on recurring.

Once again we have the symptoms and the disease:

  1. The repetition of gambling and right-brain greed.
  2. The dilution of bourse reforms, invention of intra-trades that don’t add real money benefits to the economy, surreal Zirp policies and ludicrous over-dependence on fickle fiat-money investment markets for all but the biggest, fattest lumbering behemoths among the real wealth/employment creators.

This particular shock to the system is just a taster. Like all the others, it has a narrative. Over the next few weeks, it’d be good if someone challenged that narrative – because there are large chunks of this rockfall that simply don’t ring true to me.

But the longer-term lesson is the one we need to learn. Klaus Schwab and his billionaire buddies have been around since 1970. They’re screaming philanthropically for a better economic system now; my question remains the same – why did all you 0.1% wait half a century until you owned half the world’s wealth before asking for something more “inclusive”….when as far as I can see, all we’re included in here is paying for the consequences of your extreme wealth?

One final irony: one of the brokers up to the neck in this latest dollop of blobbery is Charles Schwab. His company claims “no affiliation” with the more infamous Klaus Schwab. But I wonder if, by some chance, they might be related?

This story is going to run and run. Stay tuned.