The GameStop Trading Frenzy Is No Reason to Panic
(Bloomberg Opinion) -- No question, U.S. authorities should do more to protect investors and generally ensure the fairness, transparency and competitiveness of the country’s capital markets. Unfortunately, the recent mania surrounding the stock of video game retailer GameStop won’t help them do that. It threatens to sideline issues that really matter and focus attention on things that don’t.
To be sure, it’s been quite the spectacle. A battle between day traders coordinating on internet message boards and short-selling hedge funds has become a kind of a postmodern class war, sending shares of GameStop and other companies on a ride divorced from the prospects of any actual business. At one point this week, the GameStop share price was up more than 1,700% from the beginning of January. Billions have been won and lost, and emotions are running hot: One participant called the market dislocation “the revenge of the common people” against Wall Street insiders.
This has prompted an epidemic of hand-wringing. Some are worried that trading apps such as Robinhood turn investing into a mere game, that online message boards are enabling market manipulation, that derivatives let retail investors make dangerously huge bets, that the intersection of finance and social media will destroy the reputation of U.S. markets. Others see oppression in the trading platforms’ hurried efforts to curb the frenzy. The White House and the SEC say they’re “monitoring” the situation. Elizabeth Warren has called on regulators to “wake up and do their jobs.”
Certainly regulators need to watch carefully, and step in if anything threatens broader stability or if people are being duped. So far, that doesn’t seem to be happening. For all its flaws, the U.S. financial system can handle the losses that trading in GameStop and similar stocks will inevitably cause. Also, pretty much everyone involved understands that they’re taking part in a contest that has nothing to do with fundamental value. A few are even bragging about their losses.
Sometimes people choose to act stupidly. The government can’t stop that, and as long as innocent bystanders aren’t at risk, it probably shouldn’t try. Conceivably, the GameStop fiasco — if sustained and replicated — will raise questions about finance, social media and systemic stability, and regulators will be forced to intervene. But that hasn’t happened yet. It’s too soon to be demanding remedies, especially if that distracts attention from genuinely needed reforms.
For now, the best advice for ordinary investors is simple. When the people feeding a market frenzy know that’s what they’re doing and boast about it, don’t join in.
Editorials are written by the Bloomberg Opinion editorial board.
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