The Wall Street Casino and GameStop
Whenever I say that I don’t gamble with money, someone inevitably asks if I own a mutual fund. “Yes,” I admit, “but the government made me do it by dismantling the Glass-Steagall Act.” I can assure you, mention the Glass-Steagall Act and wiseacres zip it.
Now, as an historian I know only a bit about economics, but it seems to me that when the Glass-Steagall wall between banking and investing came tumbling down, 5% passbook savings accounts disappeared. Around the same time, 401Ks invested in expensive managed, fee based mutual funds replaced pensions.
The advent of online trading brought lots of average people into day trading, sometimes with their retirement money. As day traders flooded the market with “dumb money,” hedge funds gorged on the infusion of lovely cash.
I don’t pretend to understand the ins and outs of shorting stocks to make a financial killing, but I do know that one well-educated, young, lowly podcaster liked GameStop and that his followers bought it up while sitting out Covid. Some of the hedge funds shorting the stocks lost billions, and one actually went bankrupt. One hedge fund manager got called on the carpet for shady practices. Guess what happened?
Lately I’ve noticed that some institutions are offering new types of instruments that encourage average investors to move some types of annuity money into annuity/CD-type instruments that pay that good old passbook 5%; however, this money can not be held at a specified rate until death do us part, which one can do in a deferred tax, unqualified money annuity. No, this money must be reinvested at a specified time at going rates. Interesting.
Maybe these new instruments will become the rage, maybe not; but I’m wondering if Wall Street is trying to figure out how to keep average people’s money on the floor, minus long-term commitments, while keeping them from wandering around that floor and finding a better game. After all, the GameStop spin revealed a bit of what happens behind the curtain. But be careful with a newer version of the same old game, Wall Street. Eating dumb money fed some, but it gave others indigestion and at least one succumbed to fatal peritonitis. *
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* https://www.nytimes.com/2022/05/18/business/melvin-capital-gamestop-short.html