Moneybeat - GameStop and free money

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Financial analyst and adviser David Bahnsen joins us now. David, good morning.

DAVID BAHNSEN, GUEST: Good morning, Nick. Good to be with you.

EICHER: You, too. Well, what a weird story everybody’s talking about—very big deal in my world, maybe not so much in yours—the GameStop-Reddit Wall Street Bets gang.

Running up the stock price of GameStop to stick it to the hedge fund guys who shorted the stock, we heard the big narrative that this is a grassroots revolution. That the hedge funds have been treating the market like a casino. So now, back at you.

Have a listen to this take—Justin Speak, a California pastor on MSNBC.

SPEAK: But I also — I’d be lying to say if there wasn’t some pleasure of the fact — I’m a pastor and Jesus tells a story about this rich fool who has an overabundant harvest. It’s more than he can store. And rather than give the excess to those in need, he chooses to build bigger and bigger barns to store it for himself. And God says to him in the end, “This very night, your life will be demanded of you and who will get what you prepared for yourself?” And so since 2008, it feels like Wall Street has had an overabundant harvest, financed by public money, and rather than share the billions with the less fortunate, they’ve built bigger and bigger barns for themselves. And so, yeah, 100 percent there was a part of me that thought, well, it will be fun to be part of this moment. To see this moment where at some level overnight these investors are losing their investing lives. It’s being demanded from them.

I can’t remember the last time a parable of Jesus got a mention on MSNBC but there it is.

BAHNSEN: Well, a parable of Jesus wasn’t even mentioned by the time it was done being stripped of context and of true meaning. 

But, look, it’s funny you said you don’t know if in my world this is what we’re talking about. Well, of course, this is all we’re talking about. And it’s been kind of obnoxious over the week. And I’ve done a lot of discussion and coverage on it in the press and in my own writing and podcasting over the last few days. 

But I think that WORLD listeners in particular really would benefit from a better theological foundation in the way they approach it because that gentleman right there was at least honest enough — unfortunately he gets all the facts wrong, all the economics wrong, doesn’t understand really what’s happening, to who it’s happening, why it’s happening. 

But at least he’s self-conscious about what he’s hopeful will happen, which is some form of theft and some form of wealth redistribution centered more around what he wants to be the case rather than what maybe other hedge funders or Wall Streeters wanted. So, it’s just sort of replacing what he perceives to be one violation of the 8th Commandment with another violation of the 8th Commandment. So, I don’t think that Christians ought to be very impressed with that type of thinking. 

But that’s all even assuming that some of the facts were right and, actually, none of them really were. What you have with this GameStop thing, Nick, is admittedly a very crazy story. It’s certainly quite bizarre and I do think there must be some lull in the news cycle that it’s become this big of a story. And I assure you it will very, very quickly fade. But what you have is one side of a trade that was excessive, that was risky, that was taking for granted that certain things would not happen, and those were a couple hedge funds that were very short the stock. And then you had another side that came and decided to put the squeeze on. And we’ve had short squeezes in the stock market for a hundred years. 

This is a huge one and it’s noteworthy because it’s a bunch of small investors getting back at a couple big investors. But ultimately there will be significant capital lost and it will not end up being the hedge funds that ended up covering their short. It will be all those investors that came in and piled in the stock to help hurt the shorts, kind of led by guys like that guy on MSNBC, like chatroom dialogue, all these types of things. And the stock is going to recalibrate around some normal price discovery. Right now price discovery is out the window. And at the point at which it recalibrates, there will be somebody holding the bag and it is my view that the people that are going to get crushed will deserve to be crushed. They believe they have a chance at free money right now, and they’re trying to get their piece of free money. 

But, see, free money doesn’t exist. Christians are supposed to know that. You would think a pastor quoting from the parable would understand that the whole point of investment is actual investment in growth, in productivity, in something real, in something tangible. And the notion that one has some chance at free monies, when it ends poorly, unfortunately, I think that there will be a lot of sympathy for that small investor, but in reality that small investor will have learned a lesson and they will not do it again.

EICHER: There’s an underlying frustration, though, that they seem to be tapping into with this thing. You heard the statement that Wall Street elites have been profiting off of bailouts since 2008.

BAHNSEN: So what does that mean? What bailouts have they been profiting off of?

EICHER: Well, he wasn’t specific, but going back to the 2008 financial crisis, the Troubled Asset Relief Program—TARP. That bailout…

BAHNSEN: But my point is I think Christians have a responsibility to be specific. So, I believe that bailouts of all shapes, sizes, and destination are wrong. And yet in that particular case, you have a “bailout” that had capital that came from the government over to other people, that was then paid back, and it was done for the purpose of supposedly stabilizing the financial system. And there were a whole lot of people that benefited from it and it’s very difficult to define at what point in time it was helping who, but the fact of the matter is the equity investors all got wiped out of those institutions, and the people who ended up not losing money were the depositors of those banks and the bond holders of those banks. 

Now, I still disagree with it, but the reality is that gentleman saying that benefited from that bailout. His financial system, his economy, his grocery store, his main street didn’t crumble and so there was a whole lot of actors who benefited from these actions that I have actually written a whole book criticizing. But my point would be that this notion that there’s this kind of Marxian narrative that we ought to adopt where there’s a proletariat — there’s a good guy and a bad guy and there’s an oppressor out there. And in this case, the oppressor supposedly is a short seller of a video game stock? It’s just incoherent. But he was honest enough to go on to admit he doesn’t really know what he’s talking about. He doesn’t have any ability connect all the dots. What he is is covetous. He wants a piece of what someone else has. 

Well, the climax of the 10 Commandments, the kind of final conclusion that God left us with on Mount Sinai was thou shalt not covet. So a theology of money that is rooted in covetousness is as old as sin itself. And this has got to stop from well-meaning, thoughtful Christians.

EICHER: Do you think anything went wrong here systemically? 

What about the brokerage Robinhood shutting down trades and prompting the ire of members of Congress that that ought not to be. Was there any bad behavior here that regulators or government should have gotten involved in?

BAHNSEN: Absolutely not. And they’ll look into it, but the fact of the matter is, whether Robinhood wants to admit it or not, they shut it down because they were way out of their skis on their—what’s called—net capital requirements. Brokerage firms have a responsibility to keep a certain amount of capital relative to the amount their transacting in. They’re making a market. And even if they had gotten rid of margin buying, where people are buying stock with borrowed money and then for their risk of not paying it back if the stock collapses and there’s a whole liability there, even just in the cash market of people paying for the stock they’re buying, there’s a thing called settlement that takes three days. So somebody paying cash to buy a stock on Tuesday, the cash doesn’t settle until Friday. And in between the brokerage firm has to have a certain amount of capital requirements and there’s no question Robinhood didn’t. They can deny it or say they’re looking into it. I think what he actually said is, “We were being proactive so that didn’t happen.” But then they had to raise a billion dollars of capital from their investors on Thursday night going into trading Friday morning. So they were not — the whole idea they were trying to hurt the little guy for the sake of trying to help their hedge funds is the dumbest thing I’ve ever heard. Their brand is the little guy. They’re out of business apart from the little guy. They did irreparable damage to their business model by doing it. They did it because they didn’t have a choice. Hedge funds don’t trade with Robinhood. Little guys trade with Robinhood. So they were not hurting the little guy to help hedge funds. They did it because they clearly were in over their skis with some more admittedly complicated aspects of the way brokerage markets work. And so, again, for Congresspeople to jump into this thing to play it as some sort of populist narrative, that seems to be a sign of the times.

EICHER: Alright. David Bahnsen, financial analyst and advisor, setting us straight a bit here. David, thanks so much.

BAHNSEN: Thanks so much, Nick. Always good to be with you.

(AP Photo/John Minchillo) Pedestrians pass a GameStop store on 14th Street at Union Square, Thursday, Jan. 28, 2021, in the Manhattan borough of New York. 

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