GameStop saga with Robinhood highlights America's unifying capitalist values

Nothing has unified America more in 2021 than the feeling of outrage related to the story of GameStop's meteoric stock rise on the backs of Reddit investors, only to be stopped by Robinhood, the company named after the fabled hero that steals from the rich and gives to the poor.

The move by Robinhood to prohibit new stock buyers and only allow investors to sell the stock seemed contrary to its namesake and had a predictable outcome. The stock plummeted. Once that buying freeze was lifted, the stock again shot up but has declined in recent days.

As of the close of trading on February 2nd, the stock was at $90 per share, when only a few days before, it had been almost $350 per share.

The move by Robinhood seemed to hurt individual investors but help hedge funds who had shorted the GameStop stock.

The mystery behind Robinhood's actions

The main issue at play is why did Robinhood take action? There have been a lot of questions circling, and answers are vague at best.

In an interview with CNN's Chris Cuomo, the CEO of Robinhood, Vlad Tenev did his best to answer Cuomo's tough questions, but he seemed to be hiding parts of the truth. He defended the moves Robinhood made but did not back up his claims.

There are other possible reasons besides regulation that Robinhood took action, and although unconfirmed, they are quite suspicious. It came to light that one of the hedge funds that had ownership in Robinhood had a short position in GameStop. Essentially they were betting against the company and wanted the stock price to go down.

When you short a stock, and it goes up, you can lose more money than you put in, unlike traditional long position trading. Shorting stocks is a dangerous practice that is high-risk and high-reward. I had a professor in Finance at Tulane University who warned against ever shorting a stock.

Shorting also ethically feels bad. Why would you want to root for a company to do poorly? People work at the companies hedge funds bet against. It can not be good for business when a prominent hedge fund tells the world they think your company will fail.

Although it looked bad for Robinhood, there is no definitive evidence that they acted wrongly, but that question is still debatable. Market manipulation is against the law, but it is unclear if Robinhood's actions reach that level. Recently, Senator Elizabeth Warren has asked for further explanation from Robinhood as written by Dan Mangan and Thomas Franck of CNBC.

Stark unifying outrage

Robinhood's actions to freeze buying of the GameStop stock are still under review, but either way, people were mad. And not just one group of people, anger spans the far ends of politics.

Lisa Lerer and Astead W. Herndon of the NY Times pointed out that both Congress members Ted Cruz and Alexandria Ocasio-Cortez (A.O.C.) agree on the matter.

Cruz notably represents the far-right Republicans and amplified claims of voter fraud in the lead up to the Capitol Assault on January 6th. A.O.C. could not be farther from Cruz on the majority of political issues. She represents the far-left and is an outspoken critic of the Republican leaders, including Cruz, for their role in the events on January 6th.

But their agreement and the agreement of so many Americans can tell us about a deep-seated value of our country at a time when unity is hard to find.

Capitalism is at the heart of our nation, and it is something that unites people across the political spectrum. Can we use this value to move our country forward in a time of historic disunity?

The Donald Trump era came to an end on January 20th, but the preceding four years shook the countries values to the core. Everything just felt ununified.

Jeet Heer at The New Republic went as far as to say that Donald Trump will always be the disunity president.

A violation of capitalism

As Americans, capitalism is something we deem worth fighting for. Oxford Languages defines capitalism as "an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state."

We like it when we get to make the decisions and have a chance to reach success. But, what is not in that definition, is that everyone has a chance to succeed. It is not always fair. Some have more resources than others, but everyone has a chance. It is not an equitable system, but it should be fair.

However, when Robinhood froze GameStop stock's buying to help its hedge fund allies seemingly, the illusion of fairness disappeared. At least for me hearing the story gave me a visceral reaction.

Look, I get that Robinhood is a company whose self-preservation comes first, but they provide a platform for individuals to trade. If they call the shots on those trades, they show they have more power than anyone thought. They show that even if they say they have investors' best interest in mind when push comes to shove, they will save themselves even if it hurt small investors.

At any moment, they can save themselves at the cost of others; they are not facilitators but controllers when they want.

Please don't take my word for it; big investors also see Robinhood's power over the market. Peter Rudegeair of the Wall Street Journal reported that Robinhood has raised $3.4 billion since they froze trading on GameStop, more than they had combined previously.

At the end of the day, Robinhood is a privately traded company. In the sense of capitalism, they are an individual. They provide a service, so they could argue that investors would have to pay to trade without them, so they should do what is in their best interest.

It is a hard argument to refute, but it is also hard to stomach.

Individuals hurt by Robinhood's actions are trying to take action in the form of a class-action lawsuit. Still, according to Tom Hals at Reuters, Robinhood might be protected from litigation by their user agreement.

President Biden called for American unity in his inaugural address. He said "unity" eight times in the short speech and called for Democrats and Republicans to unite. Change might appear imminent with initial bipartisan agreement, but only time will tell whether Congress takes action to make the rules fairer for smaller investors.