Sen. Toomey: Not Clear Any “Laws or Regulations Were Broken” in GME Saga
In a revealing interview with the hosts of CNBC’s Squawk Box, Sen. Pat Toomey outlines the faultiness of future GME Senate hearings. Surprisingly, some of the hosts of the popular show don’t seem to like the idea of democratized stock trading, especially in conjunction with social media.
Senator Pat Toomey Addresses GameStop on Squawk Box
Ahead of another round of hearings before the Senate Banking Committee this Tuesday, 10 AM EST, its ranking member, Senator Pat Toomey (R), joined CNBC’s Squawk Box to share his views on the GameStop short squeeze. Sen. Toomey represents Pennsylvania as the “leading voice on money matters.” In his Senate tenure, he takes the credit for cutting taxes on families, reducing federal excess in spending, and making the local tax code less obscure.
Just from his bio snippets you could assume that he would lean on the side of GME retailer investors—and you would be correct. Unlike many of his Democrat colleagues, as a businessman himself, Sen. Toomey is more interested in depoliticizing the matter. At the height of GameStop’s short squeeze, Elizabeth Warren was noted to critique Wall Street and its double standards.
However, soon it became obvious she was more concerned with “social media chatter”. Likewise, Banking Committee Chairman Sherrod Brown, (D) from Ohio, used the GameStop saga as an opportunity to ramp up her publicly displayed criticism of Wall Street. However, in both cases, there is a trick to such public performance and calls for “fundamental reforms” of Wall Street from politicians.
Hijacking Popular Sentiment to Empower Wall Street
They would have the effect of taking away the power of retail investors to trade on the same playing field. Effectively, un-democratizing the market under the guise of “class warfare”. Sen. Toomey dismissed such an approach outright in his opening statement:
“What we’re gonna hear from our colleagues on the other side…some of the witnesses…basically unsubstantiated class warfare about how the system is rigged against the little guy.”
While it is true that GameStop’s short squeeze became a global phenomenon akin to the Occupy Wall Street movement, such discourse is not very productive in the context of Senate hearings. Instead of empty political bluster, Sen. Toomey took a more constructive approach:
“My view is the democratization of these markets has been fantastic. Zero commissions, extremely narrow bid-offer [spreads] means retail investors can buy into stocks in a way they never could before. Being able to buy a fraction of a share, for instance,”
Noting that far more people trade stocks via apps than ever before, as exemplified by Robinhood’s immense growth from one to over ten million users in a few short years, Sen. Toomey takes little issue with the current state of affairs. What concerns him is another aspect—shorting regulations and order close mechanism.
Specifically, revisiting how settlement cycles introduce risk into the trading system. Sen. Toomey proposes that the period between the first execution of the trade and its clearing should be much shorter than the current two days. This would reduce the issue of phantom and multiplicative shares, both of which became an acute problem during GME trading, with $359 million worth of GME shares “failing to deliver”.
Social Media Chatter Concerns
Outside of tweaking short selling regulations to be smoother and still provide retail traders with the gamified tools they need for trading, Sen. Toomey dismissed other concerns put forward by the Squawk Box’s hosts.
Sen. Toomey said:
“It’s not at all clear to me that any laws or regulations were broken.”
The first one was investing into “obviously” overpriced GameStop. Although reading market fundamentals would point into this direction, a case could and was made by Keith Gill himself for an alternative reading of GameStop’s positioning in the market. In short, this is a matter of perception.
Sen. Toomey noted the first obvious analogue:
“Is Tesla fairly priced at 1500x its earnings?”
After all, Tesla has uniquely positioned itself as a tech growth stock instead of a car manufacturer with better prospects. Did that stop Elon Musk from becoming the richest man on the planet on the back of Tesla? No, because brand following outpaced market fundamentals. Who is to say the same cannot happen with GameStop—the SEC?
According to Sen. Toomey,
“Neither of us [U.S. Congress or the SEC] should be telling people what they can buy and what they can’t buy.”
The other issue that causes great concern is the power of social media when harnessed by retail investors. Interestingly, Squawk Box co-host, Andrew Ross Sorkin, goes out of his way to maximally broaden the scope of the law by effectively interpreting any gathering as collusion to affect trade, or a possible pump and dump scheme.
To this eyebrow-raising reinterpretation of the law by the co-host, Sen. Toomey responded with wonder:
“Aren’t there investment clubs where people get together all the time and discuss ideas? And I imagine, sometimes, a consensus emerges and everybody goes out and buys the stock. Are those people all routinely breaking the law?”
Nonetheless, Andrew couldn’t let it go:
“The issue is whether you do it as a collective!”
A peculiar sentiment for a co-host of a major network business channel that is supposed to bring the masses closer to the world of finance. If Andrew Sorkin rings a bell, this is the same person who spent the first two minutes of an interview in unseemly groveling before Bill Gates. Reminder, Gates is the most powerful non-doctor in the world who thinks Bitcoin should be wiped out from the world ahead of bioweaponry because of “certain criminal activities”.
Why do you think CNBC employs people like Andrew Sorkin? Let us know in the comments below.