What is clear after Gamestopaktien’s roller coaster is that the stock market is unreliable in a way that also made Finansinspektionen’s Director General Erik Thedéen ask himself in the Riksdag on 2 February, with a quote from the Financial Times, “If the stock market is becoming a casino?” “Then”, he said, “Is the long term very serious”.
Everyone now knows that both activists and established stockbrokers can carry out extensive manipulations of the price of shares. How it turned out for the various Gamestop placements is not really that interesting. Activists appear to have made huge losses to the brutally speculative hedge funds they targeted, while nine other large hedge funds sat on 16 of the $ 20 billion that Gamestop shares raised this year, according to Investor’s Business Daily on February 1.
The important thing is that the stock market has now become known not only as a casino, but as a manipulable one. It confirms in the broadest circles the criticism that i.a. was presented by Occupy Wall Street, that the functioning of the stock exchange makes it possible for 1% to enrich themselves on the other 99% of the population, a skewed distribution that damages both the country’s cohesion, companies and the functioning of the economy. In our article in Real Time on 1.2 “Short selling must be completely banned”, we proposed a number of measures to start restoring confidence and functioning of the stock exchange and financial markets.
In Realtid on 2 February, Claes Folkmar wrote a column with the headline: “Despite the events surrounding Gamestop – the critics of short selling are completely wrong”. There he opposed only one of the proposals we put forward the day before. Despite its headline, Folkmar also wrote about the dangers of short selling: “… there is a small group of shares in the American stock market where the proportion of shorted shares is incomprehensibly and dangerously high”. He also wrote that short selling can unfairly harm companies that are attacked: “Such a large short-selling position also means that the valuation is likely to be unfairly suppressed…”
If Folkmar, like us, wants to safeguard the “basic function of the stock market as an efficient source of capital”, he should support measures that could recruit the entire young generation who are now interested in stock trading. It is then important to tone down the interest in gaming and increase the interest in long-term committed business ownership.
Stock trading was established in the 19th century as the time of crowdfunding, which made it possible to start a business without having access to family fortunes or single rich people. In stock trading, it is the issues that provide capital to the companies and therefore stock trading is the primary task, in addition to simplifying changes of ownership and reorganization of the company structures. The more capital that is effectively put into use and increases the productivity of companies, the more the economy is strengthened.
The large number of new share activists should be recruited extensively to go from gambling, to active share ownership including participation in share issues all the way to self-employment. This can be done with special investments to create dynamic trading venues in the stock market to promote innovative companies and startups, preferably linked to the country’s various regional innovation hubs. Applicable parts of crowdfunding, stabilized with the stock market regulations, could be integrated with the stock market. The large companies should also promote their own such innovation environments and expand their clusters with new companies that add innovative new services and technical expertise. With a focus on active share ownership, new entrepreneurship and innovations, the development of large companies’ hidden technical potentials and assets can be realized and shares priced much better. With such a committed ecology of affiliated cluster companies and active shareholders and other stakeholders around the companies, there is an opportunity to curb quarterly capitalism and resist the often devastating short-term robbery of hedge funds.
The prerequisite for succeeding in recruiting the young stock activists is precisely such a clean-up of stock trading and financial markets as we pointed out in the previous article. After Gamestop, all potential stock buyers know that the market is rigged in all directions for the benefit of large and established insiders. For example, short selling does not mean that everyone has access to dubious fund managers who want to lower the value of “their” shares.
Much of the stock trading has, as Folkmar writes, been democratized in the last 20 years, but there is thus much left for everyone to have the same chances. This also applies to access to liquidity, where the central banks’ multibillion-dollar amounts have been sent to the stock exchange each month by quantitative easing. Here, banks and large financial institutions and their owners have unreasonable advantages over individual share buyers in the stock exchange casino. The inflow of gambling land is also delivered with a state guarantee against bankruptcy because these players have been described as too large to go under.
It is necessary to remove this risk-taking at the expense of the state, this so-called moral hazard, from stock exchange trading, just as for the even larger derivatives trading. That is why a bank split is required where the state stops guaranteeing the banks’ securities trading. Bank sharing does not mean a ban on speculation, but that it must be done at the speculators’ own risk. It is a good way to shrink the speculative flows and the unstable casino they create on stock exchanges and in markets for currencies, commodities and real estate.
With state-guaranteed banks focusing on their regular banking operations, companies and private customers will once again be absolutely crucial for the banks. The liquidity that the Riksbank creates to support the banking system can then, instead of enriching a few, focus on securing companies’ credit supply and on the expansion of infrastructure to restart and stabilize the economy.
MSc in Economics and Chairman of the Schiller Institute, Sweden
Author and writer in financial law
Debate: Short selling must simply be banned
In our debate article in Realtid due to Gamestop, we demand that speculation must be limited with bank sharing and a ban on deviations such as short selling. Riksbank loans must begin to be directed directly at modern infrastructure and the real economy. The Gamestop fever has put the finger on an unhealthy Swedish market manipulation that should have been remedied a long time ago. It writes Ulf Sandmark and Mats Lönnerblad.
Despite the events surrounding Gamestop – the critics of short selling are completely wrong
The hedge funds, but also the active position-taking management industry, have a very important role to play as the stupidity in the stock market grows. It writes Realtids Claes Folkmar about the uproar around Reddit and Gamestop.
This is how short selling works: Short selling is used to be able to make money on a falling share price. This is done by borrowing shares that you do not own on the market by taking up a short position. Then they sell the shares and hope to be able to buy them back cheaper in the future. The blanker has, because he or she has borrowed the shares from someone, a requirement to return the borrowed shares at some point in the future. If the price for which you buy back the shares is lower than the price you initially sold them for, you have made a profit when you return the borrowed shares. But if the share price rises instead, it will be a loss. In addition, that loss risks becoming greater because the blanker must buy back the share in order to repay the loan, the share price rises further. It will then be a vicious spiral for the blanker, and big price gains for those who have speculated in an upswing.
Read more in Swedish about Gamestop here:
Adam Cwejman, GP: This is how young market rebels take revenge on big business. The hysteria surrounding the forgotten gaming chain Gamestop’s share is a sign of the times. The internet generation has found its way to the stock market and makes everyone nervous: https://www.gp.se/ledare/s%C3%A5-h%C3%A4mnas-unga-marknadsrebeller-p%C3%A5-storfinansen-1.40607166
In Swedish about bank sharing:
Bank split explained in one minute: https://www.youtube.com/watch?v=9qW5XVEQ4Wo
Bank division Motion 2015/16: 2219: https://www.riksdagen.se/sv/dokument-lagar/dokument/motion/bankdelning_H3022219
Bank sharing in English:
LaRouche’s four laws: 1) Bank sharing, 2) National Development Bank, 3) Infrastructure investment and 4) Technology investment in fusion and space technology: https://larouchepub.com/lar/2016/4329_revisit_4_laws.html
US Congressman Marcy Kaptor’s plea for bank sharing: https://www.vaken.se/bankdelning-pa-vag-mot-omrostning-usa-kongressen/
Read her motion for “return to wise banking” here: https://www.congress.gov/bill/115th-congress/house-bill/790