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letting stuff like r/WSB stay up probably would cause economic disruption down the road tbh and that should be our argument. the financial sector is a huge and growing share of every post-industrial economy and yet capitalism cant function if ordinary people have a slice
“wall street cant beat reddit so theyre making their regulator buddies shut it down” is the lib take imo. it implies the market could work for everyone with the crony capitalists out of the way. the marxist take is that finance capitalism needs these regulations in order to work
you have to recognize that regulators' job is to keep the system functioning. any effort to "even the playing field" is bc thats what most mainstream economic models think is efficient. its an accepted reality that when "fairness" stops serving efficiency it goes out the window
the reason capitalism tends towards any sort of equilibrium at all is the incentive for firms to maximize profits. firms eliminate inefficiencies because they reduce profit. more efficient (and thus profitable) firms expand because they receive the investment capital to do so
but the profit motive is way more tenuous today than people realize. the original reasoning for why a stock's market cap should reflect the company's earnings potential was because companies distributed their profits to shareholders as dividends
the dutch east india company, which is generally considered the world's first modern corporation, distributed three-quarters of its annual profits in its heyday (i.e. they only reinvested a quarter), which nowadays would be absolutely insane
most major firms today have decided they'd rather reinvest their profits than distribute them as cash dividends, and on a micro level its probably the smart move for most. apple pays out less than a quarter of its profits as dividends. amazon has never paid a dividend at all.
nowadays the tendency of "over/undervalued" stocks to correct has far less to do with any expectations of future dividends than with the expectation that other investors will buy/sell to stay ahead of the curve. which is why stuff like gamestop cant be allowed to go on
most CEOs now receive most of their compensation through stocks, and the same is becoming increasingly true for other executives and even upper level employees. their incentive to maximize long term profits is based on the assumption that higher profits mean higher share price.
unlike tesla or a classic pump-and-dump or even bitcoin, every single person buying gamestop or AMC is fully aware that the company's earnings potential or "true value" isnt even a fraction of its current market cap, and it doesnt make any difference.
what probably scares them even more is that stuff like the elon musk "signal" stock has demonstrated that its no longer safe to bet these stocks will go down any time in the near future. which makes it no longer safe to short, which in turn makes corrections less likely, etc etc
they would still crack down on this stuff if it was just causing volatility, but you wouldnt hear the hedge fund guys arguing for it. they have the capital to just keep shorting until it comes back down. the real concern is that these meme stocks might never correct
gambling on reddit stocks isnt a revolutionary act, but it does help create a precedent that capital cant abide. once investors stop *believing* a stock's market cap will eventually regress towards the company's perceived earnings potential, theres very little forcing it to do so
institutional investors are pushing regulators to crack down because theyre much better at analyzing "fundamentals" than at predicting internet trends, and would prefer that the latter not influence stock prices. but regulators wouldve done it anyway because it jeopardizes the
process by which capitalism rationalizes resource allocation.
to be clear, "robinhood will untether resource allocation from demand" is not a description of what i think will actually happen. im describing why i think a crackdown is inevitable and what people's narrative should be when it happens
also note that federal regulators probably cant formally stop this. hard to write a rule saying "you must obey these assumptions about the market" and a social media ban would need congress. hence why the response so far has mainly been backroom pressure on the websites and apps
