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Episode 19, fact check incoming:
3:32 @chamath "(RH) was insolvent. They did not have the capital requirements to post the margin that was being asked of them by their partners." MOSTLY TRUE. While Robinhood's CEO initially claimed there was no liquidity issue ( https://www.businessinsider.com/robinhood-ceo-defends-gamestop-amc-nokia-trading-restrictions-2021-1),...
... the company's official blog now states that the hold on purchases was due to concern that they would not be able to meet their clearinghouse deposit requirements ( https://blog.robinhood.com/news/2021/1/29/what-happened-this-week) and they've moved recently to borrow more money.
3:50-13:50 @chamath explained timeline of GME play on WSB going back to June 2019. This is a fact-filled segment that raised no obviously contended issues at time of publishing, but deserves more scrutiny. We might return to it in a separate thread in the future.
13:50 @chamath "Robinhood makes money through payment-for-order-flow." TRUE. Most other $0 trade brokerages also use $-for-order-flow. Most make as much or more money from other financial services as they do from $-for-order-flow, except RH. https://www.bloomberg.com/news/articles/2019-10-10/brokers-profit-from-you-even-if-they-don-t-charge-for-trading
14:30 @chamath "Citadel is responsible for 47% of all payment for order-flow to RH." TRUE. As of a June report at the Financial Times, 35% of revenue was via Citadel ( https://cointelegraph.com/news/financial-ties-between-robinhood-and-funds-shorting-gme-falls-under-scrutiny) and Citadel serviced >50% of all trades for the 3rd quarter ( https://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%20Rule%20606a%20and%20607%20Disclosure%20Report%20Q3%202020.pdf)
18:00 @chamath (also at 3:04) "Vlad lied on TV (said there was not a liquidity crisis)." PARTLY TRUE. What constitutes a lie is often a judgement call, and we are still waiting for more information from potential investigations and lawsuits. See above fact check for 3:32.
20:20 @friedberg "Robinhood makes money through arbitrage of pricing in the markets and by providing leverage to their clients." TRUE. Multiple reports have used similar words to describe Robinhood's business model, eg. https://www.nytimes.com/2020/07/08/technology/robinhood-risky-trading.html
20:52 @friedberg "Robinhood makes money when the market is non-volatile, that's how they make their spread. when there is a swing, they are exposed to losing money." LIKELY TRUE...
...Though we haven't found any explicit admission of this by Robinhood, their recent moves to highly restrict the purchase of volatile stocks indicates that volatility is a major problem for their business model https://robinhood.com/us/en/support/articles/changes-due-to-recent-market-volatility/
24:35 @davidsacks "Hedge funds are the apex predators of Wall Street. They are in the business of shorting companies to destroy them." PARTLY TRUE. Many descriptions of hedge funds align fully with this statement, eg. https://www.cbsnews.com/news/6-tips-to-protect-you-from-hedge-fund-predators/, ...
...and many hedge funds focus mainly on destruction. But because of the diversity of strategy&objectives, it's hard to make this claim universally. Hedging is used by most professional investors - without these a range of higher-risk investments might not be made at current scale
25:16 @davidsacks "[WSB are] the heirs of Occupy Wall Street, they recognized that occupying a physical space does nothing, we are going to hurt them where it counts, in their pocket book." TRUE. You can find many affirmations of this mission among investors involved in WSB
26:27 @davidsacks "They shut down the buy-side of the the trade [which] allows these hedge funds to...save themselves." MOSTLY TRUE. While this could be understood to imply that the only reason for the buy-side restrictions was to benefit hedge funds with precarious positions,...
...Robinhood has insisted that the intention for those restrictions was unrelated (see 3:32 fact check above). Whether their insistence is true or not, it's hard to argue that the shutdown didn't benefit the hedge funds at the detriment of retail investors.
27:01 @jason "It was like five platforms that had to stop or they would be insolvent." MOSTLY TRUE. The "like" qualifier on "five" is important here; a dozen platforms and their restrictions are listed here: https://markets.businessinsider.com/news/stocks/robinhood-webull-m1-reopen-gamestop-stock-trading-2021-1-1030019926 ...
...None have admitted to potential insolvency, though we can guess that the reason for these restrictions are the same as Robinhood has admitted: a need to make sure reserves cover requirements, which is a liquidity issue.
32:08 @chamath & @friedberg "[Robinhood] was under-equitized relative to what it was allowing its customers to do." TRUE. https://blog.robinhood.com/news/2021/1/29/what-happened-this-week
34:07 @friedberg "CBOE volume of money traded across all equity markets 2020: $121T dollars of notional equity in the US." TRUE. You can find the numbers to tabulate at https://www.cboe.com/us/equities/market_share/
35:02 @chamath "The only reason that Lehman [Brothers] and Bear Stearns were shutdown: ... the people on the other side were hedge funds." PARTLY TRUE. The story of the collapse of these firms does center around failed hedge funds ( https://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp)...
...Ben Bernanke, Chairment of Fed at the time, claimed that Bear Stearns' rescue was to save the broader economy instead of solely to rescue hedge funds ( https://en.wikipedia.org/wiki/Bear_Stearns#Fed_bailout_and_sale_to_JPMorgan_Chase)
52:45 @jason "I don't think we've ever had social media collide with finance like this." MOSTLY TRUE. Although investing message forums going back to the early days of the Web caused disruption and increased oversight by securities regulatory apparatuses,...
...nothing at this scale has quite happened before. Enjoy a transcript of a related congressional hearing from 1999: https://www.govinfo.gov/content/pkg/CHRG-106shrg57616/html/CHRG-106shrg57616.htm
That's it! If you noticed claims during podcast that you feel need fact check & we didn't cover, @ me. As always, please fact check the fact checker. At the request of several of you, I've added a patreon in our bio, but we don't do this for $, so only if you're feelin' it plz!
