> Ya... that seems pretty predatory in my opinion.
I think Hanlon's Razor applies here:
"never attribute to malice that which is adequately explained by stupidity"
The more I see with this fiasco, the more I feel like RH management just made a platform with a bunch of shortcuts and didn't realize what the unintended consequences of a trading platform with zero friction margin accounts would be.
Not absolving them of responsibility, and I've definitely see some places where their choices favor themselves over their users. But the situation is largely out of their control at this point and they are just trying to do damage control.
> "never attribute to malice that which is adequately explained by stupidity"
I am getting tired of seeing companies and other major entities weaponizing Hanlon's razor. I refuse to believe that such a massive entity with so much resources at it's disposal has a think-tank consisting of two interns and a comatose member of middle-management. I've seen this sequence of events multiple times:
1. Entity X does thing that directly harms/angers people.
2. Entity X 'apologizes' and says some variation of "oopsies, didn't mean to, just a miscommunication gone awry, we'll definitely look into improving our internal processes in the future :)".
3. Entity X faces no real repercussions.
At what point does this become a violation of Occam's Razor? That all of these decisions that somehow always leave the entity unharmed/better off at the expense of others were not made with intentionality and/or any remote understanding of their consequences? When do they wear away the benefit of the doubt?
> That all of these decisions that somehow always leave the entity unharmed/better off at the expense of others were not made with intentionality and/or any remote understanding of their consequences?
Robinhood just had to borrow a billion dollars. Having to get a billion dollar emergency bail out is not the sign of a sinister plot, it's the sign of a colossal fuck up.
> I refuse to believe that such a massive entity with so much resources at it's disposal has a think-tank consisting of two interns and a comatose member of middle-management.
There are a fair number of signs that Robinhood is a mess. This isn't the first time the company has run afoul of their own success and wound up screwing over investors.
> Entity X faces no real repercussions.
I didn't say they shouldn't be responsible for the consequences of their mistake. My point was that it's more likely this is a screw up than some sinister plan on their part.
We're on the same page as far as this last bit goes for sure. Regardless of whether it was a screw up or malice, they should be the ones paying the price (though sadly I suspect we both know they won't).
> Robinhood just had to borrow a billion dollars. Having to get a billion dollar emergency bail out is not the sign of a sinister plot, it's the sign of a colossal fuck up.
What about a sinister plot that fucked up? Being bailed out is consistent both with being dumb and short-sighted, or being deliberately negligent and short-sighted. Failure is possible in both cases if not more likely in the latter (this failure wouldn't be possible if Robinhood didn't decide to facilitate liquidity out of its advertised risk class, but would be tempting to ignore if you precluded the possibility of retail colluding on its own. The benefit for Robinhood would be greater order volume over time which means i.e. higher quarterly revenues).
In addition, if you are willing to claim bailouts are evidence that deliberate negligence/"sinister plans" aren't present, you would have to claim the 2008 subprime mortgage crisis didn't feature deliberate negligence, which isn't true.
My original reply was to a post where someone accused RH of being predatory. To me, that strongly suggests there was intent here by RH to get users into this situation.
I don't think RH intended this situation. That is all.
I'm not suggesting there was no negligence. In fact I think there was. Negligence is essentially criminally screwing up.
This situation is orthogonal to what's predatory. Its predatory that they generally encourage customers to front more than they realise they're fronting. Many customers think they're betting £1000, they don't realise they're actually betting their house.
> Its predatory that they generally encourage customers to front more than they realise they're fronting.
This isn't entirely true. Margin accounts don't have an unlimited bottom. If you put $1000 in a margin account, you can buy more than $1000 worth of securities. As soon as the value of those securities drops below $1000, those shares are liquidated. Typically, you are never on the hook for more than your initial $1000.
From Investopedia:
> " The Federal Reserve has a 50% initial margin requirement, meaning you must front at least half the cash for a stock purchase.
> This requirement gives you the ability to purchase up to $20,000 worth of stock, effectively doubling your purchasing power."
It is very risky to invest in volatile stocks with a margin account because you can hit a margin call fast. Suppose you put $2000 into RH and get $2000 worth of GME. If GME drops 50% in a day (highly possible), you get a margin call and poof your $2000 is worth zero.
> Many customers think they're betting £1000, they don't realise they're actually betting their house.
This isn't true on either part. To see why, take a peek at RH's FAQ on margin: "Access to margin is not automatic to everyone, and requires you to upgrade to Gold."
In other words. To make leveraged purchases, you have to deliberately upgrade your account to gold and have $2000 in your account. The whole reason people upgrade to gold is to get access to margin.
It is possible to put yourself out there quite a bit further than you want and lose everything you invest, but it's pretty hard to lose more than you invest. (I'm not even sure it's possible).
Calling it a “bailout” is mischaracterising it. The solvency of Robinhood wasn’t in question.
The funds they put up at the clearinghouse are to manage settlement of customer trades. They had to stop allowing customers to open new positions because they needed to deposit more settlement margin at the clearinghouse. The margin required depends on the volatility of the stock symbol, and in this case clearinghouse increased the margin requirement for GME to 100%, on top of the higher demand for shares by customers.
As for paying the price, I’m pretty sure no broker is ever liable for theoretical profits missed out on.
It was an unplanned loan so they could continue operating effectively. If you want to pick nits and say it's not a bail-out... whatever. It's not business as usual.
>Another Robinhood user posted a video claiming to have gotten 25 times leverage by turning $2,000 of stock into $50,000 worth of buying power. Multiple other users posted videos and screenshots of the hack, with directions on how to repeat the cheat code. Bloomberg News first reported the glitch.
This one is incredible because he put all of that money into Apple puts two days before they released their earnings report. He lost everything.
Hanlon's razor is not a good heuristic, I don't know why everyone is so into it. If there's a monetary incentive to be deliberate, it's way more likely to be deliberate. Deception is everywhere, especially in sales.
I think the evidence here points towards quite a bit of stupidity on the part of Robinhood. They didn't anticipate the way their platform could be weaponized.
There is plenty of malfeasance as well, as things have gone off in ways they didn't anticipate, RH and the other exchanges are making sure their big money clients are protected as best as possible from the WSB craziness at the expense of retail investors.
But the last bit wasn't planned which is what I was getting at.
They knew well in advance what the risks and issues were. Previous year they had the exact same issue just on a smaller scale. They just chose to do nothing about it.
Did not say RH should get a free pass here. Or some kind of herd immunity because it's a company. I said it was most likely a fuck-up. There can and should be repercussions when you screw up and it hurts other people.
Are you genuinely surprised that a grey haired lawyer might get caught flat footed by the shenanigans of an out-of-control Reddit channel?
Don't get me wrong, there are definitely people in the 65+ club who understand tech. But frequently older people don't, even older people who were near tech. And in particular many of them don't get communities like Reddit.
I don't think a lot of people could have predicted that tens of thousands of retail investors would flash mob an out of favor stock to bust a hedge fund's short position. The chances that a 65 year old lawyer would see that coming? Seems pretty unlikely.
Conspiracy theory: This entire GME squeeze was orchestrated by one/many of Robinhood’s competitors who spotted this weakness and knew exactly how to leverage the masses to exploit it and drive RH out of business.
I think the much simpler "conspiracy" is that a few people in WSB have been using the platform to pump and dump stocks and this one just got a little out of control.
RH has fucked up a bunch here, but there are some folks who are going to make a killing on this (maybe already have). It's quite possible there are a few front-runners on WSB who are talking GME up like mad even as they quietly sell off shares for a big profit. The front runners have big profits on this deal.
Yeah, no. This is similar to Republican claims of election fraud: it's entirely plausible (and downright indefensible to not believe) that voting machines are subject to manipulation, but at the same time there's just an astounding lack of evidence any such manipulation exists.
there clearly has been manipulation of some sort. However not anywhere near enough to turn the election. A couple dead people who voted here and there needs to be investigated, but 10 votes in a state don't change any results.
What are your sources?
I haven’t read that 10 fraudulent votes number anywhere.
I did watch the video with the woman unpacking the suitcase full of ballots.
That wasn’t her best day for sure.
So you think it's a coincidence that most of these brokers around the world were having pretty biased "incompetence" right when the hedgefonds attacked? How convenient.
I think Hanlon's Razor applies here:
"never attribute to malice that which is adequately explained by stupidity"
The more I see with this fiasco, the more I feel like RH management just made a platform with a bunch of shortcuts and didn't realize what the unintended consequences of a trading platform with zero friction margin accounts would be.
Not absolving them of responsibility, and I've definitely see some places where their choices favor themselves over their users. But the situation is largely out of their control at this point and they are just trying to do damage control.