The GameStop Saga Unravels Stakeholder Theory

Redditors have the same right. Correctly or not, they see social benefit in causing financial losses for hedge funds with short positions looking to profit off GameStop's stock decline and anticipated eventual bankruptcy (due to downloadable games obviating any need for retail outlets). If Koch Industries can be characterized as a nasty fossil fuels polluter whose profits fund captured antidemocratic right-wing think tanks, why can't Redditors similarly portray hedge funds as evil tools for the 1 percent to get even richer on the back of a struggling retail chain? The notion of rich Wall Street investment bankers using their inordinate financial power to rip the marrow out of a dying industry's carcass used to excite the Left. Now that same narrative somehow becomes an alt-right populist slander, one used by Reddit bros in their evil plot to manipulate the GameStop price.

In truth, there are no victims in this tale. Perversely, the celebrated former Fed chair and current Treasury secretary Janet Yellen was paid more than $800,000 by Citadel LLC—another player in the GameStop story. Should her "equity" be redistributed? Just yesterday GameStop stock dropped nearly 60 percent and has lost $400 per share from its recent all-time high. And while it all seems like a manipulated and even immoral series of events, we should remember that nobody put a gun to anyone's head. The WallStreetBets group collectively chose to put their own money at play, knowing they were pumping the share price and could not all get out at once or even at a profit. Melvin Capital and other hedge funds heavily invested in shorting GameStop chose to take a significant risk, and their due diligence certainly could have included understanding and monitoring Reddit investment boards. As economist Peter Earle recently said, if you get in the ring, you might get punched.

The purpose of capital markets is price discovery. They help investors and businesses allocate capital to its best and highest uses, however imperfectly and haphazardly. Short traders, long traders, so-called insider traders, futures traders, derivative contracts, speculators, gamblers, colluders, and even naked short sellers all serve this imperfect process. All of these individuals and mechanisms constantly recalibrate and react to changing conditions, bringing a public company's performance (and share price) into greater clarity. And any firm not wishing to subject itself to the vagaries of fickle equity markets or public campaigns can simply remain private and fund itself through operations or private placements.

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