A House Financial Services Committee hearing revisits GameStop-Robinhood-Reddit controversy from February, in which ordinary retail investors – fueled by social media-platforms – bested hedge funds and institutional investors and sent prices soaring for the video game retailer GameStop and other heavily-shorted stocks. CEI Senior Fellow John Berlau urges lawmakers to resist the temptation to view such issues as “problems” that need to be “fixed” and instead look for ways to liberalize rules for middle class investors.
Statement by John Berlau, CEI senior fellow:
“The answer to the question asked by the title of today’s hearing – “Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide?” – is that everyone wins in the long term when more Americans can participate in financial markets. Shorts communicate important information about companies being overvalued. The ‘new longs,’ as I have called the investors fueled by social media and FinTech brokerage apps, also provide valuable information about companies that may be too heavily shorted. As I and others noted in a recent coalition letter, ‘Both practices help promote efficient investing, … ultimately softening the blow of a downturn.’
“The focus of Congress and of this hearing should be empowering, not restricting, middle-class investors. Fraud should of course be punished, and there are already laws on the books to do this. But government authorities should not slam the sharing of truthful information and opinions on social media forums as market manipulation, but rather respect it as the constitutionally protected speech that it is.
“Congress should also examine liberalizing rules, such as accredited investor requirements and burdensome Sarbanes-Oxley auditing mandates, that make it harder for average investors to build wealth with early-stage growth companies. Ultimately, Congress should embrace, not fear, technologies and trends that lead to the democratization of finance.”