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Hi Tim,

Here's my ironic and snarky substack post on what I think explains those
events.
It's never a good idea to get caught exposing yourself in public - The Cool
Zone Kids' Guide to the Economy (substack.com)
<https://urldefense.proofpoint.com/v2/url?u=https-3A__coolzonekids.substack.com_p_its-2Dnever-2Da-2Dgood-2Didea-2Dto-2Dget-2Dcaught&d=DwIBaQ&c=Cu5g146wZdoqVuKpTNsYHeFX_rg6kWhlkLF8Eft-wwo&r=LtbujWNPdbzw6j8eq9-RJVMBctp9ndCoqGEy57VsNLQ&m=HiBeffENYHKHZAXvrtZVC7djps7GWojVylbY_03o1Fg&s=KeV7JN-b4wOF-GUaOTJfmq31a94svLTTu0E9AE0w1Zk&e= >

Mitch

On Fri, Jan 29, 2021 at 3:20 PM Wunder, Tim <[log in to unmask]> wrote:

> Non-NU Email
> ------------------------------
> GME Ok so I don't know legal rules or how firms like Robinhood are
> regulated so I have a question for people who are knowledgeable.
> Suppose the following scenario:
> I am Robinhood app.  My retail customers hold 20 million shares of GME on
> my books (no clue the actual number).  Now I loaned out many of those GME
> shares to citron and underwrote their short contracts.  Now citron uses me
> (robinhood) to hold the short contracts for citron.
>
> Now let's say retail trader A buys those short contracts being held on
> Robinhood's books.  The short contract comes due and retail trader A
> exercises the option, I would assume that Robinhood would simply credit
> retail trader A's account with the share of GME.  In a legitimate world
> then Citron would have to provide Robinhood with a share to cover this
> trade.  But suppose that retail trader A doesn't sell the share, he decides
> to just hold it on Robinhood's books.
>
> Now as long as the retail trader doesn't sell the share no money has left
> Robinhood nor does Robinhood have to demand shares from Citron.  As long as
> nobody demands money Robinhood in theory could owe its retail traders far
> more shares then they actually had.
>
> Is it possible for Robinhood to have more shares owed to its retail
> customers than Robinhood actually owns?  and if so how would anybody know
> it's happening?
>
> So let me clarify this.  Suppose Robinhood started out this fiasco having
> retail holdings on their books of 20 million shares.  They lent out 10
> million shares to short.  The shorts were exercised and the retail traders
> that exercised the shorts kept their shares at Robinhood.  So now Robinhood
> only has 20 million shares but owe their retail customers 30 million shares.
> Is that possible?
>
> could they fractional reserve on shares like this?
>
> This scenario could help explain Robinhood's actions.  They are literally
> an insolvent institution who is unwilling to liquidate other positions to
> cover what they owe their retail customers.
> Please tell me this is illegal and they would get caught?
>
>   If this was a bank in this scenario it would be insolvent and the Fed
> would close it down, but its not a bank.  Further it's not money it is the
> creation of stock out of thin air and this is really bad if its allowed.
>
>
> Timothy A Wunder
>
> Clinical Professor of Economics
>
> Department of Economics
>
>
>

-- 
"In our society, it is murder, psychologically, to deprive a man of a job
or an income.  You are in substance saying to that man that he has no right
to exist."  --Dr. Martin Luther King, Jr.