Non-NU Email 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.