• Chase Whitney

Wall Street Always Wins

Wall Street always wins.

Wall Street is like Floyd “Money” Mayweather: both are undefeated and love money. When one invests money there is an understanding that where money can be made money can be lost, henceforth, some people invest in secure treasury bonds, others in index funds, and others in individual stocks that possess high risk and high reward. This rule does not apply to Wall Street, which can be clearly seen in the 2008 recession where many perpetrators of the recession were considered “too big to fail” and were bailed out by the federal government, meaning that those who caused the recession were not those who took the brunt of the hurt. This, however, is not the only way in which Wall Street possesses a different rulebook, many of Wall Street’s most prominent and wealthy people and firms appear to be exempt from various rules that others have to follow. Throughout the past, it has become that Wall Street has never lost and if the system continues in the same manner it never will.

“Hell is Coming”. On CNBC in early March of 2020, billionaire Hedge Fund manager Bill Ackman predicted that the stock market would collapse due to the global Covid pandemic. However, Ackman’s statement was not meant as a kind warning to investors–instead, he wanted to manipulate the market. According to Business Insider, Ackman turned 27 million into 2.6 billion by shorting the market after predicting the effects of Covid on the market. This was an impressive trade: a valid prediction was made by Ackman, and without his comments on CNBC, the market would likely still have collapsed. However, his statement created fear, which led to selling and helped increase his profits.

This was by no means the only time market manipulation has occurred. In the early 2010s, Ackman shorted Herbalife claiming it was a pyramid scheme, and tried to run the stock into the ground, renting out arenas and regularly going on television to condemn the company. This was clear market manipulation, and while this was going on another billionaire hedge fund manager Carl Icahn bought a huge position of Herbalife with the sole goal of destroying Ackman’s short by manipulating the market through his wealth and influence. In the end, Icahn won and Ackman lost billions, however, neither faced any serious legal actions for their role in manipulating the market.

Melvin Capital is a New York-based hedge fund with roughly 8 billion in assets under management. The firm took a large short position on Gamestop stock and had already made a significant amount of money from this trade. However, they were trying to run the already failing company into the ground endangering the jobs of thousands. Members of the ‘wall street bets’ group on Reddit orchestrated an attack to manipulate the market and create a short squeeze of Gamestop stock where a stock has an artificial price increase with no basis for the valuation. This coordinated attack worked and Gamestop stock shot through the roof making many retail investors huge sums of money and causing the assets of Melvin Capital to fall from 12.5 billion to 8 billion. Eventually, they had to be bailed out by two other prominent firms, Citadel and Point 72.

This event may seem like Wall Street first recorded the loss, but it wasn’t. At the beginning of the saga, Wall Street lost, however, this quickly changed. Many of the original investors were smart and got out when the stocks were at their peak. Josh Brown, the CEO of Ritholtz Wealth Management and a frequent CNBC contributor, said “Silver Lake, a 72 billion dollars private equity fund, is the definition of wealth ... [and they] sold over 700 million dollars worth of AMC stock, which effectively is a worthless stock.” Many investment firms and wealthy individuals were able to prosper through this situation. While many inexperienced investors lost large sums of money due to poor timing. The stock tanked even more once brokerages such as Robinhood, Charles Schwab, and TD Ameritrade restricted trading on stocks like Gamestop and AMC causing their prices to plummet.

An “attack” on this scale will never again be possible as funds will now routinely view data from social media and message boards. Through this whole period, many early investors were able to procure huge gains, and while multi-billion dollar hedge funds took huge hits, with time and with bailouts from other funds they will recover, meaning that most of the people who were actually hurt were inexperienced investors. In addition, according to Forbes, the SEC plans on investigating the “wall street bets” message board and find many of those who led the market manipulation. Ironically, they did not do for their Wall Street predecessors. Wall Street won, continuing their perfect record against the average investor and cementing the message that they are truly unbeatable.

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