It’s a Game of Musical Chairs

by James Rickards
Daily Reckoning

The world was recently mesmerized by the ability of the Bros (short for “brothers”), a crowd of like-minded, mostly male millennials, to increase the price of GameStop from $20 per share to $400 per share in a matter of days.

The fact that the Bros did this using stimulus check money and the Robinhood trading app did not diminish the sky-rocketing numbers behind the frenzy. The stock later collapsed by 80% (as bubbles do), but not before inflicting an estimated $20 billion of losses on hedge funds that were short GameStop when the ascent began.

That decentralized (but legal) pump-and-dump scheme came dangerously close to destabilizing the U.S. financial system. If hedge funds had failed (several almost did), those losses would have fallen on bank dealers and other hedge funds, which could have triggered a cascade of failing banks and funds worse than what happened in 2008.

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