I just happened to have watched The Big Short [0] yesterday.
In the movie (based on real events) the same thing happened: during the housing crash suddenly every bank had 'technical issues' when people tried to sell their stocks.
In the movie (based on real events) the same thing happened: during the housing crash suddenly every bank had 'technical issues' when people tried to sell their stocks.
Disclaimer: I'm not in finance, don't know much about it, but it's what I understood while watching the movie ;)
Yeah, right, it's so nice platforms prevent people from selling, just as the big fish unload their own stocks.
Reality is the regulations on the financial system are a feature. Being able to have charges reversed if I get my card skimmed and someone makes a bunch of charges is a feature. Being able to get my money back if the seller ships me broken goods (or nothing at all) is a feature. Having regulations on banks front-running their customer's transactions is a feature (one that Robinhood unfortunately gets around somehow). Having regulation on securities not being scams is a feature.
As with anything, the answer is sometimes.
You want those rules for your retirement account, because if someone can steal a six figure sum from you instantly with no takebacks, that is bad.
But the overhead of that system is not always required, and it's the major reason that we don't have e.g. micropayments. The overhead of allowing transactions to be reversed eats the entire transaction amount for very small transactions.
So it would be good to have a system where you could, for example, transfer $50 into it from your bank account, wait the month or so until the transaction can no longer be reversed, and then transfer it from there a few pennies at a time with insignificant transaction costs because the small transactions are instantaneous, anonymous and can't be reversed. Which isn't nearly as problematic because even if you get scammed, your loss is limited to the $50 you put in. Instead of getting wiped out, you pay a reasonable cost for a personal lesson on security and trust.
And there is no reason we couldn't have both. Then you keep the bulk of your wealth in the inefficient safe system and some petty cash in the one with lower transaction costs and get the best of both worlds. But the existing rules don't allow that, which is bad.
For example, if we took a simpler example of something more people are familiar with like options...let's say you buy a put at a strike of 100. The stock is trading right around 100. The market tanks like it has been doing and the stock goes down to 80. That's great for you since you had the put. You technically have the right to buy the shares at the market and shove them onto someone and force them to pay you 100. Most of the time, since we're dealing with derivatives, they just trade the value of the option itself and skip dealing with the underlying security because it takes a lot of capital (100 shares * 80 bucks each in this case). So the value of the option (the derivative) should be around $20 as you approach expiration and the premium fades off. If the market maker for the options has way too much exposure and wrote naked puts (meaning they didn't have the underlying security) they took on a ton of risk and basically got fucked. In this scenario it's like Burry calling and finding out his options are worth like $1.50 instead of $20 simply because they are thinly traded and therefore can't get a good price by anyone. This actually happens on some options - you'll see a huge spread between the bid and ask on some options so it's not like it doesn't happen even for this type of retail-friendly derivative.
In the Big Short case, the banks were acting as market makers, or more technically in this case dealers- this was more akin to going to a used car lot. You read a lot of reports saying that the new Fords were flying off the lots for outrageous prices, and to people with dubious ability to pay for the sticker prices they did because they got loans they shouldn't have. You go to the dealer and say I want to sell these cars short and buy them back later. The dealer presumably thinks you are an idiot, or wants to hedge some risk (the analogy is breaking down here), but says ok sure, thinking he is going to sell them for even more in 6 months. 6 months later comes- you were right- there is a flood of Fords on the market at half the price because so many people had them repossessed or are desperately trying to get out of these loans that are killing them. You go to the dealer and say "Ok bud, I'd like to buy these cars back at half price..." and they say "Nah, these are still worth 98% of what you sold for... how about that price?" and you are kind of stuck. You bought specific used cars that are kind of but not really entirely fungible. You can't just go down the street and buy those cars and replace them. You have to hope that they feel the pressure to lower those prices because they start feeling the squeeze for cash, or a regulatory agency comes in and puts the pressure on. They can kind of live in la-la land and avoid the reality of the situation as long as they have no requirement to sell.
Eventually though, they blinked and once one bank started taking write downs, all banks did, and once that became acceptable, they all followed suit- and they also needed the cash at that point.
Anyway- now back to stocks/options- these have well known discoverable prices and you can sell them on open markets where the brokers you connect to might be on the other end of the deal but its really unlikely. A broker/dealer like Robinhood or Schwab or Interactive Brokers should theoretically have an entirely flat position at the end of the day.
TL,DR: Robinhood didn't go down because it doesn't want you to sell your stocks.