I think these realizations are why much of the r/WSB discourse over the past two days has shifted from "we're going to be millionaires" to "i'm just in it at this point to stick it to the man". That's fair, and some people did legitimately become very rich off of this, but at this point, more funds are playing with WSB than against them. Funds are not some conglomerate that moves together; they hate each other as much as the public hates all of them.
Short interest in the past week has remained pretty steady. Some people view this as "the funds are doubling down, get 'em while they're bleeding". No, actually; they know what's most likely to happen, which is, everyone is going to forget about this in about three days. Gamestop's stock isn't good. These new shorts are not priced like "I think its going to go below $7"; they're priced like "I think its going to go below $200".
It may be fine print in the TOS, though.
Someone is paying up.
Here’s the part that makes no sense to me: why can’t Robinhood use customer funds for their deposit? Imagine a degenerate case: all but one client make no trades at all. One client has $100k deposited and buys $100k worth of GME. Prior to settlement, GME drops by 50%. That client is (effectively) out the entire $100k, and they are owed $50k worth of GME. Robinhood needs to post somewhere between $50k and $100k of collateral to the clearinghouse.
This all seems entirely reasonable with one giant of exception: apparently Robinhood may not draw on the client’s deposit for this. Never mind that, at settlement, the client will be debited the entire $100k. Somehow Robinhood is expected to temporarily come up with an additional $50k-$100k for a two day period. This seems bizarre to me.
The remaining assets the firm has would be liquidated, those would be used to pay off debts, including those owed to the brokerage. I'm not 100% sure how this works, like, if the estate would purchase as many shares owed as possible, or if they would settle in cash with the brokerage, or what. But, regardless, that wouldn't happen until long after the epicenter of this black swan event.
On the other hand, if they go bankrupt, then their assets are used to compensate (as much as possible) to everyone they owe in cash - not (as previously expected) in that stock. So the expected huge future purchase of the shorted stocks never happens, and all the WSB people who are holding the stock get to keep it or sell it to each other, as all that compensation money does not flow to the market for GME stocks as it would be if the shorts were actually covered. The brokers would be liable, and they might have insurance that might be liable, but all that liability would be cash-denominated and (as far as I understand - if I'm mistaken, please correct me) would not obligate anyone to buy any GME stocks.
The second big difference is in the timing. The current price is driven by short-term expectations, a hope that somebody is going to (or would be forced to) buy large quantities of that stock soon. If one of the shorting hedge funds goes bankrupt, then any settlement for that will take many months, and that money won't influence the market for that time.
I think that's more the activist crowd that has joined over the past week. I have a hard time believing the original r/WSB people care more about making a political statement instead of money.
I don't know if they're right or wrong, but the fact remains there are people who are getting in to both make money as well as stick it to the man.
Whose bankruptcy? The WSB crowd are very vocal in their goals of bankrupting hedge funds who have a lot riding on forcing gamespot's stock price to plummet.
WSB wants a short squeeze. They got that. But, their theory is that it isn't over, and if they get the 10x+ returns in the coming weeks (I don't think they will, but lets say they do), then these funds are potentially looking at commitments that approach their AUM, and a nasty margin call. That's a real recipe for shutting down, and if that happens, there is no more short to squeeze. Everyone loses.
It seems you didn't understood that for the WSB crowd the definition of winning is getting these funds to shut down, regardless of their personal losses.
This is no longer about money. This is a protest against a rigged system.
I'm personally into boring index and ETF vehicles, but I am stocking up on something right now: popcorn.
If that's true wouldn't it incentivize the brokerages to help the funds weather the storm? Everyone can just wait it out till the stock crashes back and instead of sticking it to the man WSB just emptied their pockets into the mans accounts..