OK, so – a group of individual investors collaborated through a Reddit message board to raise the price of shares issued by video game retailer GameStop. They did this in part because they were aware that several hedge funds had “sold” GameStop, essentially betting that the company’s stock price would fall. Instead, it hit hard when it went up, one of those funds, Melvin Capital, obtained an emergency support investment from another, Citadel LLC.
And then, in another way, there’s an app called Robinhood, which trades on behalf of individual investors, including many of those who are driving GameStop’s price hikes. Robinhood carries out these negotiations by directing them to From others companies to run in the real relevant market (ie a computer somewhere). One of the companies that does this for Robinhood, and actually pays Robinhood for the privilege, is Citadel Securities. Citadel Securities and Citadel LLC are owned by the same mega-billionaire.
On Thursday, Robinhood limited the amount of GameStop shares his users were allowed to trade. Some of these users immediately raised their suspicions that this had happened to protect Melvin Capital – and therefore the Citadel family of companies, from which Robinhood derives a great deal of revenue – from losing even more money. There are credible reports that suggest that this is not true and that Robinhood suspended the GameStop trading for the legitimate reason that he did not have enough money to handle the huge volume of transactions in progress; in any case, the Securities and Exchange Commission says it will look into the matter.
Regardless of the outcome of this particular case, the GameStop / Reddit turmoil put the question of market manipulation – how organized financial speculation should or should not be legal – on the Biden government’s radar. One of the people who should have an opinion on the matter is Treasury Secretary Janet Yellen. To complicate matters, however, Yellen has received $ 7.2 million in lecture fees since 2019 from a long list of corporations, including many of the major banks and investment firms. One is Citadel – its disclosure form does not distinguish between Citadel Securities and Citadel LLC – from which she received $ 810,000 for two speeches and a series of webinars.
As Ken Vogel of the New York Times notes, Yellen could remain at the legal and formal level, asking the White House for an ethics waiver to discuss Citadel or refusing internal conversations that would affect the company. (The SEC, for the record, is not part of the Treasury.) This, however, begs the question: what is the point of having a Treasury secretary who should be turned down or dismissed from the discussions of half the companies on Wall Street?
Yellen’s defenders would say that she has proved, as president of the Federal Reserve, that she will make decisions contrary to the financial interests of the big banks and that timely payments give her no ongoing incentive to worry, say, whether Citadel recovers its investment in Melvin Capital . (Fees aside, it is true that many progressive Democrats rely on Yellen’s judgment.) On the other hand, companies like Citadel – or Citi, which paid Yellen $ 1 million for nine speeches – probably didn’t do it just to gain access. to your ideas. (She also gave speeches and interviews that were publicly available for free.)
They probably did this because they thought it could end up making an important decision maker more accessible to them and more supportive of their concerns, even if only unconsciously. The point about ethical rules – and concepts like “conflict of interest” and “appearance of conflict of interest” – is that no one can know for sure what is at the heart of a decision maker while making decisions. Possibly, not even the decision maker knows! But it is easier to be neutral with someone if they haven’t given you six or seven digits in cash to talk to them a few times.
Will angry users of Robinhood and GameStop investors trust Yellen to be giving Joe Biden good advice on his complaints? Voters in general will believe that she is thinking about their lives and financial situations, rather than the people they know at Citi, Magellan Financial Group, UBS, WealthVest, ING, PricewaterhouseCoopers, Credit Suisse, BNP Paribas, PIMCO, Bank of America, Barclays, Prudential Global Investment Management, Google, Stifel Financial, Goldman Sachs, Daiwa Securities and Deloitte, in a crisis? Janet Yellen may be an outspoken sniper of impeccable integrity, but that kind of question was a real problem for the Obama administration, both practically and politically, in its response to the 2008 collapse. (Several people on the Obama economics team worked for companies who had benefited from the bailouts.) They were real problems for Hillary Clinton, who had made valuable speeches to Goldman Sachs, during her primary campaign against Bernie Sanders and her general election campaign against Donald Trump. At some point, you would imagine that leading Democrats would decide that the viability of their careers and their party was more important than reaching the top of the top 1% each time they left the public service. But you just have to imagine it, because it hasn’t happened yet.