Well, This Was GOING To Be A Morning Warm-Up Until I Got Derailed Trying To Track A Commenter Rumble That Doesn’t Belong On An Ethics Blog…

But enough of that.

Let us never speak of it again.

1. A day that will live in ethics infamy...on 11:38 a.m. EST, on January 28, 1986, the Space Shuttle Challenger blew up shortly after launch, signalling the beginning of the end of the NASA manned space program. Ethics Alarms has published a lot about the ethics space wreck that led to the disaster and continued in its wake. The Challenger Disaster tag has a most of the relevant posts, of which this one, this (which I built a legal ethics seminar—and a song!—around) and this are the most extensive.

2. Another historical ethics note: Walter Bernstein died last weekend. He was one of the screenwriters blacklisted during the Red Scare. Blacklisting seems especially relevant right now. Most of his films were political; the best known is probably “Fail-Safe,” a movie I deeply dislike that was and is over-shadowed by the superior “Dr. Strangelove…” which hit theaters around the same time. His best screenplay was probably “The Magnificent Seven,” an ethics Western, which he contributed to surreptitiously while he was still blacklisted. After he could write under his own name again, Bernstein wrote “The Front,” a mordant comedy about based on his experiences being “cancelled” in Tinseltown.

Bernstein, unlike many others who were blacklisted (like my friend Bob McElwaine), really had joined the Communist Party. The Communist cause was attractive to him after the war, he said in an interview, because the “Communists seemed like they were doing something.” Such was the intellectual focus of Hollywood Communists, but having lazy and naive political opinions isn’t supposed to cost you your profession and livelihood in the United States of America.

3. Nor should it cost you your right to purchase goods and services. [Pointer: JutGory]: Trigger Firearms and Reloading, a gun store in Jefferson City, Missouri, announced on social media it had would not sell firearms and ammunition to Joe Biden voters. I confess: I’m thoroughly disgusted with these episodes ov viewpoint discrimination. Withholding commerce and public accommodations from anyone based on their opinions, political affiliations or speech is exactly as wrong and societal damaging as doing so on teh basis of race, ethnicity, gender or religion. Exactly. It is bigotry and discrimination, and threatens American society and values. It just happens to be legal, except in California. (Maybe a few other states; I haven’t checked.) A nation doesn’t have freedom of speech if political opinions, however uninformed (see Item #2 above) limit where one can work, associate, live, eat, drink, or buy guns.

Most of the comments on the store’s idiotic Facebook post are supportive of the ban, which is impossible to enforce unless custpmers wear “I voted for Joe” badges. This just shows that a lot of conservatives don’t understand what the Bill of Rights is all about despite their worship of the Second Amendment. The critics aren’t any better. Here’s one gun rights advocate who doesn’t favor the measure:

“The Republicans lost the Senate and we have a pro-control President. Is it not obvious that we need left leaning and moderate gun owners’ voices to be heard? Is it not obvious that we need to reign in those in our community who play to the Culture War and Identity Politics narratives?  …. You must see the importance of allowing gun owners who don’t want to be associated with them to be a vocal part of our community. “

Those are non-ethical considerations. The reason not to ban Biden voters from buying guns is that it’s wrong and un-American to ban anyone from doing anything based on their political speech.

Here’s another conservative who just doesn’t get it:

“The right to keep and bear arms is still a right of “the people,” however. It isn’t predicated on what you look like, where you live, who you voted for, how much money you make, or how powerful and connected you might be. I have no issue working with folks from the Left in opposition to gun control, even though that may be one of our few points of agreement. Politics isn’t a purity contest. In fact, the more you try to purge a movement with the idea of leaving only the true believers behind, the more you end up punching yourself in the face. Movements win by swelling their ranks. They lose by winnowing out those who won’t march in lockstep with the revolutionary vanguard.”

Again, this is a pragmatic argument, not an ethical one or a constitutional one: “We shouldn’t alienate these assholes because we need them!”

I don’t know how people can defend the Second Amendment when they don’t understand the First.

4. I have not had time to study the weird Gamestop story sufficiently to have anything to say about it, but the episode clearly has ethical relevance. Here is Glenn Greenwald’s video explanation; I haven’t had time to watch it all the way through, but soon will.

If an enterprising reader can turn in a clear, well-written explanation with ethical commentary, I’ll post it as a guest column.

5. Remind me: why did I vote for Mitt Romney twice? Mitt Romney said in an interview,

“You have many of the Trump supporters in elected office, senators, congresspeople, governors, continuing to say the same thing, that the election was stolen…[But the Trump campaign] “had a chance to take their message to the courts, the courts laughed them out of court. I’ve seen no evidence that suggests that there was widespread voter fraud.”

Thus Romney repeats a AUC talking point that is factually false. Most of the cases were thrown out on the basis of standing or timeliness, not on the merits, which being “laughed out of court” suggests. Moreover, Romney’s “widespread” is a tell. If there was voter fraud that changed the results in any state, that is serious, and by itself “suggests” wider voter fraud. Indeed, the double-talk and obfuscation like Romney’s falsehood itself “suggests” a distorted election result.

Now to be fair to Mitt, many conservative sites are quoting him as saying, “You know what, I was a big Trump supporter, I was really pulling for Donald Trump, but he lost fair and square” and mocking Romney, who was never a Trump supporter. But that’s a quote out of context. Romney was quoting what he felt a hypothetical Trump supporter should say on Fox News.

28 thoughts on “Well, This Was GOING To Be A Morning Warm-Up Until I Got Derailed Trying To Track A Commenter Rumble That Doesn’t Belong On An Ethics Blog…

      • It is also good commentary on what is going on in America. Support Trump? Well, forget about being on YouTube, or Facebook, or Twitter, or having a MasterCard, or a Chase bank account. Maybe you can lose your job for voting for the wrong candidate. However, it only goes one way. What if all conservatives did the same thing to Democrats? I fully support it if the point is to criticize this corrosive trend. The trend won’t stop as long as it goes only one way. If Nancy Pelosi has her airline ticket home for the holidays denied because she is a Democrat, this stuff will stop pretty quickly.

    • Near as I can tell, what happened is that users on a Wall Street “sub-Reddit” colluded to manipulate the stock market to harm institutional investors, and many more collaterally. Some of those users made a lot of money in the process of punishing the institutional investors for doing the same. Others bought into GameStock bubble just before it burst, and lost quite a lot.

      The activist investors from Reddit noted that big hedge funds were attempting to “short-sell” the stock in failing videogame seller GameStock. The hedge funds sold thousands of shares of stock, and were contractually obligated to buy them back after a certain amount of time. They figured the store would go out of business, and they’d be required to buy back worthless stock, keeping the proceeds from the original sale as profit.

      Some Redditors decided they believed in the company, and began buying up GameStock on the market. This caused the price to rise, and forced the hedge funds to buy back stock at a higher price than they sold it for.

      Then it became personal. Redditors dumped their life savings into the GameStock. They wanted to cause the hedgefunds as much pain as possible by driving up the sales price. Due to convoluted trade structures, hedgefunds sold more stock than actually existed, forcing them to buy, resell, and buy the stock repeatedly, driving the stock price up 100x its pre-manipulation price. Trade platforms that make it easy for individuals to buy stock suspended trading GameStock, which has slowed the violent price fluctuations.

      Some activists were believers in the GameStock. Some wanted to stick it to the man. Others were just excited to be part of something.

      The stock market relies on rational economic theory, which posits that people will only act in their best interests. “Sticking it to the man” is not a rational strategy. People were will willing to take extreme risks with their own livelihoods on this stunt. One individual took his savings, current month’s income, and paid all his expenses on credit to “make it hurt” for the billionaire -owned hedge funds.

      While it might not necessarily be unethical to risk one’s wealth chasing windmills, this event will cause collateral damage to many. Most hurt are individual investors hoping for GameStock to rebound. Their participation was prior to and without knowledge of Reddit’s shenanigans (although investing in a failing company is always a gamble). Then there are the fools and knaves who got excited and threw money at this – the slot machine was blinking, and they pulled the lever. They are victims, but do bear blame for knowingly participating in something they don’t understand. Arguably, the smart people who knew enough about the system to upend it bear much of the blame for making the world a more cynical and ignorant place.

      “We did it, Reddit!”

      Moreover, the stock market relies on good faith participation. Indeed, democracy itself relies on this. Individuals who collude to screw over big bank investors are no better than those they claim to be sticking it to. The FTC was created to reign in the most egregious of institutional manipulation of the markets. Investment funds continually push the limits, but no system can survive a ground swell insurrection from within.

      Where ethics fail, the law steps in. The security of our nation’s capitol requires citizens to voluntarily not storm the gates. Only overwhelming force, antithetical to a democratic society, can protect the Bastille from falling. The free markets cannot survive individuals taking it upon themselves to screw around for the sole purpose of harming others.

      The GameStock saga is ultimately an unethical stunt. Individuals abused their freedom to participate in the markets to harm others, unironically to harm institutional investors who they believe hurt the little guy. There are two options to respond: trust that individuals will behave in the future or barn door regulations that limit individual participation. History suggests the latter.

      • So, it is OK for hedge funds to use their pooled resources from a lot of investors to manipulate the markets, but private individuals can’t pool their resources to manipulate the stock that the hedge fund was manipulating?

      • Thanks for the explanation, Rich. Here I thought it was GameStop.

        I can’t help thinking the people behind this whole caper are gamers rather than day traders. Stick to what you know.

        • I doubt it is gamers behind this. Video games are increasingly being distributed through online stores, and are downloaded instead of purchased in hard copy. GameStop is losing ground the same way video rental stores lost ground when streaming services became available. Slow internet speeds, large game sizes, and walled garden online-stores are making the process slower than the video streaming takeover, but give it a few years. Gamers have less and less reason to shop in a retail outlet for anything but hardware and vintage games. Local used game stores usually buy used games at higher prices and sell them at lower prices than GameStop does, and are not big box stores. Walmart, Best Buy and Target sell the hardware, probably cheaper.

          I’m a gamer and I’ve not heard any grumbling about the slow, inevitable death of GameStop.

          Gamers do like to start flame wars though, so I could be wrong.

  1. 4. Hello world, I’d like to introduce you to the young, jaded, cynical, tech savvy Gen Z. Enjoy their non compliance. Remember their parents, Gen X? The ones who were promised good jobs if only they went to college?? They have a lot to gain by toppling the stranglehold of elites.
    It’s funny. Just like the Trump tickets was funny. They have nothing to lose and everything to gain. I wish them luck.
    The “you can’t do that against me” narrative is going to wear quite thin. If it leads a few hedge funds and people who have lived off the system for decades to economic ruin? Well… that’s the risk of investing. Lest you have forgotten.

  2. I’ll try to do an accurate summation. Gamestop, a publicly traded company, was seen as undervalued by some users of an internet forum, in this case, a reddit forum called r/wallstreetbets . That same stock was seen as on the brink of collapse by a hedge fund management group, Melvin Capital, who decided to short sell. A short sell is essentially borrowing stocks with the intention to sell them if the price lowers. Whether through intent or accident, these two groups converged on Gamestop at roughly the same time.

    Regardless of original intent, the users of the reddit forum got more and more people to buy into that stock, causing the price per share to inflate drastically. It’s sitting at over $400 per share when I last checked. A similar situation is happening with AMC stock, though with less drastic inflation.

    Now, when Melvin Capital’s option reaches its end, they’ll have to return the shares they borrowed along with all that money per share above which they initiated the short sell. This would cost the firm billions due to how many shares of Gamestop are involved and the drastic increase in share price.

    Earlier today, several stock trading apps, including Robinhood and T.D. Ameritrade stopped allowing users to buy Gamestop, AMC, Nokia, and Blackberry (though I don’t think the last two were being massively inflated at the time). Also, Discord, a popular messaging app, removed r/wallstreetbets from their app, allegedly for spreading hate speech. All these moves are seen by many people, regardless of political views, as terrible actions designed to punish common people for figuring out how to make some money while a multi billion dollar firm loses out for betting that a company would fail.

    The basic questions, as I see them, are: “Is a private company allowed to stop people from buying a stock?”
    “Are a group of people talking in a public forum about which stocks to buy and why an illegal action (the SEC is trying to determine this as well)?”
    “Is it right to inflate a stock for the purpose of causing a hedge fund to fail, if that hedge fund and/or others have done similar things to stocks in the past that have caused people to lose money?”

    It’s a very rough summary, and any corrections and clarifications are welcome.

    • “A short sell is essentially borrowing stocks with the intention to sell them if the price lowers.”

      This isn’t right, and it’s important:

      A short sell is when someone, usually a broker, is holding stock in a company they think is overvalued. They owe their client X number of shares, regardless of the price. So if you have 100 shares of Game Stop stock at $4, and you think it’s going to $2, you sell at $4 and then rebuy the stock at $2, pocketing the difference and letting your client swallow the loss. It’s a loss they would have swallowed one way or the other, so they’re not really hurt, per se. Basically, you’re betting that a stock will go down in value. If the stock instead increases in value, you lose the difference. I think it breaks a fundamental fiduciary duty and should be illegal, but it’s where we are.

      So what happened here was that a lot of people thought Game Stop was undervalued, it was listed at approximately what I said it was, between $3 and $4 per share. Short sellers were banking on it decreasing in value, so they sold all their client’s shares. Now that there’s been a ridiculous noise buy on these stocks, and they’ve *increased* in value 1000% (real number) instead of decreasing 50% (expectation) the firms that short sold the stock are going to have to find stock to buy to make their client’s portfolios whole. Which means that they will have to buy thousands of shares back at $400 when they sold them at $4, instead of $2, which they expected to. That 2000% difference over all those shares represents tens of millions of dollars, just on the Game Stop shares.

      Basically, a bunch of unethical portfolio managers got their paws slammed hard in the cookie jars of their client’s portfolios, and it’s magnificent.

      • I know nothing about the stock market, and I’ve always known that shorting was betting on a stock to fail, but I never understood how you could actually make money doing that. Now I think I kinda get it, so thanks!

      • Thank you for the correction. I’m not certain I’d say the portfolio managers are unethical, though I think some of them involved in the current stock situation might have been involved in the ’08 recession.

        • I think it’s unethical because portfolio managers have a fiduciary duty to try to maximize their client’s portfolio value. If they thought Game Stop stock was overvalued, the right thing to do would be to try to unload it above board, not play some deranged financial cup game, betting their client will lose money.

          • I am not following your thinking here. If a fund is short selling a stock, who exactly are you thinking their client would be and why would the fund owe that client shares of that stock?

            In a regular stock transaction, a fund will buy a stock for, say, $2 per share intending to sell it when it goes to $4 per share, thus making a profit of $2 per share. We a)Don’t see a problem with doing that and b)Here again I don’t see a ‘client’ involved, other than the investors in that fund company.

            In a short sale, as I understand it, a fund will ‘sell’ shares of a stock at $4 per share, and promise to buy that number of shares at a future date. If, at that future date, the stock is selling for $2 per share, the fund buys the shares to cover their original sale and makes $2 per share. If, at that future date, the stock is selling for $10 per share, the fund must still buy those shares but they will lose $6 per share. Unless I am totally off base there is not ‘client’ involved. The fund is betting that the stock will go down rather than the normal bet that the stock will go up in price.

            I don’t see an ethics dilemma there except — as has been alluded to in some other posts here — if a fund advertises that they’ve made a short sale in order to try and drive the price down (as a self-fulfilling prophecy). Doing that would be unethical, I would imagine.

            • “In a short sale, as I understand it, a fund will ‘sell’ shares of a stock at $4 per share, and promise to buy that number of shares at a future date. If, at that future date, the stock is selling for $10 per share, the fund must still buy those shares but they will lose $6 per share. Unless I am totally off base there is not ‘client’ involved. The fund is betting that the stock will go down rather than the normal bet that the stock will go up in price.”

              That’s not how this works.

              -They borrow the stock. Usually they’ll have something written in an agreement where they’ll be able to justify this by offering the person they’re borrowing from, usually their client, an interest fee on the borrowed stock. A date that the borrowed stock has to be returned is determined.

              -They sell the stock at current market value, it goes out into the ether. You’re never seeing that exact same stock again.

              -At some point on or before the predetermined return date, the same stock, in the same quantity, has to be purchased, regardless of current value, and returned to the person the stock was borrowed from.

              You said “In a regular stock transaction, a fund will buy a stock for, say, $2 per share intending to sell it when it goes to $4 per share, thus making a profit of $2 per share. We a)Don’t see a problem with doing that and b)Here again I don’t see a ‘client’ involved, other than the investors in that fund company.”

              That’s not really how a regular transaction goes… You can set something like that up with upper and lower automatic buy/sell limits…. But regardless; In the transaction as described above, your risk is limited to how much stock you buy. I’ve said it before: Worst case scenario: You buy a stock, the stock crashes, you have a stock worth a penny. It’s sad. Nothing else happens. Same thing with the opposite: If you sell a stock and it crashes, you’ve made a great decision, pat yourself on the back. If you sell a stock and it goes up, darn, you’ve missed out.

              Short selling is a completely different, riskier transaction because there is theoretically no upper limit on risk: You have a dollar stock, you expect it to crash, you borrow a load of stock, You sell it at a dollar, and instead of crashing, it balloons to a hundred. A thousand. ONE HUNDRED MILLION DOLLARS! Now buy back that load of stock so you can make the lender whole. The problem is that up until now, that situation basically never happens. We’re talking about this because 1) There’s never been a short squeeze this successful before and 2) Because investors are livid that they got pantsed by internet memers. In reality, the stock market being an information game, people attempting a short usually have some kind of reason to think that the stock value will go down, and they’re usually right…. Which is why a short like you’ve described could never exist: No one would ever agree to it.

              Why is that unethical?

              -Because the most common way to borrow stock is from unknowing clients who signed a TOS allowing the fund to do it. Meanwhile, as opposed to betting that their clients were going to lose their pants based on whatever information they had, they should probably have moved to reduce their client’s losses.

              -Without getting too far into the weeds, the reason this was particularly effective was because Melvin Capital actually “borrowed” more stock than existed. To oversimplify, they borrowed the stock, sold it, borrowed it from the new owner, sold it again, rinsed and repeated. They had 140% of the GME shares in existence in a short position.

              And finally, “I don’t see an ethics dilemma there except — as has been alluded to in some other posts here — if a fund advertises that they’ve made a short sale in order to try and drive the price down (as a self-fulfilling prophecy). Doing that would be unethical, I would imagine.”

              -Then you’ve just said that every short is unethical. Shorts are done publicly, they require special filings and a special kind of account. The markets are highly susceptible to moves like this, and often become something of a self fulfilling prophesy, which has all kinds of shitty, real world implications for businesses, particularly ones that are struggling, and might be close to violating debt covenants.

    • If i am following the comments, Wall Street hedge fund managers got hosed at their own games (or investment strategies) by some “gonzo” individual investors, and now the hedge fund managers have to pony up other their fund investors are going to rip them to shreds.


        • I generally supported Ackman’s short on Herbalife when I heard about it, because Herbalife is just the worst. But knowing a bit more about how short selling works, and after seeing the damning segment about him on Tucker Carlson’s show…he does not look good. But Herbalife is still the worst and I wish them all the worst anyway.

      • It seems that he long empty hours of lockdown have inspired the idle ones to turn their hands to mischief-making. Yet another reason to get the vaccine distribution mess straightened out pronto.

        • Is it mischief making? Or is it simply that the rules the Big Boys play with and by aren’t so sacred and are written on really soggy crepe paper? I am not a stock exchange law expert but what crimes did Bar Stool Sports followers actually violate? Or is the real scandal that they proved the “free market” isn’t all that free?

          If I understand H.T.’s insights, short selling stocks is highly risky and the Big Boys got hammered by taking those risks and they are crying to Washington to save them from the Paul Reveres of Big Finance.


  3. Jack confessed, ” … which I built a legal ethics seminar—and a song!—around”
    Well. I am looking forward to learn something of your illegal ethics seminars.

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