EconBuff Podcast #23 with Ryan Mattson
Dr. Ryan Mattson talks with me about the GameStop short squeeze episode. Dr. Mattson walks us through the four potential narratives surrounding RobinHood's decision to shut down trading. We discuss the mechanical explanation, where RobinHood, is forced to stop trading for reasons related to clearinghouse and collateral constraints. We explore the trading curb narrative, and Dr. Mattson explains how the stock exchange often halts trading to stop severe drops. Dr. Mattson argues this is related to irrational exuberance idea and he shares how actions communicate information between actors and how this relates to stock prices. Next, Dr. Mattson elaborates on the regulatory threat narrative, where RobinHood must choose between stopping trade and bearing the short term costs of that, versus allowing the trading, and eventually facing regulation from Congress. The final narrative Dr. Mattson discusses is the nefarious version of the story where hedge fund managers pull back room deals to force RobinHood to stop trading. Finally, Dr. Mattson lays out the monetary explanation by dsciussing the interplay between money markets, capital markets, and speculative markets and how Federal Reserve policy has increased participation in speculation. To close out the episode we explore how Dr. Mattson views the regulation likely to come from this episode and whether this event strikes one for free markets.
Photo by Clay Banks on Unsplash
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