> "never attribute to malice that which is adequately explained by stupidity"
I am getting tired of seeing companies and other major entities weaponizing Hanlon's razor. I refuse to believe that such a massive entity with so much resources at it's disposal has a think-tank consisting of two interns and a comatose member of middle-management. I've seen this sequence of events multiple times:
1. Entity X does thing that directly harms/angers people.
2. Entity X 'apologizes' and says some variation of "oopsies, didn't mean to, just a miscommunication gone awry, we'll definitely look into improving our internal processes in the future :)".
3. Entity X faces no real repercussions.
At what point does this become a violation of Occam's Razor? That all of these decisions that somehow always leave the entity unharmed/better off at the expense of others were not made with intentionality and/or any remote understanding of their consequences? When do they wear away the benefit of the doubt?
> That all of these decisions that somehow always leave the entity unharmed/better off at the expense of others were not made with intentionality and/or any remote understanding of their consequences?
Robinhood just had to borrow a billion dollars. Having to get a billion dollar emergency bail out is not the sign of a sinister plot, it's the sign of a colossal fuck up.
> I refuse to believe that such a massive entity with so much resources at it's disposal has a think-tank consisting of two interns and a comatose member of middle-management.
There are a fair number of signs that Robinhood is a mess. This isn't the first time the company has run afoul of their own success and wound up screwing over investors.
> Entity X faces no real repercussions.
I didn't say they shouldn't be responsible for the consequences of their mistake. My point was that it's more likely this is a screw up than some sinister plan on their part.
We're on the same page as far as this last bit goes for sure. Regardless of whether it was a screw up or malice, they should be the ones paying the price (though sadly I suspect we both know they won't).
> Robinhood just had to borrow a billion dollars. Having to get a billion dollar emergency bail out is not the sign of a sinister plot, it's the sign of a colossal fuck up.
What about a sinister plot that fucked up? Being bailed out is consistent both with being dumb and short-sighted, or being deliberately negligent and short-sighted. Failure is possible in both cases if not more likely in the latter (this failure wouldn't be possible if Robinhood didn't decide to facilitate liquidity out of its advertised risk class, but would be tempting to ignore if you precluded the possibility of retail colluding on its own. The benefit for Robinhood would be greater order volume over time which means i.e. higher quarterly revenues).
In addition, if you are willing to claim bailouts are evidence that deliberate negligence/"sinister plans" aren't present, you would have to claim the 2008 subprime mortgage crisis didn't feature deliberate negligence, which isn't true.
My original reply was to a post where someone accused RH of being predatory. To me, that strongly suggests there was intent here by RH to get users into this situation.
I don't think RH intended this situation. That is all.
I'm not suggesting there was no negligence. In fact I think there was. Negligence is essentially criminally screwing up.
This situation is orthogonal to what's predatory. Its predatory that they generally encourage customers to front more than they realise they're fronting. Many customers think they're betting £1000, they don't realise they're actually betting their house.
> Its predatory that they generally encourage customers to front more than they realise they're fronting.
This isn't entirely true. Margin accounts don't have an unlimited bottom. If you put $1000 in a margin account, you can buy more than $1000 worth of securities. As soon as the value of those securities drops below $1000, those shares are liquidated. Typically, you are never on the hook for more than your initial $1000.
From Investopedia:
> " The Federal Reserve has a 50% initial margin requirement, meaning you must front at least half the cash for a stock purchase.
> This requirement gives you the ability to purchase up to $20,000 worth of stock, effectively doubling your purchasing power."
It is very risky to invest in volatile stocks with a margin account because you can hit a margin call fast. Suppose you put $2000 into RH and get $2000 worth of GME. If GME drops 50% in a day (highly possible), you get a margin call and poof your $2000 is worth zero.
> Many customers think they're betting £1000, they don't realise they're actually betting their house.
This isn't true on either part. To see why, take a peek at RH's FAQ on margin: "Access to margin is not automatic to everyone, and requires you to upgrade to Gold."
In other words. To make leveraged purchases, you have to deliberately upgrade your account to gold and have $2000 in your account. The whole reason people upgrade to gold is to get access to margin.
It is possible to put yourself out there quite a bit further than you want and lose everything you invest, but it's pretty hard to lose more than you invest. (I'm not even sure it's possible).
Calling it a “bailout” is mischaracterising it. The solvency of Robinhood wasn’t in question.
The funds they put up at the clearinghouse are to manage settlement of customer trades. They had to stop allowing customers to open new positions because they needed to deposit more settlement margin at the clearinghouse. The margin required depends on the volatility of the stock symbol, and in this case clearinghouse increased the margin requirement for GME to 100%, on top of the higher demand for shares by customers.
As for paying the price, I’m pretty sure no broker is ever liable for theoretical profits missed out on.
It was an unplanned loan so they could continue operating effectively. If you want to pick nits and say it's not a bail-out... whatever. It's not business as usual.
I am getting tired of seeing companies and other major entities weaponizing Hanlon's razor. I refuse to believe that such a massive entity with so much resources at it's disposal has a think-tank consisting of two interns and a comatose member of middle-management. I've seen this sequence of events multiple times:
1. Entity X does thing that directly harms/angers people.
2. Entity X 'apologizes' and says some variation of "oopsies, didn't mean to, just a miscommunication gone awry, we'll definitely look into improving our internal processes in the future :)".
3. Entity X faces no real repercussions.
At what point does this become a violation of Occam's Razor? That all of these decisions that somehow always leave the entity unharmed/better off at the expense of others were not made with intentionality and/or any remote understanding of their consequences? When do they wear away the benefit of the doubt?