February 7, 2023


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Washington nibbles at edges of stock frenzy that defies fast fix

Frenzied trading by retail investors has swept up a struggling video-game retailer, a movie theater operator and now the price of silver — capturing Wall Street’s imagination and drawing promises of close scrutiny from Washington.

But while regulators, lawmakers and the Biden administration say they’re closely monitoring the market turmoil, there’s little sign the government is poised to intervene.

For all of the billions of dollars made and lost, the Wall Street whiplash has yet to pose a fundamental risk to the economy or financial system, according to a half-dozen former senior Treasury Department officials, leaving regulators with little immediate role to play. Likewise, agencies are wary of overprotecting investors from unwise financial bets.

“If one group of speculators wants to have a battle of wills with another group of speculators over an individual stock, God bless them,” Federal Reserve Bank of Minneapolis president Neel Kashkari said Monday, Feb. 1, in a virtual town-hall event.

The market turbulence whipsawing prices for GameStop Corp. and AMC Entertainment Holdings Inc. comes at a particularly awkward time in Washington, where President Joe Biden’s administration is still taking wing. Many of his Cabinet choices and picks for other crucial jobs await Senate confirmation, including Gary Gensler, his nominee as Securities and Exchange Commission chairman.

Biden has yet to nominate a chairman of the Commodity Futures Trading Commission, the agency that Gensler led after the 2008 financial crisis and that may take an interest after retail traders drove up the price of silver on Monday.

The Biden administration and Congress have also made clear they believe other matters are far more pressing. The president is in the midst of an aggressive push for another virus relief package. The Senate is preparing for former President Donald Trump’s impeachment trial next week between confirmation votes for Biden’s nominees and stimulus negotiations.

There are signs that some of the frenzy hitting GameStop and other stocks is abating, at least for now. GameStop sank as much as 67{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} in New York trading Tuesday, Feb. 2, after plunging 31{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} Monday.

Acting SEC chair Allison Herren Lee said Monday the agency was keeping a close eye on stocks but had seen no evidence that the broader market is under threat even as she warned individual investors could pay the price.

“When we see stock prices depart so wildly from fundamental valuations, we know there is a chance that people are going to get hurt,” Lee told National Public Radio. “We want people to know that there are risks involved here.”

Uncertainty surrounding the frenetic trading of GameStop and other stocks has made consensus difficult on a policy response. In Congress, the sophisticated financial machinations behind the trades are poorly understood, prompting House Financial Services Committee Chairwoman Maxine Waters to schedule a Feb. 18 hearing on the turmoil titled: “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide.”