“There is a strong argument to be made that investors sometimes need to be protected from themselves. A significant portion of our regulatory structure is designed to do just that, and rightly so. If I were looking at how to improve it, I’d focus on hacking away at the verbiage found in ‘disclosure’ statements. These are often written in language so dense that the only thing that they disclose is their authors’ mastery of obfuscation…

“Beyond a certain point, however, adults must be free to make mistakes, even severe ones, in their investing. That is an integral part of the hubbub of ideas, often extraordinarily stupid ones, that make up a properly functioning market…

“Somewhere beneath rules intended to constrain the ability of people to invest in honestly sold (an essential precondition) securities lurks the conceit that for any given security there is a right price, or, at least, an appropriate price range. Eventually that might (in a way) be true, but in the short term the right price for a security (or almost any asset), however seemingly absurd, is located within the spread for which it can be bought or sold at that instant. A few minutes, or even seconds, later that price might change, and when it does that new price is then the right one — until it is not.”
Andrew Stuttaford, National Review

“For now, perhaps the best thing the government can do is nothing. Take a deep breath, study what happened, and resist the urge to take hasty action. Politicians and pundits will be keen to use the episode as a vehicle for policy changes they already wanted, but as the flash crash [in 2010] continues to show us, the risk of overreacting—with ill-advised regulatory or enforcement initiatives—is likely much greater than whatever short-term harm results from the ups and downs of a handful of stocks.”
Ankush Khardori, Wall Street Journal

Some argue that “When wealth moved from physical assets to abstract digital records with no existence in physical space, economic elites acquired a new kind of power: the ability to shape reality and do it safe from prying eyes. Several hedge-fund managers told Reuters that the idea to short GameStop had long been a favorite at exclusive ‘idea dinners,’ where fund managers swap their best trades. Now the mob has learned how to play the same game…

“The Redditors were not interested in GameStop stock insofar as it represented a company that sells items to turn a profit in the physical world. To them, the stock was merely a token to use in certain applications — for example, a short squeeze. And if enough people agree that this token is a store of value, then it becomes a store of value, even if by chance the underlying company were to disappear…

“The Reddit traders — the mob — do not seem to have any philosophy of valuation… Does this make the retailers naïve? Maybe, though many increased their net worth from $50,000 to $20 million or $30 million. What it really shows is that they understand the secret of modern capitalism—a secret that until now has been reserved for a happy few.”
Bruno Maçães, City Journal

Others counter that “Short sellers don’t prevail by manipulating prices but only if other investors decide a security is overvalued (see Tesla). Short sales, in fact, are indistinguishable from the zillions of trades that cross the tape and are gone in a nanosecond in a market where a company’s entire outstanding shares can change hands in an afternoon. A short is different from other trades in only one respect: Ironically, it creates a legal obligation to buy the shares in the future regardless of price. Robinhood might have explained all this to its customers…

“It might have explained that Wall Street, by and large, is not playing three-card monte. Its big paydays, as well as its big losses, come from its real business of mining valuable information. Market bubbles based on information-less trading, like the one that drove GameStop from $18 to $483 in a few weeks, may seize center stage for a moment. But Wall Street’s information regime reasserts itself eventually. Only the Federal Reserve has enough money to detach prices from underlying realities indefinitely… With a few explanations, Robinhood might have saved its customers some big losses.”
Holman W. Jenkins, Jr., Wall Street Journal

Others still note that “Citadel Securities pays Robinhood a sort of kickback, called payment for order flow (PFOF), that partially subsidizes Robinhood’s policy of zero retail commissions on trading. Customers don’t see the cost of their trade, but a recent settlement Robinhood entered into with the Securities and Exchange Commission (SEC) over misrepresentations by Robinhood about these hidden costs is a reminder that there is no free lunch in retail trading…

“Robinhood’s CEO told Andrew Ross Sorkin that they made the decision to restrict buying in certain names to ‘protect the firm and protect our customers.’ While Citadel Securities pays Robinhood hundreds of millions of dollars for order flow, and their customers pay nothing to trade, the question will always remain: To whom was he referring when he said he was ‘protecting our customers’?…

“Beyond the specifics of the GameStop/Robinhood affair, [Congressional] hearings will show that practices like payment for order flow and rebates are rocket fuel for the structural conflicts of interest that exist here.”
J.W. Verret, The Hill