U.S. Government Prepares to Crack Down on Wall Street

The GameStop Corp. (NYSE: GME) short squeeze appears to be settling down after many online brokerages restricted their clients’ ability to open new positions in the stock.

AMC Entertainment Holdings, Inc. (NYSE: AMC), BlackBerry Limited (NYSE: BB), Nokia Corporation (NYSE: NOK), and Koss Corporation (NASDAQ: KOSS) were also among the stocks targeted for restrictions by retail brokerage firms.

GME which peaked above $500 in pre-market trading Thursday morning, closed under $200.

What started as a battle between the buyers on Reddit’s WallStreetBets and short sellers at several Wall Street hedge funds turned into an all-out war.

The brokerage restrictions appeared to be Wall Street’s response to the retail assault. Critics of the restrictions quickly pointed out the restrictions favor short sellers since shareholders could only sell and not buy more. Buying drives a stock price up and selling drives it down.

In comments made to CNBC, Democratic Senator Elizabeth Warren was skeptical that the players had stayed the same throughout the ordeal. “How do you know who’s manipulating the stock at this point?” she said.

Senator Warren called on the SEC to get involved immediately. “To have a healthy stock market, you’ve got to have a cop on the beat,” she said.

When the popular trading app Robinhood decided to restrict the trading of certain stocks, there was a bipartisan foul cry.

Progressive Democrat Congresswoman Alexandria Ocasio-Cortez tweeted that the action was “unacceptable” and pointed out it was unfair because “hedge funds are freely able to trade the stock” while individuals were not. She also called for a hearing into the matter. In a rare moment of unity, Conservative Republican Senator Ted Cruz retweeted it, adding, “fully agree.”

The Biden administration has been relatively quiet on the issue so far. Stating on Wednesday that they were “monitoring” the situation.

Depending on the action of the SEC and Congress, there could be a fundamental shift in the way individual retail traders and investors interact with the stock market in the coming weeks.

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