OK, so—a group of individual investors collaborated via a Reddit message board to drive up the price of stock issued by the video game retailer GameStop. They did so in part because they were aware that a number of hedge funds had “shorted” GameStop, essentially betting that the company’s stock price would fall. Hit hard when it rose instead, one such fund, Melvin Capital, got an emergency backstop investment from another, Citadel LLC.
And then, on another track, there’s an app called Robinhood, which carries out trades on behalf of individual investors, including many of those who’ve been driving the surge in GameStop’s price. Robinhood carries out those trades by routing them to other firms to execute in the actual relevant market (i.e., a computer somewhere). One of the firms that does that for Robinhood, and in fact pays Robinhood for the privilege, is Citadel Securities. Citadel Securities and Citadel LLC are both owned by the same megabillionaire.
On Thursday, Robinhood limited the amount of GameStop stock its users could trade. Some of these users immediately aired their suspicions that it had done so in order to protect Melvin Capital—and thus the Citadel family of companies, from which Robinhood derives major income—from losing even more money. There is credible reporting to suggest that this isn’t true and that Robinhood suspended GameStop trading for the legitimate reason that it didn’t have enough cash to handle the massive volume of transactions going on; either way, the Securities and Exchange Commission says it’s going to look into the matter.
Regardless of the outcome of this particular case, the GameStop/Reddit fracas has put the issue of market manipulation—of what organized financial speculation should and shouldn’t be legal—on the Biden administration’s radar. One of the individuals who would be expected to weigh in on that subject is Treasury Secretary Janet Yellen. Complicating the issue, though, is that Yellen has been paid $7.2 million in speaking fees since 2019 by a long list of corporations, including many major banks and investment firms. One of them is Citadel—her disclosure form doesn’t distinguish between Citadel Securities and Citadel LLC—from which she got $810,000 for two speeches and a series of “webinars.”
As the New York Times’ Ken Vogel notes, Yellen could stay on the legal and formal up-and-up by either asking the White House for an ethics waiver to discuss Citadel or recusing herself from internal conversations that touched on the company. (The SEC, for the record, is not part of Treasury.) This, however, raises the question: What’s the use of having a treasury secretary who has to be recused or excused from discussions of half the firms on Wall Street?
Yellen’s defenders would say that she proved as chair of the Federal Reserve that she will make decisions that run contrary to the financial interests of big banks and that one-off speaking payments don’t give her any continuing incentive to care about, say, whether Citadel makes back its Melvin Capital investment. (Fees aside, it is true that many progressive Democrats trust Yellen’s judgment.) On the other hand, companies like Citadel—or Citi, which paid Yellen $1 million for nine speeches—likely didn’t do so purely to have access to her insight. (She also gave speeches and did interviews that were publicly available for free.)
They likely did it, rather, because they thought it could end up making an important decision-maker more accessible to them, and more sympathetic to their concerns, even if only subconsciously. The point of ethics rules—and of concepts like “conflict of interest” and “appearance of conflict of interest”—is that no one can know for sure what’s in a decision-maker’s heart as they make decisions. Possibly even the decision-maker doesn’t know! But it’s easier to be neutral toward someone if they haven’t given you six or seven figures’ worth of money for talking to them a few times.
Are ticked-off Robinhood users and GameStop investors going to trust that Yellen is giving Joe Biden good advice about their grievances? Are voters in general going to trust that she is thinking about their lives and financial situations, rather than the people she knows at Citi, Magellan Financial Group, UBS, WealthVest, ING, PricewaterhouseCoopers, Credit Suisse, BNP Paribas, PIMCO, Bank of America, Barclays, Prudential Global Investment Management, Google, Stifel Financial, Goldman Sachs, Daiwa Securities, and Deloitte, in a crisis? Janet Yellen may be a straight shooter of impeccable integrity, but these kinds of questions were a real problem for the Obama administration, both practically and politically, in its response to the 2008 collapse. (A number of people on Obama’s economics team went on to work for firms that had benefited from bailouts.) They were real problems for Hillary Clinton, who’d given top-dollar speeches to Goldman Sachs, during her primary campaign against Bernie Sanders and her general election campaign against Donald Trump. At some point, you’d imagine that leading Democrats would decide that the viability of their careers and their party was more important than bumping themselves into the top of the top 1 percent every time they left public service. But you’d just have to imagine it, because it hasn’t happened yet.