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The Latest On The GameStop Stock Market Debacle

AILSA CHANG, HOST:

If you have heard anything about stocks in the past day, it was probably about how the stock of the retail chain GameStop shot up over a thousand percent, fueled by small traders who gather online. Well, today, the price went the other way when several popular platforms blocked trading of GameStop stock. They also stopped trading of other stocks that had been skyrocketing as well, which feels like a betrayal to the very investors who had been using these platforms to power their rally. Mary Childs is co-host of NPR's economics podcast Planet Money. She joins us again to explain again what the heck is going on.

Hey, Mary.

MARY CHILDS, BYLINE: Hi.

CHANG: All right. So these small-time traders were using apps like Robinhood. And just to make it clear, these platforms - they haven't been around forever, right?

CHILDS: Right. So Robinhood has only been around since 2013. And it used to be that to trade in these more complicated, high-risk investments, you had to be a sophisticated investor. That's a quote. You know, it's this kind of smug official term that means you're rich. You can afford to lose money in the market. You can get into these kind of more complicated products and take on that higher risk. But apps like Robinhood came around and got really popular in the past year and added this kind of gamification. You know, you would do a cool trade, and it's like, brring (ph), you did a trade - like confetti.

CHANG: (Laughter).

CHILDS: And you could use options. You could use these more sophisticated products that add leverage into your bets and can get complicated. So in this case, small investors started using these features to really amplify their money in the market, in these stocks.

CHANG: OK. So then Robinhood and other platforms - they shut down much of the mayhem this morning, right? What's going on here?

CHILDS: Yes. So according to Robinhood, this has all gone too far. They said in a blog post, we continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities. So that's what they did today. And to a lot of people, especially for people who want to buy more GameStop, this feels like calling the game for the big hedge funds that were objecting, right? This is...

CHANG: Yeah.

CHILDS: They limited people's ability to buy the shares, not to sell.

CHANG: Well, I mean, there are a lot of people out there who think that trading should not be easy, that the bar for getting into the market should be high. So just take us through the thinking here.

CHILDS: Yeah, that's absolutely the big question right now. Some people are saying, no, you have to protect small investors who don't understand these products. You have to help them to not lose money, right? But the other side of the argument is of course this should be democratized. People also make a ton of money with these sophisticated products. So by shutting out other investors, by shutting out retail traders from using these tools, you're depriving them of those losses, but you're also depriving them of those gains. And this is fundamentally a conversation around financial literacy, about whether retail investors should be trusted to make their own decisions. And that's a call for regulators - right? - where that line is of who to protect and how.

CHANG: OK. So by late afternoon, Robinhood had backtracked a bit and loosened their block on trading, but they did it at the end of the trading day. Meanwhile, all of these traders who gathered on Reddit - they've pledged to turn their ire on the apps. And they've shown that there is power with the people. So should apps like Robinhood be feeling really nervous right now?

CHILDS: I think they definitely are. They're very nervous right now. They're already trying to say, you know, this isn't our fault. They're blaming other companies in the ecosystem, saying that it has to do with, you know, how the trades get settled. There's already a class-action lawsuit in the works against Robinhood by some of the users with a ton of enthusiasm. So many people tried to read the complaint that it crashed the case file website for the Southern District of New York. So there's a lot of ire on the Reddit forums right now, saying, you know, we brought all of this attention to these apps. We've been trading on these apps. We've made the money. And now this is how they're treating us.

CHANG: That is Mary Childs, co-host of NPR's economics podcast Planet Money.

Thank you, Mary.

CHILDS: Thank you.

CHANG: And for a closer look and explanation of all of this, listen to tomorrow's Planet Money podcast. Transcript provided by NPR, Copyright NPR.