Washington politicians can't decide who they like least in the GameStop saga

The ongoing battle between online retail investors and the Wall Street establishment is still unfolding while the question of what Washington is actually going to do about it appears to be a good ways off.

Congress is still organizing hearings and the Securities and Exchange Commission is “closely monitoring” the issue as it awaits a confirmation hearing for its new permanent leader.

“It seems to me all issues are on the table,” said Chester Spatt, a former SEC chief economist, of the possible Washington responses in a Yahoo Finance interview on Monday. “First, we have to let the SEC staff do an autopsy, and only later should lawmakers be debating possible changes in the regulatory framework.”

What Washington hasn’t waited on is finding people to blame. The targets have included pretty much every side of the ongoing saga and cut across partisan lines.

A running list of the villains so far:

Robinhood

The stock trading platform Robinhood put itself in the crosshairs last week when the company responded to stock price swings around GameStop (GME) by restricting trading for a time.

Other brokerages took similar actions, but Robinhood became the focal point. Criticism of the company led to the most jarring political bedfellows moment of the story so far, when Rep. Alexandria Ocasio-Cortez (D., N.Y.) went after the company and Sen. Ted Cruz (R., Texas) agreed with her.

It didn’t go well and the two clearly aren’t going to be working together anytime soon, but the exchange showed Robinhood as a bipartisan enemy.

Attorney General of Texas Ken Paxton, who recently tried to help Donald Trump’s baseless effort to overturn the election, issued Civil Investigative Demands around the decision to suspend trading in certain stocks. New York Attorney General Letitia James (who has called Paxton’s election efforts “ridiculous”) is also reviewing the issue.

Robinhood CEO Vlad Tenev said that the move didn’t stem from any political pressure (or pressure from hedge funds), but was instead “entirely about market dynamics and clearinghouse deposit requirements as per regulations.”

Hedge funds (and the short sellers they employ)

Hedge fund Melvin Capital publicly shorted GameStop and then proceeded to lose billions on that bet. Meanwhile, another fund, Citadel, has been more top of mind to some politicians. Citadel injected more than $2 billion into Melvin and is also linked to Janet Yellen.

Citadelshows up multiple times on Yellen’s recent ethics disclosure form after paying her for speeches in recent years. The point was called out by Donald Trump Jr., who called for a Congressional investigation into the company and the Treasury Secretary.

There was also plenty of bipartisan criticism for hedge funds.

In announcing her upcoming hearings, House Financial Service Committee Chairwoman Maxine Waters (D., Calif.) called out the “predatory conduct” of hedge funds with a focus on short sellers and “funds engaging in vulture strategies that hurt workers.” During a Yahoo Finance appearance last week, a finance expert made the politically unpopular case that perhaps what is needed is more short-selling.

During a broadcast on the gaming platform Twitch, Ocasio-Cortez piled on hedge funds and discussed the initial feeling last week that people were “finally able to collectively organize and get back at the folks who historically had all the marbles on Wall Street.”

The ‘Wall Street system’ and other tangentially-related financial activity

Some lawmakers are using the GameStop story to highlight other financial practices they don’t like.

In a CNN interview over the weekend, Sen. Elizabeth Warren (D., Mass.) repeatedly turned to focus on stock buybacks, a controversial practice when a company uses its own funds to purchase shares of its stock. But buybacks don’t appear to have played a role in GameStop’s volatility or in any of the other targeted companies.

Warren said Wall Street figures “have been doing all kinds of market manipulation, pump and dump, companies that buy back shares of their own stock, so that they can inflate stock prices,” as part of her call for new financial rules.

Warren has argued against stock buybacks for years, including during her recent run for president.

Another long-term Democratic objective that’s come up in the wake of the current scandal is the push for a financial transaction tax. The effort, which would impose a small tax every time an equity is traded, has been led for years by Sen. Bernie Sanders (I., Vt.) and was also an issue in the 2020 race. In late February, all of the 8 Democratic candidates in the race at the time were in favor of a financial transaction tax or at least open to the idea.

In an appearance on Yahoo Finance Monday, Rep. Patrick McHenry (R., N.C.), the Republican ranking member on the House Financial Services committee, said that part of Washington’s response to the crisis should be allowing more employees to have equity in the companies that they work for, both full-time and gig workers. McHenry also criticized the Democratic push for a financial transaction tax, saying it would hurt people saving for retirement.

Incoming Senate Banking Committee Chairman Sen. Sherrod Brown (D., Ohio) announced his own hearing on the issue, noting it would be focused on the “Wall Street system.”

The traders

The retail traders themselves who have shaken up Wall Street in the past week have a bit more complicated relationship with leading politicians.

Dave Portnoy, the founder of Barstool Sports, has been called the voice of these so-called Robinhood traders.He was quite friendly with the Donald Trump White House and interviewed then-President Trump last year at the White House.

And so perhaps predictably, a few far-right figures like Rep. Lauren Boebert (R., Colo.), known mostly for her desire to carry a gun on the House floor, and Newt Gingrich have offered populist messages in support. Boebert said that private investors “beat them at their own game,” while Gingrich told the New York Times that what we are seeing is “the little guys and gals are getting together and going after the bigs.”

Sen. Josh Hawley (R., Mo.) has also voiced his support. “Get ready to be told that retail investors are the problem,” he wrote recently. (Hawley faced calls to resign following his role in the events of Jan. 6.)

The political alliances are messy here as well. Some Democratic politicians – like Warren and Ocasio-Cortez – have praised the traders for trying to stick it to Wall Street, but have notably made sure to keep their distance from the traders themselves.

“We actually don't know who all the players are in this, whether there is big money on both sides,” Warren said on Sunday, while calling for an SEC investigation. Ocasio-Cortez also discussed the possibility of “larger actors” being behind the stock surges during her Twitch broadcast.

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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