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What Reddit vigilantes get wrong about the 2008 financial crisis

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Yahoo Finance's Rick Newman joins Kristin Myers to break down what he thinks the investors driving the GameStock rally got wrong about the 2008 financial crisis.

Video Transcript

KRISTIN MYERS: One last quick check of the markets-- all the major indices are in the green, rallying after that sell-off we had seen last week of a frenzy fueled by Reddit-based trade. So I want to talk more about that because we talk a lot about how beneath the Reddit-fueled surges and with what happened in the market, there is that classic class and wealth struggle that is ongoing. So we have Yahoo Finance's Rick Newman here, who says that their anger is a little bit misplaced. So Rick, what do you mean by that?

RICK NEWMAN: Well, they're going after two groups of people, at least if you read the, you know, the comments about what's kind of animating these trades. They're going after short-sellers, and they want to punish hedge funds. And there's a connection on Wall Street bets, the Reddit, the sub-Reddit, and other forums where people are talking about this. People are still angry about the 2008 financial crash.

Thing is, of all the groups that contributed to the financial crash, hedge funds really didn't, and short-sellers really didn't. I covered the crash, and I've gone back and started rereading some of the history. And look, a lot of the investment banks-- we remember the names-- Merrill Lynch, Bear Stearns, Lehman Brothers, Citigroup, many others, they fueled the crisis. The rating agencies, Moody's and Standard and Poor's, they had a role. Fannie Mae, Freddie Mac-- They? Had a role. Many others did.

But hedge funds did not, and there was even some research by the Rand Corporation in 2012 that looked at this exact question-- did hedge funds and short-sellers play a role in the financial crash? And for the most part, they did not. Now I'm not an apologist for hedge funds and short-sellers. I'm just trying to get the history right here.

KRISTIN MYERS: [LAUGHS] OK, so then, who should they be angry at? Or perhaps should they be angry at them, but have nothing to do with the 2008 financial crisis? Because I think that there could be a lot of folks that say, hey, my anger isn't misplaced. Perhaps I got the history wrong. But my anger is absolutely well-founded. I'm tired of being the little guy and seeing the wealthy continue to get richer, especially throughout the pandemic.

RICK NEWMAN: That's fine. I mean, you can be angry at Wall Street writ large. I mean, it's clear that-- I mean, we have massive wealth and income inequality in the United States. And it's probably getting worse. I mean, I can understand why people don't like short-sellers. They do play an important role in the market. They often uncover fraud and mismanagement. But some people think they're just trying to force companies to fail. And I get that.

I just think it's important to get the history right. So let's know who we're talking about. You can be angry at hedge funds and short-sellers. But guess what company got the biggest bailout that was not paid back from those big bailouts? It wasn't even a bank. It was General Motors, which ended up settling with the government at an $11 billion loss to the government. All the big banks that didn't fail that got bailouts, they paid that money back with interest.

And those bailouts ended up being profitable for the government. The government made $110 billion on those bailouts, but people are still angry about the bailouts and just angry at Wall Street in general. So I'm not going to tell people don't be angry. I'm just going to say, let's get the history right.

KRISTIN MYERS: I was going to say, you can't tell anyone not to be angry, Rick. You're, like, our lead-- you're, like, our chief anger correspondent. GM up over 1%--

RICK NEWMAN: Yeah, just know what you're angry about.

KRISTIN MYERS: Thanks so much, Rick.