Hedge Funds: It is time to rid the world of these pariahs and to outlaw short selling

ircoha

The recent attacks on the Irish stock market by global hedge funds has prompted this.
http://en.wikipedia.org/wiki/Hedge_fund

This recent article is also timely.
http://www.independent.ie/opinion/columnists/tom-mcenaney/lifting-the-lid-on-short-selling-shows-its-not-quite-as-easy-as-it-seems-1312106.html

Hedge funds add no economic value to the capitalist system, instead they destroy value and therefore pose a very serious threat, in the Irish context, to the stability of the Irish financial system, including the pensions, savings and investments of thousands of private sector employees and pensioners, not just in the banks but in all companies that have pensions schemes and the members thereof.

It is quite clear, but not at all surprising, that the global regulators have failed to control these entities so it is time for the employees, pensioners and other stakeholders to have them eradicated from the share registers of legitimate publicly quoted businesses.

The public service is insured against this problem by the private sector taxpayer so is is difficult to get issues like this on their radar.

The threat posed by hedge funds now is much more serious given the move away from defined benefit {DB} pension schemes to defined contribution {DC} pension schemes.

However they still pose a massive threat to DB schemes and the continued and sustained destruction of economic value will lead, in the first instance to the DB schemes being closed to new entrants and in the later stages the failure of the schemes themselves.

For DC schemes, the closet will be empty when the hapless employee retires.

For the holders of DC pension schemes the result will be akin to what happened in Enron, where the employees and pensioners lost everything.

The ultimate irony of short selling is that the shares are normally borrowed from pension funds, the very people who's value is being destroyed.

As a starting point to what to do next, please reflect for a moment on what you existence would be like, in retirement with only the State pension to show for 40 years working in the private sector.

Would it even be an existence?

It is time to stand up to these pariahs.

The time to act is now, while the horse is still in the stable, not later.

BuffyBot

Think this is more suited to Economics tbh.

Moved

Thomas_S_Hunterson

Short selling is essential in promoting proper value and efficiency. You don't seem to know a whole lot about how the markets work.

If companies take a hammering due to being shorted, it is usually a price correction when the shares, generally speaking are deflated towards their true value.

I dread to think the kind of corruption that would be rife in the absence of short trade.

It's all well and good to live in a bubble where pension funds keep going up, and the little guy makes a few bob, but the reality is that prices can't keep going up. Because pension funds can't short, they can't profit on something on the way down, so they'll always lose money if they're still in the water when tides turn.

Thomas_S_Hunterson

ircoha wrote: »

The ultimate irony of short selling is that the shares are normally borrowed from pension funds, the very people who's value is being destroyed.

That's ridiculous. It's the fund manager that is destroying his own fund's value. He believes the asset will appreciate, the hedge fund believe it will depreciate. By lending the asset to the HF, he makes money for the pension fund. If that happens to destroy value, then the blame is on his shoulders.

silverharp

there is nothing wrong with short selling but there is a practice in the US called naked short selling where phantom shares are created for shorting purposes. It is illegal but not very well enforced.
The short seller can do the market a favor as in a severe correction they might be the only ones buying when they cover their positions.
As for hedge funds, the reason they have grown so big is that they are taking advantage of central banks manipulating interest rates to the downside. Now that the credit markets are finally tightening up, their power may diminish as leverage is reduced in the system.

daveirl

This post has been deleted.

Ekancone

How come we attract all the weirdos?

nesf

silverharp wrote: »

As for hedge funds, the reason they have grown so big is that they are taking advantage of central banks manipulating interest rates to the downside. Now that the credit markets are finally tightening up, their power may diminish as leverage is reduced in the system.

The large ones were just a rational reaction to a flood of cheap credit. Whether or not the model can survive unchanged in more complicated times will be shown over the next couple of years most likely.

daithifleming

daithifleming wrote: »

How come we attract all the weirdos?

I blame Freakonomics..

nesf

Deleted User wrote: »

I blame Freakonomics..

I blame the unfortunate correlation going on between the news and business cycles...

is_that_so

Piece from Business Post suggesting Irish banks may consider suing hedge funds.

Banks prepare for legal action against hedge funds
23 March 2008 By David Clerkin, Markets Correspondent
Irish banks are lining up with regulators in Britain and Ireland, to pursue legal action against hedge funds suspected of spreading misleading information to profit from recent stock market falls.

Market sources have identified at least four specialist hedge fund firms, based in London and the US, that are believed to have bet heavily on sharp declines in the share prices of British and Irish banks.

Regulators are expected to probe their trading patterns and any communications they may have had with other market participants to establish whether they were guilty of illegally manipulating share prices.

...

portomar

only problem with dc, index linked pensions is that the only people who get them are cotton wool wrapped public sector employees who the rest of us end up funding. outlawing short selling would actualy be outrageously hard to enforce anyway.

Minder

"My stocks went down - blame the hedge funds - My pension went down - blame the hedge funds, so hedge funds exist solely to sell short the shares and other interests of the hard working joe public and are the work of satan."

ROFLMAO