Naked Short selling

eamonnm79

http://economicedge.blogspot.com/2009/05/naked-short-selling-redefining-systemic.html

This is a very well put together but scary video.

It aledges a level of blatent corruption that would make FF blush.

TheInquisitor

I recently finished my Final Year Thesis on short selling. I am very anti regulation except in the case of things i classify as a danger to the financial stability of companies and the stock market and this definitely is among those. Normal short selling is an integral part of any stock market but naked short selling is ruthless

eamonnm79

TheInquisitor wrote: »

I recently finished my Final Year Thesis on short selling. I am very anti regulation except in the case of things i classify as a danger to the financial stability of companies and the stock market and this definitely is among those. Normal short selling is an integral part of any stock market but naked short selling is ruthless

a
But many of the same people who are involved in short selling are involved in naked short selling too. Making money is much more important to these guys than doing the right thing. Thats why very heavy levels of regulation are the only way keep these people on the level.

nesf

eamonnm79 wrote: »

a
But many of the same people who are involved in short selling are involved in naked short selling too. Making money is much more important to these guys than doing the right thing. Thats why very heavy levels of regulation are the only way keep these people on the level.

Naked shorting is far more open to abuse than normal shorting of shares. A seriously problem is this:

Naked shortselling can potentially create a larger group of sellers than there are actual shares available for sale. This grossly distorts the market for the shares in question and can lead to panic selling based on "fake" market signals. With normal shorting this cannot happen as the seller has to either own or have guaranteed access to buy a particular share in order to short it, thus limiting the size of the amount of shares that can be shorted to those actually available for sale, which accurately represents the real sentiment towards the share (i.e. those who have bought and are holding will make up a percentage of shares that are unavailable for shorting and this proportion can be very large).

eamonnm79

nesf wrote: »

Naked shorting is far more open to abuse than normal shorting of shares. A seriously problem is this:

Naked shortselling can potentially create a larger group of sellers than there are actual shares available for sale. This grossly distorts the market for the shares in question and can lead to panic selling based on "fake" market signals. With normal shorting this cannot happen as the seller has to either own or have guaranteed access to buy a particular share in order to short it, thus limiting the size of the amount of shares that can be shorted to those actually available for sale, which accurately represents the real sentiment towards the share (i.e. those who have bought and are holding will make up a percentage of shares that are unavailable for shorting and this proportion can be very large).

I know there is a difference between short selling and naked short selling. My point was that some people are involved in both.

In my opinion short selling should be made illegal. Full stop. However if its not they need to have very harsh implemented penalties for people who involve themselves in Naked short selling.

daveirl

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eamonnm79

daveirl wrote: »

This post has been deleted.

Why?

Every thing you sad after this seemed like good reasons to ban it.

nesf

eamonnm79 wrote: »

Every thing you sad after this seemed like good reasons to ban it.

Could you expand on this? I didn't see anything in daveirl's post to recommend a ban on normal short selling.

daveirl

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eamonnm79

nesf wrote: »

Could you expand on this? I didn't see anything in daveirl's post to recommend a ban on normal short selling.

I didnt say he recommended it. but
"Try being short a stock that's rally, then you'll know pain"
Well if you couldnt short sell there wouldnt be any pain.:)

daveirl

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silverharp

also the short has to cover , if a share or the market is in freefall, it is mostly the short that calls the bottom by caving in and buying back.

nesf

eamonnm79 wrote: »

I didnt say he recommended it. but
"Try being short a stock that's rally, then you'll know pain"
Well if you couldnt short sell there wouldnt be any pain.:)

There should be pain. Big rewards, big risk. Removing risk isn't and shouldn't be the goal; correct pricing of it is.

eamonnm79

eamonnm79 wrote: »

I didnt say he recommended it. but
"Try being short a stock that's rally, then you'll know pain"
Well if you couldnt short sell there wouldnt be any pain.:)

You know that the primary goal of any asset market is correct pricing of assets right?

canbyte

Whoa folks, some serious misinformation going on.

daveirl trots out the usual justifications for shorting but they are bogus, intended as salve for his/her conscience (what's left of it) for the damage done by shorting. Risk is not infinite, pricing is not accurate, shorters are not honest, scams exist on both sides.

Nesf said: "(i.e. those who have bought and are holding will make up a percentage of shares that are unavailable for shorting and this proportion can be very large)." Actually (and unbelievably) those owned shares are EXACTLY the shares being borrowed by shorters. Only shares held in CASH accounts can in theory not be shorted (as opposed to margin accounts), but in this sleazy world, I wouldn't really count on that protection. Shares in pension and mutual funds are most likely to be borrowed (most convenient to get at). Nesf's explanation is confusing. Go to http://www.stopshortingstocks.com/
for more info.

TheInquisitor said

"on short selling. I am very anti regulation except in the case of things i classify as a danger to the financial stability of companies ... Normal short selling is an integral part of any stock market"

You swallowed what they told you. They told you what they wanted and what they wanted, is to be part of an industry skilled in separating people from their hard earned money. Think about it - ALL shorting is detrimental to companies because ALL shorting creates a new buyer for the SAME share, which automatically depresses prices --- and increases companies' cost to raise capital or carry existing loans. You will understand this when you consider someone you care about working for such a company. Maybe their boss is a schmuck but your someone's job is real. But daveirl doesn't care and you want his shorting commissions!


Zaraba said

the primary goal of any asset market is correct pricing of assets right?

Wrong. The market was created by humans for the benefit of humans. Food markets are for food exchange. Capital markets are to raise and allocate capital -- in order to CREATE wealth, not to destroy it. That is why I concur with eamonnm79 that ALL shorting should be abolished. For those who feel similarly, here is an opportunity to do something:
http://www.petitiononline.com/shortNOT/petition.html



silverharp:

" if a share or the market is in freefall, it is mostly the short that calls the bottom by caving in and buying back"

Caving in??? LOL. Its the longs that toss in the towel, the shorts lock in profits when they buy back!

daveirl

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eamonnm79

nesf wrote: »

There should be pain. Big rewards, big risk. Removing risk isn't and shouldn't be the goal; correct pricing of it is.

Reducing risk in stocks should be a goal, in my opinion. I find myself saying this a lot lately but have we learned nothing from the crash?

Risk was underpriced in financial systems due to the increasingly high levels of leveredge in financial systems, Credit was out of control and very cheap. Short selling if priced properly should not be worth the risk.

eamonnm79

Sorry daveirl I know you make money from this but I just see short sellers as an unnessesary profit suckers who add nothing to an economy. You dont make any goods and the only service you provide is for your own personal gain. Dont get me wrong, what you do is skillfull and clever and must be a hell of a rush but its just not benificial IMHO

nesf

eamonnm79 wrote: »

Reducing risk in stocks should be a goal, in my opinion. I find myself saying this a lot lately but have we learned nothing from the crash?

Reducing net risk at bank level yes, risk at individual trade level no.

eamonnm79 wrote: »

Risk was underpriced in financial systems due to the increasingly high levels of leveredge in financial systems, Credit was out of control and very cheap.

These were the problems, not shorting.

eamonnm79 wrote: »

Short selling if priced properly should not be worth the risk.

Not at all. If a stock is heavily over valued, the risk should be quite manageable. Also, combining short and long positions reduces this risk dramatically.

daveirl

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nesf

daveirl wrote: »

This post has been deleted.

Indeed. As is, if such behaviour is happening markets can simply suspend short selling of particular stocks when they believe abuses like these are happening.

eamonnm79

nesf wrote: »

Not at all. If a stock is heavily over valued, the risk should be quite manageable. Also, combining short and long positions reduces this risk dramatically.

Yes but you then have to ask why/how could a stock be over valued?
And thats a whole other can of worms.

Is there a better way of preventing stock over valuation happening than resorting to a method that sucks profit in the direction of pure speculators.
I distinguish between investors and speculators. Short sellors are pure speculators and should not be allowed in a market.

I think speculation was a large part of the problem in the financial bubble. Oil prices up to a few months ago are a perfect example.

eamonnm79

daveirl wrote: »

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Not my pension you dont, Its 100% in Euro Government Bonds.

Seriously man do you ever just feel that what you are doing is just messing with numbers on a screen. Skimming cream off the top of other peoples milk and for some weird/messed up reason its legal.

You probobly are very good at it but even some of the people that are the best at accumulating capital in the world such George Soros and Warren Buffet are questioning the morality of it.

eamonnm79

nesf wrote: »

Reducing net risk at bank level yes, risk at individual trade level no.

risk at individual trade level x millions of individual trades = risk at bank level.

Time Magazine

Oh, it's so good to be back.

Moved from Economics.

Économiste Monétaire

Clearly the penalty for touting Keynesian philosophy is too lax... :pac:

nesf

eamonnm79 wrote: »

Yes but you then have to ask why/how could a stock be over valued?
And thats a whole other can of worms.

Is there a better way of preventing stock over valuation happening than resorting to a method that sucks profit in the direction of pure speculators.
I distinguish between investors and speculators. Short sellors are pure speculators and should not be allowed in a market.

Your first question answers your second point. It's risky and unclear when things are overvalued. Speculators provide a "service" by shorting, which is very risky. They'll only do it if there's adequate reward.

I also think the divide between investors and speculators is a false one, but that's more of a judgement call.

eamonnm79 wrote: »

risk at individual trade level x millions of individual trades = risk at bank level.

Indeed, but the way to solve this is alter how banks trade, not to try and remove risk from the system (which isn't possible I think).

canbyte

It's risky and unclear when things are overvalued. Speculators provide a "service" by shorting, which is very risky. They'll only do it if there's adequate reward.

Value is not a fixed target. Long pump & dump and short & distort are both wrong but each pulls the value one way or the other. Value is in investors' minds, but ALSO, in Lenders' minds - and when loan terms CHANGE as a RESULT, that changes the real value. My objection to shorting is not the struggle to find true value but the dishonest method of creating duplicates (without disclosure), the added supply then depressing price, etc. Soros labels this effect "reflexivity" - his amazing understanding of this in real time explains his success.

I believe the solution is to expand the options market which seems somewhat separate (doesn't increase float), thereby shielding the business (while allowing profit).

Daveirl: I fail to see what the difference is between someone who takes a long position on a possible takeover/merger or something like that and the person who takes the opposite position going short because they think no takeover/merger is coming. There are hundreds of valid uses of shorting that aren't all I fail to see what the difference is between someone who takes a long position on a possible takeover/merger or something like that and the person who takes the opposite position going short because they think no takeover/merger is coming. There are hundreds of valid uses of shorting that aren't all drilling banks down to zero to get them to go bust..

The difference Dave, is that the long trade is honest between buyer and seller, but (as above) the short trade is dishonest / surreptitious - can anyone recall being contacted to lend their shares to a shorter? But I'm glad you admit that one purpose of shorting is "drilling banks down to zero to get them to go bust".

eamonnm79: Skimming cream off the top of other peoples milk and for some weird/messed up reason its legal.

Very good description but melts no ice in shorters' hearts. Shorters think of themselves as wolves culling sick deer from the herd. The metaphor is misleading - instead of murdering the deer (businesses) directly, the wolves are (unwittingly?) ruining the food the deer depend on (peoples savings). Unlike grass, people can (and will) run away from the market ruining the game for both deer and wolves. That logic might cut a little ice with daveirl (but i'm not holding my breath! :-)

daveirl

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daveirl

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woodseb

canbyte wrote: »

I believe the solution is to expand the options market which seems somewhat separate (doesn't increase float), thereby shielding the business (while allowing profit).

if you banned shorting, the amount of speculation that would go through the options market would distort underlying prices in the same way you suggest that shorting already does.

ixus

eamonnm79 wrote: »

Not my pension you dont, Its 100% in Euro Government Bonds.

Eh, bonds can be shorted too. This would be my preference trade at the moment. Don't the short sellers actually help your pension then, allowing you to buy bonds cheaper and at a higher rate of interest?

If there was no one shorting bonds now, your price to purchase would be more expensive and your interest rate would be lower.

Go figure!

canbyte

Daveirl,
Shorts are vilified because of what our mothers taught us:
Be honest, don't steal, don't be greedy, don't rain on another's parade, live and let live, be positive, don't ruin your toys, don't be a bully, walk away, etc.
*The honesty issue is covered above (duplication, transparency).
*Capitalism accepts the need for greed as a motivating force but ordinary people are not capitalists. They only understand their mother's teachings. And they know they are getting screwed (ie pensions which never used to invest in stocks). This brings me to the argument that i hope will resonate with you - that the savings of ordinary people form the base of the pyramid, the grass feeding the deer. Even a capitalist can appreciate that damaging the trust/ savings of the common people will diminish everyone's ability to create wealth. Takes decades to recover.
* Fairness - aside from immoral scams (pump and dump), the playing field seems tilted to favour destruction not creation. I was shorting some years back but this aspect always bothered me. Other shorters seemed to overcome their scruples by assuming their target was always dishonest and running a scam. Any evidence of financial problems, inadequate processes, late disclosure, etc was taken to be proof of scam. What if it is only proof of incompetence, inadequacy, mistakes, stupidity or even greed? Should i hasten the demise of someone's dream, effort, hope, ambition just because they are human enough to make such mistakes? Don't we all make mistakes?
* reflexivity effect - longs are more or less passive. Shorters actively (through duplication) create the conditions (price drop) for their own success.
* all businesses hate shorters because 1. duplication increases the float - if more than the float shows up at the agm, voting can change unexpectedly and 2) shorters' price suppression can undermine business viability through changes in lending conditions (=reflexivity, unfairness)
*Someone's job depends on the person/ business being shorted. There are more employees than there are market traders & we live in a democracy!

Hope that helps - don't take it personal

daveirl

This post has been deleted.

Idu

canbyte wrote: »

Daveirl,
Shorts are vilified because of what our mothers taught us:
Be honest, don't steal, don't be greedy, don't rain on another's parade, live and let live, be positive, don't ruin your toys, don't be a bully, walk away, etc.
*The honesty issue is covered above (duplication, transparency).
*Capitalism accepts the need for greed as a motivating force but ordinary people are not capitalists. They only understand their mother's teachings. And they know they are getting screwed (ie pensions which never used to invest in stocks). This brings me to the argument that i hope will resonate with you - that the savings of ordinary people form the base of the pyramid, the grass feeding the deer. Even a capitalist can appreciate that damaging the trust/ savings of the common people will diminish everyone's ability to create wealth. Takes decades to recover.
* Fairness - aside from immoral scams (pump and dump), the playing field seems tilted to favour destruction not creation. I was shorting some years back but this aspect always bothered me. Other shorters seemed to overcome their scruples by assuming their target was always dishonest and running a scam. Any evidence of financial problems, inadequate processes, late disclosure, etc was taken to be proof of scam. What if it is only proof of incompetence, inadequacy, mistakes, stupidity or even greed? Should i hasten the demise of someone's dream, effort, hope, ambition just because they are human enough to make such mistakes? Don't we all make mistakes?
* reflexivity effect - longs are more or less passive. Shorters actively (through duplication) create the conditions (price drop) for their own success.
* all businesses hate shorters because 1. duplication increases the float - if more than the float shows up at the agm, voting can change unexpectedly and 2) shorters' price suppression can undermine business viability through changes in lending conditions (=reflexivity, unfairness)
*Someone's job depends on the person/ business being shorted. There are more employees than there are market traders & we live in a democracy!

Hope that helps - don't take it personal

All these points work both sides. Longs are not the righteous side as greed works both ways. For every stock being shorted I give you an Enron, Volkswagen, Schaffler etc etc etc

canbyte

Agreed, greed works both ways but idu, it does not follow that ALL shorts are due to greed. Today, too many other reasons including simple hedging, short ETFs. But again, you divert attention from the scene of the "crime" - the duplication issue which Daveirl is at least trying to wrap his mind around. Its not easy, especially when, in theory, he may be right! Its just in practice, he isn't. ** Many AGMs report that more shares voted than were issued. Maybe we should blame the regulator instead of the shorter but in the real world, regulators are compromised and therefore this highly technical area, which cannot be policed by simple cops (no insult intended), is essentially not governable. Another reason to abolish shorting.

** Technically, i believe (but am not sure) that the rights of the borrowed share go to the new owner (called delivery). Where does that leave the unwitting lender who thought he should keep his account as a margin account for convenience? No shorter is willing to call that person to inform them of their loss of rights~. In reality he can/will still vote. I believe that it is the DTCC that somehow makes this chicanery possible. Its like musical chairs, or a magician hiding the pea under a shell. As long as things are moving, nobody can figure out where the real rights belong. Not an honest way to run a market, no?

~ some nominal owners such as pension funds often rent shares for extra income, hoping that shorters are betting wrongly. Just another reason common people will become deeply disenchanted with all the games being played with THEIR savings. When they finally break and run, you / we all will suffer. Think about it.

woodseb

canbyte wrote: »

Daveirl,
Shorts are vilified because of what our mothers taught us:
Be honest, don't steal, don't be greedy, don't rain on another's parade, live and let live, be positive, don't ruin your toys, don't be a bully, walk away, etc.
*The honesty issue is covered above (duplication, transparency).
*Capitalism accepts the need for greed as a motivating force but ordinary people are not capitalists. They only understand their mother's teachings. And they know they are getting screwed (ie pensions which never used to invest in stocks). Since when were pensions not invested in stocks
This brings me to the argument that i hope will resonate with you - that the savings of ordinary people form the base of the pyramid, the grass feeding the deer. Even a capitalist can appreciate that damaging the trust/ savings of the common people will diminish everyone's ability to create wealth. Takes decades to recover.
* Fairness - aside from immoral scams (pump and dump), the playing field seems tilted to favour destruction not creation. I was shorting some years back but this aspect always bothered me. Other shorters seemed to overcome their scruples by assuming their target was always dishonest and running a scam. Any evidence of financial problems, inadequate processes, late disclosure, etc was taken to be proof of scam. What if it is only proof of incompetence, inadequacy, mistakes, stupidity or even greed? Should i hasten the demise of someone's dream, effort, hope, ambition just because they are human enough to make such mistakes? Don't we all make mistakes? Big corporations that are traded publically are not little mom and pop operations that have their dreams ruined by the nastly short sellers - they hold themselves up to the scrutiny that the market provides. Every body makes mistakes, that is true but if you don't punish mistakes, companies won't alter their behavior - do the banks not deserve to be punished for their bad investments which destroyed profits and investor returns
* reflexivity effect - longs are more or less passive. Shorters actively (through duplication) create the conditions (price drop) for their own success. longs are mainly passive, but there is much active longs as active shorts at certain times in the market
* all businesses hate shorters because 1. duplication increases the float - if more than the float shows up at the agm, voting can change unexpectedly and 2) shorters' price suppression can undermine business viability through changes in lending conditions (=reflexivity, unfairness)
*Someone's job depends on the person/ business being shorted. There are more employees than there are market traders & we live in a democracy!

Hope that helps - don't take it personal

you seem to have a problem with capitalism not shorting, how about you move to cuba

(i'm still not sure if you not on a wind up though)

Idu

woodseb wrote: »

you seem to have a problem with capitalism not shorting, how about you move to cuba

(i'm still not sure if you not on a wind up though)

What he said

Why exactly are all longs not due to greed?

eamonnm79

daveirl wrote: »

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Dave to be honest, I can see it from your point of view.
You have a skill that allows you to accumulate capital. Its up to legistlators to keep clever guys like yourself in check. If you dont do it someone else will.
But when financial institutions spend billions on lobbiests in washington, they do it for reasons that are other than virtious. I do find it kinda funny that most traders, because they are very smart, realise the moral hazard in what they do but they park it.
As Finbar Flood Former head of the LRC and Guinness said to some of us at a talk he gave re corporate responsabilty "well all I can tell you is that I have to shave in the mornings and I need look at myself in the mirror"

eamonnm79

ixus wrote: »

Eh, bonds can be shorted too. This would be my preference trade at the moment. Don't the short sellers actually help your pension then, allowing you to buy bonds cheaper and at a higher rate of interest?

If there was no one shorting bonds now, your price to purchase would be more expensive and your interest rate would be lower.

Go figure!

I didnt know that. Can you short cash? There is a cash option in my pension fund.

daveirl

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rugbyman

two simple questions on shorting, for info.

1 If shorting is perfectly ok why did governments ban it for a while some months ago/

2 why would the owner ,say a pension fund, loan its shares to a shorter whose plan was to drive down/or simply benefit from a fall and thus reduce the value of the shares it loaned, except as Canbyte suggests that they loan to unsuccesssful shorters for a fee.

Rugbyman

daveirl

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eamonnm79

"Firstly, shorting was never banned really. In some countries shorting financials was banned. It's still banned in Ireland. It came into force in September during the market panic as the mistaken belief was that things were falling due to shorts. Instead they banned it and stocks continued to make new lows."

The bear sterns collapse and the lehmans brothers collapse are both directly attributable to Naked shorting. They couldnt ban naked shorting (it was already supposed to be illegal) so they banned shorting.

There have been over 5 thousand complaints of naked shorting made to the SEC but not one prosecution.

HedgeHogging

I am not a regular poster here but some of the misinformation in this thread is incredible. Why Daveirl has to defend himself is beyond me? His point on the Porsche/VW saga alone should put to bed most of the arguments for what can happen in a long only world.
First, TheInquistor what are you talking about? You should ban naked short selling because it is “ruthless”. This is absurd. Would you regulate everything in the market that is ruthless in your eyes? If you knew how markets worked, even the Credit Unions would be gone I’d say.
Eamonnm79: You implied that shorters are more interested in making money than doing the right thing? What do you mean by that? I’d love to know what this “right thing” is.
Furthermore, in a world of conflicting interests in investment banking, opaque transparency and lax auditing standards, it is very important for investors to be able to cover themselves in every way possible. Let us be honest here, the cards are stacked against us.
Here is an example: Are you trying to say that the dotcom bubble was good for everyone involved? Crap companies, with negative cash flows, trading at 80 times earnings, and their price going through the roof with minimal resistance. An Irish example is Baltimore Technologies. How is that the right thing? Ask the staff there about their overvalued stock now? I am sure they would be delighted to hear your long only argument. Shorting attempts to allow the market to reach a consensus that a company is overvalued. While this does not always necessarily work, it can definitely help reduce severe overvaluations and growth bubbles.
I would advise anyone who subscribes to the long only perspective to read Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay. It may be 200 years old but is still highly relevant today. You also suggest that short sellers are “unnecessary profit suckers who add nothing to an economy” does not hold especially in the context of what would happen if short sellers were removed. E.g. imagine the glee of option laden managers of companies whose shares encounter no resistance. Their sole focus would be on improving share price not the company. Once the strike price of their options is met, they are going to get rich either way. Would this be more beneficial to the economy?
Also, George Soros questioned the shorting of shares when in freefall and the removal of the uptick rule. He did not question short selling. He made his career of it. Read The Alchemy of Finance.
On the Lehman question, there is no doubt but that shorting played a part in its collapse. However, equally as important to its demise was Dick Fuld’s arrogance. Should we ban hubris in the workplace too?
Canbyte: I am afraid I do not see the point in reply to your ridiculous posts because you clearly have a very distorted, bitter and incorrect view on capital markets and the world in general. As woodseb said, move to Cuba although I believe Raul is trying to free markets there too.
Finally, Victor Niderhoffer gives a fascinating insight into the many cases in which he became a victim of shortselling in a variety of assets in both books. (The Education of a Speculator and Practical Speculation) These are both well worth a read as considering he has been squeezed so badly yet still justifies its existence. Neiderhoffer used to work under Soros and was the world’s most successful CTA manager for a number of years and still blew up twice.
Viva la shorts!!

canbyte

Question for all:

It's [shorting] still banned in Ireland.

--and Greece, Korea and others. Has anyone heard that these economies are suddenly suffering as a result of the ban? Hedgehoging, who says you can't live in a long only world, apparently has been! The old expression says "if it ain't broke, don't fix it". So why end the ban now? Oh, wait ... eamonnm79 has the answer..

." when financial institutions spend billions on lobbiests in washington, they do it for reasons that are other than virtious."

Of course .. . . . with this nice rally, brokers are salivating to get those extra shorting commissions, and shorters those profits as all stocks are driven to the basement again. Next time there may be no return from the dead. Yes, i can hear daveirl & Hedgehog now, gleeful anticipation of all those soup lines forming, pensioners out on the street, homes forclosed, desperate bodies selling themselves, which daveirl / Hedgehog will be glad to snap up with all those ill gotten gains from the upcoming shortfest. Yummm. But of course, shorters only throw mud at me, calling me ridiculous - but no actual reason. They never dear reader, answer the questions raised, or deal with the moral issues involved. They just keep shouting their platitudes about risk, price discovery etc. Perhaps Hedgehog said it best: "Let us be honest here, the cards are stacked against us. ". Indeed, duplicates stacked to the sky by the shorters!

People who lend shares know they are doing it, you really don't seem to understand this. A pension fund, an ETF or whatever who don't care about the voting rights lend the stock for a fee. None of the stock you own will ever be lent. Nowadays it's getting tougher and tougher to get a borrow with lots of lenders refusing to give a borrow.

Great to see the lenders wising up but daveirl, you might be right in your neck of the woods but having just checked my own accounts on this, i can tell you that any stock in a margin account (here) can be borrowed without special notification. Hence my feeling is that shorters hide behind a legal veil of fine print.

And, may i ask, why would pension funds not care about voting rights or about the viability of their beneficiaries' nest egg per Rugbyman's Q? Your answer that its about fees rings a bit hollow and exposes the duplicity of the system in general - fund managers in general do not care about their clients' welfare, only about beating the index, since that is their advertising gimmick. Gee, the manager made 5% in lending fees but lost 95% when shorters drove the company under. People, wake up, listen up. Your pensions are under attack by shorters. Hedgehogging says its ok!

Ah well, he also admitted:

On the Lehman question, there is no doubt but that shorting played a part in its collapse.

Thank you hedgehogging, we are debating how shorting has a destructive effect, not the role of Fuld’s arrogance. There is always some problem, some mistake but shorters always make things worse, they exacerbate the downside. At a time like this, the rest of us do not need worse. But you no doubt, welcome it.

Also I love the way you say abolish shorting because regulators are compromised. Who exactly is going to regulate it then.

A. The ban seems to be working. Not complicated when its banned outright. Very complicated to separate naked from legal shorting. Shoot them all, let God sort them out!

Woodseb:

Since when were pensions not invested in stocks

A. In my father's day, at least in his jurisdiction, pension funds were not allowed to own stocks. Bonds only. I have a vague memory from my youth of a debate on this. I could be mistaken but its not germane to this debate.

Big corporations that are traded publicly are not little mom and pop operations that have their dreams ruined by the nasty short sellers - they hold themselves up to the scrutiny that the market provides. Every body makes mistakes, that is true but if you don't punish mistakes, companies won't alter their behavior - do the banks not deserve to be punished for their bad investments which destroyed profits and investor returns

I'll never object to punishing banksters when they transgress but you fail to see the reflexivity of the situation and you fail (like daveirl) to activate any moral compass at all. First, many public companies are indeed tiny affairs trying to get an idea off the ground. Very wobbly, too weak to withstand a bear raid. Just because you get rich off their sweat, what social benefit comes of killing their little dream? Second, hate to be a broken record, but that duplication is itself immoral, just like counterfeit. I guess i wasn't too clear when you quoted me:

longs are mainly passive, but there's asmuch active longs as active shorts at certain times in the market

I had meant to characterize a simple buy/hold as passive and yes i know, some longs do get involved with the business as active investors. Poor wording - i had meant yet again to highlight the fact that shorters CREATE A DUPLICATE, which longs cannot do.

you seem to have a problem with capitalism not shorting, how about you move to cuba

. I have a problem with the deregulated status quo of capitalism, not capitalism itself. Capitalism, a human construct, is about CREATING wealth not destroying it. Never been to Cuba but maybe you should visit your forger/ counterfeiter friends in whatever prison they end up in! Birds of a feather.......

But blimey, daveirl seems whiney
'bout all the vilification he receives

Hence I don't understand why people get upset when people want to take that risk on and short stocks.

LOL. He thinks he should be treated as a hero, not as a bum.
Methinks he's like those old delivery horses what could only do their jobs with blinders on! But maybe eamonnm79 is right:

most traders, because they are very smart, realize the moral hazard in what they do, but they park it.

What say you, daveirl? Are you very smart, smart enough to realize the moral hazard in what you do?

ixus

eamonnm79 wrote: »

I didnt know that. Can you short cash? There is a cash option in my pension fund.

Yes. You can short anything. For cash, some options would be to be long gold or TIPS. If you're money is in euro and you think it will lose value against the dollar, you buy dollars. Effectively, you're hedging/shorting your cash reserves against your income.

Taleb of Black Swan fame recently said he was 200% in cash. How do you think that could be?

woodseb

Here's a question: how would the irish property market have performed if investors had the ability to short assets they thought were overpriced?

btw you've basically questioned the morality and honesty of a lot of posters here, if you think shorting is immoral, fair enough but don't try to justify it by the weak arguements you've put above or by insulting others

daveirl

This post has been deleted.

canbyte

woodseb wrote: »

Here's a question: how would the irish property market have performed if investors had the ability to short assets they thought were overpriced?

btw you've basically questioned the morality and honesty of a lot of posters here, if you think shorting is immoral, fair enough but don't try to justify it by the weak arguements you've put above or by insulting others

Your question is interesting in that there is a recent effort, i think down under, that is developing some kind of financial instrument so folks can do just that. As to the price response, in theory per my earlier post, I believe large/naked shorters feed duplicates into the market after an initial rise, during a period called consolidation. When they quit, having sensed most buyers are "all in", or to avoid incurring the attention of regulators, they stop the feed, price rises in a last peak, then collapses as all those extra owners try to find the exit. Jimho.

As to your next point LOL. Or as you young folks put it, ROFLMAO. I'm sure you are young since you (and daveirl) seem unable to distinguish between questioning the personal honesty of a poster and the systemic/ procedural honesty of the process, which indeed i do and to which neither you nor daveirl have EVER responded to, other than trying to label me as ridiculous, etc. This being the case, yes indeed i do question the morality of both of you and what, if not that, is the point of this entire thread -- to debate the morality of the process of shorting, the intention of shorters and the effect of shorting. Only Hedgehogging attempted to confront this issue and made some good points but again left off when it came to my own observations.

I started this exercise last September, to understand this piece of the puzzle that caused the meltdown and what should be done about it. I did not ask you or anyone what to think, even Charles Mackay. I came to my conclusion independently using my own logic. I suspect that is why you cannot and will not refute or even engage with it. It is challenging you in unfamiliar ways, probably you have never even thought about the duplication issue. So you just label it ridiculous, weak etc.! Well, i rest my case. I believe time will bear me out and when the ugly truth emerges after the second wave down, millions of unemployed will be in the street and after blood - yours and other shorters who may well succeed in bringing many economies to a standstill. Take care.

I am just happy to have put my thoughts on the record and to watch you morally defective shorters grope for an answer.

Idu

canbyte wrote: »

Well, i rest my case. I believe time will bear me out and when the ugly truth emerges after the second wave down, millions of unemployed will be in the street and after blood - yours and other shorters who may well succeed in bringing many economies to a standstill. Take care.

Your hyperbole and condecending tone make it very difficult to take anything you say seriously - not that I agree with you anyway. You've obviously made up your mind and have no interest in a rational debate so why bother anymore. I'll meet you in the streets when you and your communist friends start this supposed blood bath. Good day