Posted on 12/16/2008 2:00:42 PM PST by CutePuppy
Edited on 12/16/2008 2:48:04 PM PST by Admin Moderator. [history]
Well, we’ve socialized risk while leaving profit private. We may as well ban the shorts and let the longs build toward another bubble that will blow up in our faces. What the hell.
The story for publication, though, has always been that his health was ''iffy'' and declined on that basis. He died some 15 months later. Fascinating guy.
I'm not a Cramer fan, and he's wrong here too. They're part of the same problem, an ineffective SEC.
Your close! These guys are financial terrorist! They just might be terrorist trying to destroy the financial system!
Short selling has its uses, e.g. “collars” and other strategies, for insurance, position protection, or to limit downside. Unfortunately, it also can be and is used more and more often as a weapon of mass destruction of capital by, “special interest groups” that may benefit economically from “man-made” / anthropogenic financial disasters.
I would not suggest getting rid of short selling, but no, market will not keep going up and become “a soft and spoiled fat pig” if short selling is reined in or even, speaking theoretically, eliminated, just because there would not be short seller benefiting from the fall in prices. I hope that is self-evident.
I don’t know about everyone else, but all of this puts a pain in my ‘shorts’. They have convinced me to stay out of the stock market forever.
How does lowering a companies stock price destroy the company?
How is it destructive? And it makes the short squeezes twice as fun : ) Naked shorts are incredibly dangerous.
you don’t want the govt to start playing around with the market. The govt should stick to fraud and enforcing contracts.
If someone shorts a stock, the company should be able to repurchase the shares at the lower price.
Amen. Succinct and to the point. Though hedge funds are not regulated anywhere near to the extent the "public" market is. Short selling is a strategy that is uniquely applied to the listed securities in regulated public markets, that's where SEC actions could have the most effect.
the real financial terrorists are the government bureaucrats who try to regulate the economy to death.
When a stock is sold short, the owner receives a fee for the transaction. In many cases, the seller will be a brokerage house, but the contracts with its clients will allow the house to sell stocks short in exchange for charging lower fees than would be required if the clients did not allow such action. As to whether the owners of stock should regard their consideration as adequate, that's a matter for them to decide.
Generally, honest short selling does not harm stockholders; while their selling price per share will likely be lower than it would have been without the short-sellers, their buying price will also have been lower. Naked short selling needs to be policed more fiercely, since it can totally disrupt a market, but honest short selling tends to be somewhat self-limiting; when short-selling pressures become too strong, shares will tend to migrate into the hands of people who won't allow them to be re-sold.
It's important to recognize that for any market to function, there must be a balance between people who want the price of something to go up and those who want it to go down. If nobody in a market wants prices to go down, prices will go up as long as people keep pushing money into the market. As soon as people stop putting money into the market, however, prices will crash to the levels they would have had in the presence of moderate downward pressure.
If I'm investing $50/month in Acme stock, I'd like for the share price to be as high as possible when I cash it in. On the other hand, I'll be much better off if the stock sits at $1/share until the day I cash it in when it soars to $5, than I will be if the stock quickly climbs to $50 and stays there until I stop buying shares and cash them all in.
Were it not for the double taxation of dividends, it would seem better for companies to reward their shareholders with dividends rather than asset appreciation; companies that wanted to expand could sell more shares (which shareholders could buy using their dividends). While a dividend-oriented market would have some risks of its own (e.g. if a company pays dividends largely from stock proceeds rather than from actual profits) I would expect it to be less prone to mania and bubbles.
>>Shouldn’t this be ‘naked’ short selling?<<
Beat me to the question. There is a HUGE difference between shorts and naked shorts.
Yea, blame it on the short sellers...but let’s get serious for a moment, shall we.
If a bank had strong loans on its books, it could handle any runs on it, that simple. The bank would merely sell some of its loans to other institutions and use that cash to pay its depositors.
The only reason that banks have fallen in these runs is that many of their loans are WORTHLESS and no one with a brain (other than the FED now) will get anywhere near them. So the banks run out of cash.
Short selling simply quickens the death of these WORTHLESS institutions, and stops allowing them to keep acting as if all is fine...because it is not.
...and by the way, I cashed in nicely shorting the financials and would never want to deny others of that kind of opportunity. In my case, I read some of the loan documents that were posted by some counties in California and knew immediately that those companies were toast. It was too easy.
Because those who are in control, are not really interested in improving the USA, but in bringing it down. Why else would they continue doing what has been proven not to work?
Many markets do not allow short selling and their existence is not 400 years old either. It performs no positive function and depresses the appeal of stocks being in essence an attack on capital formation. New companies are particularly vulnerable to this insidious practice. No investor in his right mind will “lend” his stock to be sold by another. It is a lie that that is what happens.
Short sellers profit from it but the economy as a whole suffers because it raises the level of risk in the system which reduces the willingness to invest in new companies particularly. Short selling is as productive as theft and is an attack on stock owners.
By artificially raising the supply of stock for sale it lowers the price for all its owners. Anyone wishing to bet against a stock should be allowed to do so through the option market (where there is no artificial increase in the supply of stock for sale) but short selling should be illegal as it is elsewhere. There should be no way of affecting negatively a stock price through such means.
Actually, I'd say the ratings agencies deserve much of the blame as well. They are paid to examine investment vehicles (including both MBS's, CDS's, and CDO's) and make sure they are as good as claimed. That's a big responsibility, and the ratings houses fell way short.
I'd hardly let any of the other scammers in the marketplace (including F&F) off the hook, but they could not have done what they did had not the ratings agencies turned a blind eye to them.
Government is "playing around" with the market, by having numerous rules and regulations, and from several different agencies like SEC, FTC, FASB etc., and laws including monstrosities such as Sarbanes-Oxley. If someone shorts a stock, the company should be able to repurchase the shares at the lower price.
Companies may not have the luxury or temporary liquidity or business interest to buy shares, nor should the company business be interrupted by dealing with "special interest groups" manipulating their stock for the purposes benefiting their competitors, destroying the business plans of the company, or simple transfer of capital by destruction of shareholder value. Especially, as an example I gave in my first post, as it applies to financial companies who never have enough liquidity to survive a "run on the bank", and are technically "liquidity bankrupt" (most of their balance sheet assets are long-term and illiquid, e.g. mortgages), spending it on buying shares would be only speeding their demise.
It's important to recognize that for any market to function, there must be a balance between people who want the price of something to go up and those who want it to go down. If nobody in a market wants prices to go down, prices will go up as long as people keep pushing money into the market. As soon as people stop putting money into the market, however, prices will crash to the levels they would have had in the presence of moderate downward pressure.
Some bet for a winning roll, others bet for the crapout, and win.
Including many people who purchase it.
There should be no way of affecting negatively a stock price through such means.
There are two ways short sellers can have a persistent effect on the price of a stock:
Suppose, for example, I find a pallet holding 1,000 copies of copies of an Elvis record of which previously only five copies were known to exist anywhere. If I were to just sell one record (and kept secret the existence of the rest) I might be able to sell it for $5,000. That does not, however, imply that the pallet is worth $5,000,000 or even $500,000. The whole load is more likely to be worth somewhere between $5,000 and $50,000.
If I start selling the records and find that I'm suddenly getting $50 each rather than $5,000 does that mean that my load has suddenly lost $4,950,000 of its value? No, it doesn't. The load was never worth $5,000,000; any notion of such worth was purely an illusion.
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