Are Short Sellers to Blame for the Financial Crisis? 16 comments
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I have heard this question asked repeatedly, and I find that it is an insult to one’s intelligence to even state this. There has to be a scapegoat. Did the short sellers make the banks give loans to speculators that were not going to live in the houses? Did the short sellers make the banks give loans to homeowners who had neither a job nor credit? Did the short sellers make the banks give companies loan to buy other companies at over valued multiples with the hope of these overvalued companies to the next guy.
It is one thing to spread false rumors - which all know is wrong - but what is wrong about doing deep due diligence on a company and determining that its fundamentals are not in order, and then taking a short position? It is the same analysis one would do when buy stock in a company.< p/>
Short sellers borrow stock and sell it, essentially betting that the price of their target company will fall before they have to replace the borrowed shares. Now these investors are considered vultures, rumormongers, cheats and criminals.Most have done nothing wrong but expose one of the largest frauds in our lifetime.
Bear Stearns (BSC) and Lehman died because they were undercapitalized and made terrible leverage bets. Merrill's own mismanagement was the cause of its demise. AIG is imploding due to its credit swaps and unregulated derivatives.
The Securities and Exchange Commission halted short selling of financial companies and Futures on the Standard & Poor's 500 Index surged 2.9 percent following the announcement.
Are markets only supposed to go...and when they fall... smart investors are not allowed to benefit. Are we supposed to just lose money...and have the government bail us out?
Jim Chanos, a great investor who first raised questions about Enron, stated so perfectly:
We seem to have capitalism on the upside and socialism on the downside.
That's a pretty heady brew for country that holds itself out as a free market paragon.
Nothing changes - short sellers were also victimized in 1929.
On Thursday, SEC Commissioner Cox responded to the pressure. The SEC instituted a "Hard T+3 Close-Out Requirement," meaning that short sellers and their broker-dealers must deliver securities by the close of business on the settlement, three days after the sale. It's an answer to previous complaints about the prevalence of so-called "naked" short selling: that is, selling shares that you don't actually have in hand, and have not actually made arrangements to have. Naked shorting potentially allows traders to manipulate stocks.
The SEC is also considering an emergency order forcing hedge funds, which employ short selling as part of their trading styles that have a $100 million portfolio to report their short positions daily. The implicit threat is: We will know who you are (The SEC already knows about long positions.).
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This article has 16 comments:
You walk into McDonald's and order a big Mac, a large fries, and a large vanilla shake. The clerk takes your money and you walk over to the pickup area. In a few minutes the clerk in that area tells you one of three things:
1) Here is your order. Enjoy your meal.
2) Your order was filled by a short seller. They have 13 days to provide it for you. Enjoy your meal.
3) Your order was filled by a naked short seller. They've promised to fill it at some point. Hey, would you like to buy another one. They will be happy to sell you all the meal promises you want. Enjoy your meal.
I think the only ethical short selling would be if the short seller found someone with your order, 'rented' their meal from them, and gave it to you in the expectation they could buy it cheaper than the rent they paid before they had to pay the lender their 'rent' and their meal.
Is it clear now why shorting is fraud? Unless you come to the transaction with shares in your hand?
No??? Then talking about free markets doesn't mask the fact that you're a fraud artist.
I'm not saying you shouldn't be allowed to short stocks, just that you shouldn't be allowed to perpetrate fraud to do so.
Finally, if shorting makes markets so efficient and isn't just a mechanism to manipulate them, how did we get in this mess? Why didn't shorting take care of the problem years ago?
In short, give me a reason to believe that you aren't in favor of shorting solely because of your ability to manipulate markets in order to make money. By committing fraud on the counterparty to your trades.
Andy Abraham
Myinvestorsplace.com
come and join us...
and 2. for blaming all of this on short selling. Even naked shorting. The uptick rule has nothing to do with any of this either. Paulson and Cox are sooooo bad for our country. "The only difference between us an the Soviets, is that they don't pretend to be capitalists".
This is no longer a small issue, these guys are destroying our financial systems and our economy. We need the military and Guantanamo bay and water boarding and trial and execution for the threats against this country. I would love to see a bag over their heads or the look in their eyes just as they are placed in front to the firing squad. I would be best if CNBC were forced to broadcast the executions since they are part of this gang of thieves.
............ bush-it administration and the republicans ...... NO to 4 more years of this bush-it....... NO to mccain and the republican neocons! the rich are getting richer .......... and the heck with the poor ..NO 4 more!
IMO you cannot have short sales unless any shares can be borrowed and sold only once. They need to register the actual share (serial number) for these short sales, and I do not believe this is the case now.
Please comment if you think this is not how it works. Thanks.
A sobering fact is that only about 35% of the American public knows the name of the vice-president and unfortunately our president, George Bush, is not among them.
So, how can we expect even 5% of the public to know what short selling IS let alone to judge that it is good or bad?
Short sellers are going to be "persecuted" and the people will be "greatful" because America is a grate nation.
Excessive shorting of financials could finish us all off and take down the global economy. Even the banks and brokerages that the short seller keeps his funds won’t be able to pay up.
We need to restore the uptick rule right now to insure the game stays fair. And, perhaps, we need a double uptick rule for financials.
"Finally, if shorting makes markets so efficient and isn't just a mechanism to manipulate them, how did we get in this mess? Why didn't shorting take care of the problem years ago?"
The manipulation was perpetrated by the investment banks. They had investors believing they knew how to manage their own portfolio. They didn't disclose they had as much as 50 times leverage in securities that were incredibly overvalued. They failed to do any quality due diligence. This lack of due diligence and failing to disclose their exposure created this situation. They took on absolutely reckless risk when one considers that a steep fall in their stock value can put them out of business faster than a non-financial stock. Potential long investors rightfully concluded no new investment dollars for you. Many reduced their exposure to these investment banks much as the investment banks should have reduced their exposure in these investments years ago. If we argue that short selling is manipulation then anyone that sells stock whether at a loss or a gain is also guilty of manipulation, especially when it happens en masse. Short sellers aren't the cause but the effect of stupid and in this case, reckless management. Short sellers are a necessary mechanism in the goal of establishing an appropriate value in the market for a company stock. It is true if we don't have short selling values won't drop as fast nor arguably as far, but that may mean we're really not getting a fair value on the company stock. The lack of disclosure and no short selling allowed would likely lead to the same number of losing investors over the long run but in slow motion.
Of course, naked short selling should be illegal and is. It only needs to be enforced.
If someone shorts GS, he is may profit from it. He covers, buy buying and helping the price go up. He takes his profit and either holds it in cash, shorts another stock or maybe even buys GS long if he now thinks the price is realistic. I don't see where the "loss" is except to GS shareholders who have been asleep at the wheel since last fall and have done nothing to protect their investment. After all, it is a free maket for sellers, isn't it?
Hedgie #1 calls hedgie #2 who calls #3. Hey George, It sucks that we can't short the financials,so lets You me and fred mess with GM on monday and Ford on thursday Ba on friday etc........
"The SEC is also considering an emergency order forcing hedge funds, which employ short selling as part of their trading styles that have a $100 million portfolio to report their short positions daily. The implicit threat is: We will know who you are (The SEC already knows about long positions.)."
My, what a good little soldier you are.