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Reuters: Germany to ban shortselling, tonight
- Thread starter Debaser82
- Start date
Quote from morganist:
there is another danger with shorting. that is people make money when businesses fail. this is something that people can control like throwing a fight. there is incentive to fail.
How can people control a business failing? And even if they can, how can they 'control' it more than the longs? If shorts can push a business to fail, longs (who are far greater in number, $$$, size and political influence) can push a business to succeed.
If I'm short, and I'm running a business, I can profit immensely by purposefully running it into the ground.
Quote from jprad:
I'm not advocating elimination of all shorting. But, naked shorting, like T+3 settlement and delayed short interest reports, they're all anachronisms in the digital age.
It's inexcusable to not require all shares be located prior to executing a trade.
It's perfectly excusable - getting a specific locate takes time, but is ultimately pretty easy to do for most liquid stocks. In the rare cases where a locate can't be done within the required time, the short is just closed out - net impact, zero (apart from making a broker a bit richer). Therefore requiring a locate needlessly handicaps market liquidity and trader freedom for no benefit whatsoever.
Mandating something with a cost and no benefit is pretty dumb.
Quote from Random.Capital:
If I'm short, and I'm running a business, I can profit immensely by purposefully running it into the ground.
No you can't, because it's i) illegal, and ii) you will get sued for your entire profits and then 3 times in punitive damages, plus the entire losses of other shareholders.
If it were profitable for management to run their businesses into the ground, then it would happen all the time. It doesn't, therefore it isn't.
Quote from jprad:
Never said, or implied, "caused."
How many of them fell at the same rate and with trade volume several magnitudes above normal as LEH did during its last week of existence?
.
So if naked shorting doesn't cause firms to collapse then what is the problem with it? We are not talking about McDonalds going to $1 because of naked shorting, are we? We are talking about 30:1 leveraged investment banks with huge exposure to a collapsing housing bubble, that did not cut their losses. Well guess what, once their assets fell 3-4% in value, they were bust. They were just as bust if no one shorted so much as a single stock, as they would have been if Goldman Sachs and the Skull & Bones society had conspired to sell half the float naked short.
Also, why does it matter if other firms fell at the same rate and with above normal trade volumes? The exact rate of falling is totally irrelevant, but in any case there were quite a few that went to $0 pretty quick after trouble started, and on much higher than normal volume.
Look, if a business is going bust, shareholders who are long are going to sell en masse rather than being left holding worthless stock. Better to sell at $10, 5 or 1 than hold at 0. The stock will go to zero regardless of whether there is shorting or not. In fact, large short positions will *cushion* the decline because eventually it is not worth the risk to stay short in a very cheap stock and people will buy to cover their positions.
I ask you to provide even one example of a company that went bust purely because naked shorting in its stock took place.
M
morganist
Quote from jj90:
What's more concerning here:
That people think shorting is unethical?
or
that morganist is a mod?
One final comment. Derivatives have one winner and one loser in most cases. This means someone almost always loses out. Although they can be used as risk elimination tools. Especially forwards and futures. They only transfer wealth when used on a speculatory purpose.
Other investments like stocks shares can have an increase value for every one as the return received can be beneficial to all. Higher output higher return and more production. These are more moral investments and don't have the pareto affect, is short you can get wealthier without taking wealth from someone else.
The only time derivatives are useful is when the loss or gain in value is offset by a counter loss or gain with the other party. For example if a company owns another currency and the currency alters in value, if they take the opposite position they can compensate for the loss on one side with a gain on the other. They are no better off the original wealth is maintained.
This is beneficial to the company as it eliminates translation risk, it can be done with forwards or futures. The company is not better off it has just eliminated the risk.
With speculative trading the individual is better or worse off. Although they add liquidity to the market it is not necessaarily beneficial to other parties it just transfers wealth.
This is my justification. I admit there are a few exceptions. I have tried to listen to your points and took them on board. There is some room for other derivatives. But you have become hostile without and justification. Simply ad hominem attacks.
The Ghost of Cutten came up with some good comments which I have listened to and have changed my position a little.
Quote from Ghost of Cutten:
It's perfectly excusable - getting a specific locate takes time, but is ultimately pretty easy to do for most liquid stocks. In the rare cases where a locate can't be done within the required time, the short is just closed out - net impact, zero (apart from making a broker a bit richer). Therefore requiring a locate needlessly handicaps market liquidity and trader freedom for no benefit whatsoever.
Mandating something with a cost and no benefit is pretty dumb.
Bullshit. The retail crowd already has to deal with getting a locate before putting a short on.
The technology exists today to extend that requirement to all market participants and it won't impact anyone or reduce liquidity.
Trying to argue otherwise only establishes you as someone who doesn't want the playing field truly level for everyone.