“If anyone has a reason shorting should not be illegal, I’d like to hear it.”
Sure, though I may not convince you. First, let me say that I agree that what these hedge funds are doing is wrong. There should be limits on how it’s done...but they are big contributors to Democrats.
People that own stocks often enhance their income and protect their downside by selling the rights to others to buy the shares they own at a specified price within a specified time. If the price doesn’t make it worth it for the other person to buy the shares at that price then the trade doesn’t happen and the person keeps their shares. If the price IS beneficial to the buyer then the owner does need to sell the shares, but they presumably made the deal with an acceptable price point in mind.
For instance, I own 1,000 shares Amalgamated Widgets with a current price of $100/ share. I sell the right to someone to buy those shares at $98 per share 3 months from now and they pay me $100 for the rights to do that. If AW is worth $97 per share at that time they’d be dumb to buy them at $98, so they take a pass and don’t buy them. I keep the $100.
That’s ONE side of a trade, with buying. Shorts (this is simplified) do the same thing with selling. Done with shares that someone owns it is actually a fairly conservative technique.
These hedge funds are doing it with BORROWED shares and they are ganging up on companies to try to manipulate the price so they can make money. That is currently legal but IMHO not right.
So, we're on the same page, just maybe not on the same paragraph.
The term "creative destruction" gets thrown around a lot (always as a good thing), but maybe we should take a closer look to determine if it is ALWAYS good.
GameStop was not on its last leg. Just because the game market is moving from physical media to downloads doesn't mean GameStop couldn't have pivoted also. After all, Netflix went from a renter of DVDs to a streaming service.
But, once GameStop got shorted, the die was cast. They were going out of business, the shorters would make sure of that.
And that's my problem. When investors have a vested interest in the business failing, something's wrong with the system.
Interestingly, I read that it is extremely difficult to do short selling with stock you own, because it is a way to avoid taxes. If you own a stock for 5 months, and think it is ready to tank, but you don’t want to pay short-term capital gains, you borrow someone else’s stock, and short-sell it. IN a couple of months, you can deliver your shares to them, and you’ve got long-term gains instead of short-term.