Don't Sell Short Selling Short (In Defense of Short Selling)

Mises.org ^ | 4/6/2007 | Gary Galles

[pointsal]

I do not have a problem with them selling short...Just post their real name.... Let’s see who has the balls to stand behind their position!!!

[ari-freedom]

I want the right price, not the bubble price. We’d have a lot more bubbles without short sales.

[Old Sarge]

Okay, I won’t sell my shorts.

But should I launder them before I sell them?

[familyop]

I disagree. No clandestine group should be allowed to use investors’ accounts to scare herds of other investors and sink competitors’ businesses. IMO, the uptick rule and watchers are needed.

[fhayek]

Dollars are anonymous, and the market price is the only information you need. I don’t see what difference publishing names would make.

[arista]

I think publishing names would be a violation of people’s financial privacy. It would be just as bad as publishing every credit card transaction.

[seacapn]

I understand the concern, but restricting short-selling is very much a way of saying you support “the free market,” except when you don’t like its outcomes...

[dartuser]

dartuser is short the Russell 2000.

[ari-freedom]

the watchers are those who go long on those same stocks

[ari-freedom]

sounds just like how freddie mac works. privatized profits and socialized risks

[Racer1]

Short selling is nothing but selling the same shares twice. Yes they do buy them back, but only after they artificially inflate the float, which drives the stock down. Its a myth that they help the market. Did anyone ever meet a short seller that wanted the market or stock that they sell short to go up? I didn’t think so.

[fhayek]

Name me one market where all parties wanted the price to go up. Every seller is hoping that he is selling at a peak, every buyer is betting that he is buying at a valley. This is how markets work.

[USFRIENDINVICTORIA]

Further to seacapn — the uptick rule accomplished a lot less than you'd imagine. There's always an uptick.

[sheana]

Shorts do not sell the same shares twice, they borrow them from someone who actually owns them to sell. They do not affect the float in any way since the shares have to be there to borrow.
Short provide liquidity to the market and trust me when the stock/market is tanking shorts can provide ‘brakes’ when they all start buying to cover.
Yes I am a proud shorter. I prefer it to long any day.

[StatenIsland]

“Shorts do not sell the same shares twice, they borrow them from someone who actually owns them to sell.”

Well that’s all well and good - but the problem is NAKED short selling.

If you can keep selling, and dry up all the buy orders WITHOUT REGARD TO WHETHER OR NOT YOUR BROKER HAS THE SHARES TO LEND, OR IF INDEED THEY REALLY EXIST, you see the market drop 700 points today.

When FTC, or Failure To Cover, goes unrecognized and unpunished - shorts run wild.

[familyop]

"I understand the concern, but restricting short-selling is very much a way of saying you support “the free market,” except when you don’t like its outcomes..."

It can be used for conspiracies to vandalize stocks and essentially steal from other investors. It's about as moral and free-market-worthy as using false environmentalist front-witches in commissioners' meetings to stop competitors' projects from starting, IMO.

But that won't matter much for the near future. Investment banking is going to China now. We'll see how the PLA deals with disruptions. Me...? I'll put my tiny little bits in deposit banks and do the building myself.

[sheana]

If you can keep selling, and dry up all the buy orders WITHOUT REGARD TO WHETHER OR NOT YOUR BROKER HAS THE SHARES TO LEND, OR IF INDEED THEY REALLY EXIST, you see the market drop 700 points today.

I traded stocks for 5 yrs, mostly shorting. I couldn’t tell you how many times I pushed that button and was told....no shares available. If the broker doesn’t have the shares to lend you don’t get them! sheesh

[familyop]

"the watchers are those who go long on those same stocks"

That's true. Anyway, we're looking at some big changes ahead. We'll be a Nation of savers and builders, or else...

It will be very interesting to watch investment banking in China during the coming years. One difference there is the savings culture. We'll see if that holds up after the present building of infrastructure, when heavy consumerism will be happening there.

[familyop]

We might be talking about two different kinds and purposes of short-selling, BTW. I’m referring to pre-planned and coordinated group efforts that are executed only for the purpose of driving competitors’ stocks or natural resource commodities down.