Posted on 02/17/2021 7:13:57 PM PST by HereInTheHeartland
“ Interactive Brokers chairman Thomas Peterffy told CNBC Wednesday that the U.S. financial system faced greater stress during the GameStop trading frenzy than is generally recognized.”
(Excerpt) Read more at cnbc.com ...
BS.
There’s multiple ‘holes in the system and they sold short more shares of the stock than were in the market.
If a bunch of retail traders buying a stock can jeopardize the entire financial system, something must be seriously wrong with that system.
“BS“
Tell us why.
In 1987 the system almost blew apart in the crash in October .
I have my Wall Street Journal from about a week after the market crash then .
The whole system came really close to collapsing then.
And most people were completely unaware of what almost happened then.
Then deal the legality of derivatives.
If only they could put 3 face masks on stock trades then the stock maket would be safe.
They mean just the stock market - the banks were not impacted, and that’s what most people mean by the the financial system. Just as long as you have money in your checking account, you don’t care what stock traders are up to.
Yeas this is BS. The rip off artists at Interactive Brokers came close to failure. F’em and the other brokers, Robinhood etc., that stopping buying of GME. All in coordination. To bail out the shorting hedge fundy maggots.
The “why” is fairly easy to explain. However, the insiders dont want the system fixed as it is seen as being easy money. This was caused by a financial system that allows the selling of unsecured aka “naked” shorts.
The fix is simple, when selling a future or options contract, the proceeds from that sale must be held in reserve against the future closing of that position. Should the position turn negative, then the position must be covered at the close of the day. Covering that position can be done by:
- adding cash to the reserve
- adding the underlying commodity to the reserve
- covering with another option (similar to a straddle)
That way, when the option/contract comes due, there can not be a short squeeze as all option positions are covered.
The US financial depends on people to help process and review financial transactions. Sometimes, the transaction volume gets so large that it runs up against human limitations. Usually, the system adapts, but in a crisis, panic can set in due to fear and greed and the demand for service cannot be met.
Investor1 (I1) agrees to loan his 200 shares out.
The broker loans the shares to I2 who sells them to I3.
I3 agrees to loan his shares out.
The broker loans the shares to I4 who sells them to I5.
There is only 100 shares but the market now looks like this.
Stock owned:
I1 200
I3 200
I5 200
Stocks shorted
I2 200
I4 200
Twice as many shares are shorted as exist.
To limit the number of times a stock is shorted, you’d have to track stock that has been loaned. And then you’d create two classes of stock. Unencumbered stock that has not been loaned, and encumbered stock that has been loaned before and can’t be loaned again.
Thats a very ugly solution.
A better solution IMO:
All stock should earn interest when loaned at no less than prime.
And The amount of stock loaned is tracked by the market. Interest rates should increase 2% every time shorts increase 4% of available stock. At 40% shorting is halted.
You mean the corrupt shorter nearly broke something after they were caught with their pants down?
Exactly. System didn’t break.. not even close. Just some folks who thought they owned it, wound up paying the price for risk they thought they didn’t foresee.
They thought there was no risk to putting heavy short pressure on a stock...
They were wrong and paid the price
Well said.
It SHOULD have collapsed in 2008. All we did was kick the can down the road and add monstrously to the debt. Had we let it collapse, we would have long since left it in the past. Obama would have been a one term president. They could have never gotten Obamacare passed. And too big to fail would be in the trash can of history where it belongs.
It seems the US Financial system faces catastrophic system risks every 6-12 months now.
[It SHOULD have collapsed in 2008]
And a lot of that thanks to 2nd term Bush. I remember reading (way back then) that he was borrowing crazy money from —————> CHINA to finance the war and nation-building.
Worried me so I took what I (little) I had in a retirement account (very little) and moved it to bonds. My broker told me I was one of very few people who had made money that year (though it was not much ... on very little).
After the 2008 disaster, I cashed it all in.
Then along comes Barack..........who is now a good friend of W.
Average retail investors nearly bankrupt some major hedge funds, so they shut down the trading until they are able to adjust the result to what they want.
Average Americans vote in to President who is a threat to the deep state, so they shut down the vote counting until they are able to adjust the result to what they want.
Can you see how America works now?
Who gets the Dividend Payments?
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