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Ya-ta Boy · Joined: 16 Jan 2003 Location: Established in 1994

Samantha Bee did a piece on The Daily Show on short selling in which a guy says sometimes short sellers gang up on a company and destroy so they (the short sellers) can make a profit. Is that true?

http://www.thedailyshow.com/full-episodes/index.jhtml?episodeId=220545

mises · Joined: 05 Nov 2007 Location: retired

It is, yes. Short selling is an appropriate means of price discovery, but large institutional investors have been known to attack a newly listed firm or an otherwise normal and stable firm. If I had a firm ready to go public right now I'd not do it. This is part of the reason that I believe the era of equities is over for a while.

Another serious issue is so-called 'naked short selling', when an institution shorts a company that it does not own.

http://www.financialsense.com/metals/crime/main.html

Ya-ta Boy · Joined: 16 Jan 2003 Location: Established in 1994

This might be the Puritan in me speaking, but there is something sick and demented about that. It's just wrong.

OneWayTraffic · Joined: 14 Mar 2005

Kuros · Joined: 27 Apr 2004

ontheway · Posted: Tue Mar 17, 2009 9:01 am Post subject:

Short selling means that you borrow the stock from someone else and then sell it. Later, of course, you have to buy it back and return it to the person you borrowed it from.

You have to sell and then buy an equal number of shares. There is very little chance for successful market manipulation. People who think they can push a price, up or down, usually lose their shirts.

Market manipulation is very difficult to do when you have to both sell and buy the same number of shares. You could short sell along with a whole host of other people and the price would still rise if the company was successful.

In the Stewart comedy tape, the example was a professional short seller who found a company selling popular fad shoes. Their stock appeared to be overvalued and the company was due to crash. They sold short, repurchased the stock at a lower price, and made a lot of money. The short sellers did not drive the price of this stock down. It fell after the short sales. The price would not have fallen except for the fact that the company was selling junk products.

If a company is sound, even if a stock is temporarily depressed due to short selling, this will not affect the operations of the company and no one will lose their job. The stock price does not affect the day to day operations.

When dumb people do comedy, they often mislead other dumb people.

mises · Joined: 05 Nov 2007 Location: retired

mises · Joined: 05 Nov 2007 Location: retired

ontheway · Posted: Tue Mar 17, 2009 9:25 am Post subject:

Yes, apparently the company was Crocs Inc.

The piece was misleading. There was no price manipulation. It was not about "naked short selling."

Naked short selling means selling something that you don't own. There is a certain amount of time to cover the transaction by forwarding the security sold, but failure to do so constitutes fraud. Fraud is illegal and should be.

When the world is overregulated, real crime that is simple to prevent, detect and punish, goes unregulated.

rollo · Joined: 10 May 2006 Location: China

In September and October the hedge funds did a lot of naked hsort selling. Jim Cramer called them on it. They were in violation of s.E.C. regulations but the Bush appointed S.E.C. chairman did nothing to stop it. Laws which had been on the books for 50 years were ignored . Cramer in one of his rants called for "show trials" of the S.E.C. leadership. There is a new sheriff in town so a lot of this has stopped.

mises · Joined: 05 Nov 2007 Location: retired

That's not the whole story.

The naked shorting in Sept/Oct was by hedge funds against the big ibanks. The ibanks, not used to being on the receiving end of such fraud, quickly had a ban on all short selling of their stocks put in place.

Naked short selling in the non-financials continues.