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why is shorting a company perverted? I would argue it's a great asset to society. Eg. those who shorted stock because they expected covid-19 to cause a market
by MperorM 6y ago
why is shorting a company perverted? I would argue it's a great asset to society.
Eg. those who shorted stock because they expected covid-19 to cause a market dip, sent a giant signal to the entire world that covid was going to be a big problem.
- rob74 6y agoNothing against shorting in principle, the OP and me were just referring to being able to "sell" more shares of a company than there are in existence...
- MperorM 6y agoHow is that perverted? Shorting a stock is fundamentally no different than other types of debt. Imagine an economy of 3 people, A, B and C. A has $5. B borrows $5 from A. C borrows $5 from B. A borrows $5 form C. The economy started with $5 and $0 debt, the economy ends with $5 and $15 debt. Despite the fact that the society's total debt is now 300% the size of its economy, it is no different than how it started. Debt isn't inherently bad. Debt is a tool that allows us to collaborate.
- smogcutter 6y agoThat’s not mysterious or suspicious at all, it’s just a consequence of being able to lend something fungible. Very similar to how bank lending affects the supply of money.
- OJFord 6y agoThat can only happen with naked shorting, which is (illegal and) not implied by >100% short interest. Some of the short sales refer to the same shares; say there's one share in the company and it's (borrowed and) sold short thrice. The company's one share has been sold three times, but there haven't been sales of more shares than there are in the company - the three (short) sellers need to get that (same) one share back to close their position in sequence.
- klmadfejno 6y agoIt certainly opens up the door to malicious information asymmetries and pr campaigns.
- MperorM 6y agoYeah that's right. I am somewhat torn on where to stand on this. On one hand I do see why we would want regulation against insider trading & pump and dumps, on the other hand I worry that regulation isn't preventing either, and society quickly would become inoculated if we legalized it. When I read Robin Hanson's paper on insider trading and prediction markets, I became much more uncertain about whether we should regulate this area than I used to be. https://www.researchgate.net/publication/228340813_Insider_Trading_and_Prediction_Markets https://www.researchgate.net/publication/228340813_Insider_T...
- klmadfejno 6y agoI'd rather we just enact capital gains taxes to lower the overall incentive of financial wizardry to begin with. Force prices of assets back to the value of their dividends. Make it painful to be a growth stock unless your case for valuable future dividends is really compelling.
- CydeWeys 6y agoAs does going long. Your classic pump-and-dump scheme has led to thousands of disinformation campaigns that don't require shorting at all.
- klmadfejno 6y agoOn some level shorting is worse though. A pump and dump scheme hurts investors. A shorting scheme can hurt investors and destroy the company.
- CydeWeys 6y agoShorting can also help investors in the market at large if it helps bring down companies that are obvious scams. Some short seller reports have pretty famously destroyed companies that were up to no good, preventing further harm to future investors and boosting confidence in the valuations of the rest of the market. If there's no money in doing all of those short seller reports, then people won't do them, and the market will have less information available to it in total, and more frauds will continue to go under the radar.
- im3w1l 6y agoIf you are short a company then you benefit from harming it. In the example you provide, the short seller could benefit by exacerbating covid, by sabotaging the response. I'm not saying I'm definitely against all forms of shorting because of this, but that is one drawback at the least.
- shawabawa3 6y agoif you are long a company then you benefit from helping it. For example, lobbying to dismantle environmental regulations to increase the value of your fossil fuel stocks
- bidirectional 6y agoYou also benefit from harming its competitors.
- MperorM 6y agoThis is the same argument often made against prediction markets. I remain unconvinced this is a significant issue, but I'm always open to changing my mind :)
- mdoms 6y agoJust so you know, outside of your bizarro-world America-brain, the world was well aware that Covid-19 "was going to be a big problem" without the help of your stock market games.