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Sunday, March 22. 2009
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Crooked to the core.
We don't need more SEC. We need firing squads. In the public square down by Wall Street. Plus occupied lamp posts with sellers stripped naked.
Pitchforks and tumbrils. Film at 11.
If the show has a point, it fails to make it in the time I was willing to give it.
Something was a problem very quickly but it was not explained why it was a problem.
Does Bloomberg know that selling is exactly matched by buying? I think not.
Ron Harden does not seem to understand the fraud. Naked shorting means the stock has not been borrowed. Hence, naked shorting is fraud. I have sold something I have no intention of delivering on time. But, more that that, naked shorting leads to selling of more shares than the float. That drives prices down. With naked shorting, their is an endless supply of stock to see.
It would help Ron to review the concepts of supply and demand.
The short seller is on the hook for the loss if he loses, however. He's adding his information to the price, which is what the whole virtue of pricing is, and doing it like everybody else at his own risk.
If people start demanding actual physical possession of shares that they bought, then you get what's called a short squeeze.
That's part of the risk the short seller takes.
If you want to claim that short selling leads to the wrong price, how do you know this?
Still can't see how punters can get away with selling short and then never delivering shares at a lower price to cover. Someone delivered the shares eventually? The specialist? Who? So many failed trades so it is obvious that a lot of folks are staying in "light". Why isn't that grand larceny, pure and simple? I have yet to receive an explanation from any source as to how this is all supposed to work as legit commerce. I understand the need for shorts but I don't understand the tolerance for failed trades. As Roy Cohn famously told the young, wet-behind-the-ears Roger Stone, "Kid, nothing is on the level".
In a previous life I was a commodity trader. In the commodity futures markets, someone sells, and someone buys, and while one has the obligation to deliver or take delivery when the futures expires, most trades are closed out by an equal and opposite trade. Point is that the number of trades, or open positions, is completely unrelated to the physical quantity of the commodity being traded.
The parallel is that naked shorts, by themselves, do not, and cannot drive the price down, because for every naked short, there is a "naked" long. Interestingly, as much as the Overstock CEO moans about the attack of the shorts, never does he discuss his income statement or balance sheet. If his profit margins were fat, and his net income growing, the shorts would get killed.
I agree that naked short selling needs to be policed, but mostly because someone has bought something at a price that he may not receive. While it is possible to manipulate thin markets in anything, the best protection against naked short selling is for the company to make money and create value.