Short Selling. What's wrong with it?

[Dr Jekyll]

Steffan, here is your chance.

[redvictor]

IMO I would have thought that letting a bunch of bookies gamble on a nations economic wealth was not only stupid,but criminal...But what do i know eh..

[Y282]

shorting is like sticking the boot in when someone's already on the ground. if you don't mind doing it, you're fine to trade.

[Dr Jekyll]

If someone wants to show that short selling is wrong that have to show what harm is does. Repeated assertions that it's as bad as kicking someone, looting, or middle lane crawling come to that, without explaining why, mean nothing.

We just end up with people saying 'I'm against it because it's wrong and it's wrong because I'm against it'. The logical fallacy known to scholars as a 'Vonhosen loop'.

[RemainAllHoof]

Dr Jekyll said:

We just end up with people saying 'I'm against it because it's wrong and it's wrong because I'm against it'. The logical fallacy known to scholars as a 'Vonhosen loop'.

And what is wrong with that? Just because you think it's wrong, it doesn't make it wrong to think that making it wrong is wrong.

[Eric Mc]

I find it odd that people are allowed sell things they don't actually own.

[Blib]

To bet on the value of something decreasing can lead to overt or covert attempts to decrease the value of the thing merely for financial gain.

With no concern for the consequences of such action.

[jeff m]

I'm a farmer and I invest time and money into a crop on the expectation it will bring in N pounds per acre.

For a small amount of money I can insure against the crop price being lower at harvest time. Thus protecting my investment. The investment is seed cost labour and fertiliser.

OK, I'm not a farmer, but the ability to gain on a lower market price does fulfill a market function.

I assume everyone knows a shorter has at some time have to buy back the borrowed stock.

[RemainAllHoof]

A bit like Estate Agents over-valuing property up to 2008.

[davepoth]

Eric Mc said:

I find it odd that people are allowed sell things they don't actually own.

I do it all the time at work - we are an export house, and will sometimes contract to provide to someone something we need to buy in. Similar sort of thing really.

[zac510]

Blib said:

To bet on the value of something decreasing can lead to overt or covert attempts to decrease the value of the thing merely for financial gain.

With no concern for the consequences of such action.

As opposed to attempts to increase the value? This argument is void, it works both ways.

[Y282]

Dr Jekyll said:

If someone wants to show that short selling is wrong that have to show what harm is does. Repeated assertions that it's as bad as kicking someone, looting, or middle lane crawling come to that, without explaining why, mean nothing.

We just end up with people saying 'I'm against it because it's wrong and it's wrong because I'm against it'. The logical fallacy known to scholars as a 'Vonhosen loop'.

there's plenty of stuff out there about the ethics of it. it's for you to read and decide where you sit with the idea.

[redvictor]

davepoth said:

I do it all the time at work - we are an export house, and will sometimes contract to provide to someone something we need to buy in. Similar sort of thing really.

Except you're not gambling the nations wealth for your own gain.These people only care if they lose their profit. They certainly don't care about anything else..
Gambling your own money i have no problem with.

[Dr Jekyll]

Eric Mc said:

I find it odd that people are allowed sell things they don't actually own.

If I borrow a ten pound note and do some shopping with it, it makes no difference to the shop keeper that I've only borrowed it, they aren't being defrauded.

I have to pay the 10 quid back to the lender of course, but that's my problem not the shopkeepers.

[zac510]

Here's an example of the effect of banning short selling on the S&P500:
http://blogs.wsj.com/marketbeat/2011/08/11/short-s...

When the market wants to go down it will go down, short selling or not. Short selling does not force the price down: whenever there's a short seller there's also a buyer on the other side of the transaction.

Newspapers are quite to blame for this bad reputation; in their haste to come up with a reason for the market dropping short sellers are often named. You can't publish a news story about market movement without giving a reason!

[Eric Mc]

Dr Jekyll said:

Eric Mc said:

I find it odd that people are allowed sell things they don't actually own.

If I borrow a ten pound note and do some shopping with it, it makes no difference to the shop keeper that I've only borrowed it, they aren't being defrauded.

I have to pay the 10 quid back to the lender of course, but that's my problem not the shopkeepers.

Of course.

It's what makes the economy work, in a way - but it can cause massive problems when people lose the run of themselves.

I'd be very upset if I loaned my car to my brother to find he had sold it and then bought it back at a profit before returning it to me.

It reminds me of the episode of Bilko where he is "minding" some cash for a friend and all the normal characters who are wary of him are falling over to do business and lend him money - because they think the money is his and he's flush.

[Y282]

Dr Jekyll said:

Eric Mc said:

I find it odd that people are allowed sell things they don't actually own.

If I borrow a ten pound note and do some shopping with it, it makes no difference to the shop keeper that I've only borrowed it, they aren't being defrauded.

I have to pay the 10 quid back to the lender of course, but that's my problem not the shopkeepers.

that's not quite it. as a car analogy it's closer to "nah mate, no one really wants these any more. i'll take it off your hands though".

[RemainAllHoof]

zac510 said:

Newspapers are quite to blame for this bad reputation; in their haste to come up with a reason for the market dropping short sellers are often named. You can't publish a news story about market movement without giving a reason!

Yep. If the journos were that clever, they'd not be standing outside the BoE in the wind and rain at 7am waiting to give a live news report to the BBC. They'd be on a yacht in the Bahamas trading due to their superior knowledge of the markets that they try to demonstrate while being soaked to the skin at 7am on a cold November morning.

[Y282]

RemainAllHoof said:

zac510 said:

Newspapers are quite to blame for this bad reputation; in their haste to come up with a reason for the market dropping short sellers are often named. You can't publish a news story about market movement without giving a reason!

Yep. If the journos were that clever, they'd not be standing outside the BoE in the wind and rain at 7am waiting to give a live news report to the BBC. They'd be on a yacht in the Bahamas trading due to their superior knowledge of the markets that they try to demonstrate while being soaked to the skin at 7am on a cold November morning.

"JOURNALISM'S MY LIVE, MAAAANN!!"

[Dr Jekyll]

Eric Mc said:

I'd be very upset if I loaned my car to my brother to find he had sold it and then bought it back at a profit before returning it to me.

Even if you'd rented it to him for that exact purpose and knowing that any loss on the transaction would be his problem?