Naked shorting: The curious incident of the shares that didn't exist (2005) • Hacker News Board

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#281

Post by opportune » Mon, Feb 01, 2021, 1:48 PM UTC

Swenrekcah wrote: post #102

jaycroft wrote: post #67

Earlier quoted context omitted.

And just for completeness on your comment, a naked short is the same as a regular short, but in the opposite order. First sold short, then borrowed after the fact.

I can’t quite wrap my head around how this is possible. Are stock brokers allowed to just generate shares in their computer systems and then find a way later to actually obtain them? And when they do so, that might actually be from another broker who magicked them into existence?

Yes, it’s like writing a check that won’t clear because you know it’ll be a few days until the money comes out of your account and even if it doesn’t, you can say “oops my bad” and fix it later.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#282

Post by spiralx » Mon, Feb 01, 2021, 1:49 PM UTC

haberman wrote: post #204

harryh wrote: post #190

Earlier quoted context omitted.

Saving money requires keeping cash (sometimes a lot of it) in the bank that could otherwise be put to productive use. Options contracts allow offloading of risk without keeping this excess cash sitting there doing nothing. It can be much more capital efficient.

Call me crazy but I thought the idea is that banks would use deposits to fund loans and kick some of the profit back to the account holder in the form of reasonable interest rates. That seems capital efficient to me, but it's apparently a quaint relic of the past now that eternal 0% interest rates are the norm. I'm reminded of the scene from It's a Wonderful Life where George Bailey explains to all his account holder…

Banks don't use deposits to make loans though, that's a widespread misconception which is perpetuated by concepts such as 'fractional reserve banking'. In the modern economy bank lending is simply adding a number to someone's account and adding an equal number to the bank's loan sheet.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

Simply put a bank with zero deposits could still lend money, the only constraints are risk and regulation.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#283

Post by xadhominemx » Mon, Feb 01, 2021, 1:51 PM UTC

jkhdigital wrote: post #187

xadhominemx wrote: post #24

Earlier quoted context omitted.

No blockchain would ever be able to keep with with equities trading

Blockchain doesn’t keep up with Bitcoin trading either, but you can always withdraw your assets to a private wallet and not have to worry about getting Mt. Gox’d. There’s no way to “withdraw” securities from the opaque financial system, so you are always at risk of fraud.

I guess why that’s why there’s never any fraud in the blockchain ecosystem

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#284

Post by Lazare » Mon, Feb 01, 2021, 2:00 PM UTC

phlo wrote: post #270

Lazare wrote: post #134

Earlier quoted context omitted.

There's some more info here: https://www.forbes.com/2006/08/25/naked-shorts-global-links-... Global Links was trading around 10c a share with ~350 million shares, for a market cap of around $35 million. They implemented a 350:1 reverse share split, which in theory should have resulted in them having a stock price of $35, 1.1 million shares, and a market cap of around $35 million. For some reason, it took longer for t…

Just looking at the numbers here, this could just be a case of a sign getting flipped somewhere along the way. Global Links intends to do a reverse split, replacing 350 old shares (worth 10¢ each) with one new share (worth about $35). For the sake of argument, let's say they mixed up the ratio in their split filing. Instead of doing a reverse split, they do a forward split, replacing each share of old stock (10¢) wit…

Yes, that's a good observation.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#285

Post by darumderum » Mon, Feb 01, 2021, 2:04 PM UTC

blackrock wrote: post #249

dmlittle wrote: post #221

Earlier quoted context omitted.

Whomever is the holder record has the voting rights. If you gave your stock to someone to facilitate a short you lose your voting rights until that position is closed. You can read more about it here: https://www.investopedia.com/ask/answers/05/shortsalevotingr...

Does your broker automatically loan out your shares? Or must you manually opt in, to allow it to be loaned out for shorting?

Some of them (or most?), but not in your favor. They will keep the profit

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#286

Post by smabie » Mon, Feb 01, 2021, 2:48 PM UTC

anonymouse008 wrote: post #251

smabie wrote: post #227

Earlier quoted context omitted.

In your opinion, what is sketchy about dark pools. I have a couple answers (pertaining to marketing, but not operations of the pool), but am curious about what the popular perception of these pools are.

Marketing? I'm very curious to see what you say. Well for me, it's taking information flow off of the table. Not having access to the trade at execution (and how long it was an order) puts me at a disadvantage. I'd take the market impacts to have greater transparency.

Dark pools have deceptive marketing imo: to investors they advertise how no HFT ppl will be around to eat you alive while simultaneously giving a totally different presentation describing all the benefits of the dark pool to the HFT firms.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#287

Post by andrepd » Mon, Feb 01, 2021, 2:50 PM UTC

beefield wrote: post #260

andrepd wrote: post #229

Earlier quoted context omitted.

It is legal, yes, that is indeed what I said. But it's legalised accounting fraud. Can I pay for a car by crediting my assets with 30.000$ plus creating an (interest-free) liability for 30,000$? No, but that is what the banks in effect do.

Depends on the wealth of the friends you have who trust you. I can pay occasionally my lunch by crediting my assets with $10 plus creating an interest-free liability for $10. Yes, and that is what the banks in effect do. And no, it is not a fraud, just a massively misunderstood thing.

It's a fraud because they can do it but I can't do it.

Say I have a network of businesses and individuals who trust each other, or that agree to establish some way to maintain trust with each other. Say we wish to do away with banks. So a person wants to open business A, needs to buy things to get their business up and running. Rather than begging the bank for access to capital [0], I buy things from my fellow businesses in this community on credit. They agree to give me their goods in exchange for my promise to pay back (and in exchange I do the same for their goods).

This still doesn't work because of one simple reason: dollars (or your local currency) are legal tender, and you need legal tender to pay taxes. You cannot legally function on "community credits" alone.

[0]: Which in itself it's a pretty wretched thing that this is in the hands of private individuals, who can decide who gets to start businesses and who remains a wage-slave.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#288

Post by ashtonkem » Mon, Feb 01, 2021, 3:42 PM UTC

lazyasciiart wrote: post #239

ashtonkem wrote: post #48

Earlier quoted context omitted.

From a social level, there is a huge difference between a bank run and a short squeeze. One affects regular savings, the other wipes out only those that opted into a high risk short position.

Unless those that opted in are “too big to fail”, and then everyone else pays for it.

If you’re talking about 2008, then they actually paid for it. The loans that the US government made during the crisis actually paid themselves back with some interest.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#289

Post by frankenst1 » Mon, Feb 01, 2021, 5:10 PM UTC

astrange wrote: post #172

arcticbull wrote: post #141

Earlier quoted context omitted.

My take on it re CPI is that I don’t know enough to know whether CPI is a suitable metric or not. I defer to economists here which is something you’re free to hold against me. Re (2) I’d be very interested in learning more about the delta between CPI and these baskets. Do you happen to have a reference? I’m always down to learn more. Re (3) I agree that inequality has gotten worse but I see that as a social and fisca…

CPI matches other measures of inflation like http://bpp.mit.edu pretty well. People who think inflation is high are cranks - the history of cranks goes from Austrians, to Shadowstats, and currently is on Chapwood Index. If we had inflation at 10% the economy would be smaller now than it was in 2010. It's under 2% and we can't get it up no matter how hard we try (not that hard so far.) > If you look back the top margi…

To be fair I actually thought that inflation was measured using a fixed basket of goods.

Apparently that was changed in the 90s. An example I read (of which I am not sure if it is entirely accurate) was: "if steaks become too expensive, its weight in the basket will be reduced because people are expected to buy more chicken instead. this results in lower inflation estimates".

If true, why do you feel a fixed basket should not be used to determine inflation even though it is probably what most people would expect in such a measure?

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#290

Post by arcticbull » Mon, Feb 01, 2021, 5:39 PM UTC

andrepd wrote: post #287

beefield wrote: post #260

Earlier quoted context omitted.

Depends on the wealth of the friends you have who trust you. I can pay occasionally my lunch by crediting my assets with $10 plus creating an interest-free liability for $10. Yes, and that is what the banks in effect do. And no, it is not a fraud, just a massively misunderstood thing.

It's a fraud because they can do it but I can't do it. Say I have a network of businesses and individuals who trust each other, or that agree to establish some way to maintain trust with each other. Say we wish to do away with banks. So a person wants to open business A, needs to buy things to get their business up and running. Rather than begging the bank for access to capital [0], I buy things from my fellow busine…

> It's a fraud because they can do it but I can't do it.

That's not what fraud means.

"In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right."

The reason some things are illegal and others aren't is because for the system to function, certain powers and responsibilities are delegated to certain entities. You can't own nuclear warheads, you can't kidnap people, and you can't print money. The act of doing those things isn't illegal. What makes that act illegal is the context. If those who were delegated that power are doing it, it's not crime, it's your responsibility. If you decide to build a reactor in your back yard, that's crime.

Just because someone else can do something you can't doesn't mean it's fraud.