A SVB short seller explains red flags he saw months ago

When you short a stock, you are basically selling a stock you don't have. Thus you get money and owe someone else a stock (in practice what happens is someone else unknowingly gives you a stock for free and then you sell it, and they get an IOU for a share of the stock later; but let's not worry too much about the mechanics). Once you have this IOU, you can hold on. The value of the liability associated with the IOU can go up or down. If it goes down, then when you discharge that liability by buying the share you owe, you will pay less than you were paid for the short, thus making a profit. If it goes up, then you will pay more and thus lose money. One risk with a short is that your liability is unbounded. In a traditional stock purchase, the worst that can happen is that you lose the money you put in. In a short sale, you can lose many multiples of the money you put in if the stock does very well. Under a few circumstances, the IOU can be called, forcing you to prove that you have the money to buy a share; for instance, if you were to short $1,000,000 in shares and the share price triples, you owe $3,000,000.

To summarize: when you buy a stock, it's because you think it will be worth more later (again, let's set aside dividends and other things). When you short a stock, it's because you think it will be worth less later.

The reason shorting is permitted is because in general, there is a belief (mistaken or not), that additional liquidity -- more trading -- benefits everyone involved in a market by reducing the spread between prices for buying and selling; additionally, shorting makes it possible to hedge your exposure to a sector (i.e. to trade off some upside in a sector with some corresponding downside and vice versa).

Problem is, we are in a scenario of great macroeconomic uncertainty. That can make borrowing costs (needed for shorting something) quite high, because everyone and their moms want to protect themselves from market downturns.

So even if you guess correctly that some company will fail, you might still lose money if you're not lucky with timing. Many short sellers were squeezed in the last months, but we don't hear their stories on Fortune.

How much could it be? 60-70%? That is how much the stock fell. The problem with these kind of stories is you don't hear about all the times these firms sold short and or were wrong or lost lots of money before eventually being right and would have been better off with an index fund. It's easy in hindsight to explain what was wrong with the bank or why the trade was a success.