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Documents Show How Goldman et al Engaged in 'Naked Short Selling'

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Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#31

Post by twoodfin »

rapind wrote: post #16

Every time I read about complex wall street scams I get so unreasonably infuriated. At this point I can't help but unfairly assume that anyone who works at an investment bank is a complete douche. Just thinking about the bailouts gets me worked up.

The bailouts that have largely been paid back? At this point, even if you're a high income taxpayer, these guys lost very little money that you didn't choose to give them.

And really, getting your blood boiling is just about all Taibbi is good for.

Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#32

Post by Symmetry »

cynicalkane wrote: post #29
Yrlec wrote: post #24

Earlier quoted context omitted.

When you're selling something you don't own you're distorting the market's price discovery mechanisms. In many contexts I think most people would consider it fraudulent to sell something before you've bought it.

I've never got the impression that most economists think short selling distorts the market's price discovery mechanisms, and it's really dishearting that the GP is being downvoted for, plainly and clearly, stating what is economic orthodoxy. Anyway, the futures market has functioned for centuries with people buying and selling what they don't own, and the big institutional buyers and sellers commonly use futures pric…

In the futures market the items traded are accurately described as futures, rather than the seller pretending that they have the item they're selling.

Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#33

Post by cynicalkane »

Symmetry wrote: post #32
cynicalkane wrote: post #29

Earlier quoted context omitted.

I've never got the impression that most economists think short selling distorts the market's price discovery mechanisms, and it's really dishearting that the GP is being downvoted for, plainly and clearly, stating what is economic orthodoxy. Anyway, the futures market has functioned for centuries with people buying and selling what they don't own, and the big institutional buyers and sellers commonly use futures pric…

In the futures market the items traded are accurately described as futures, rather than the seller pretending that they have the item they're selling.

For Pete's sake, it's the rules of the game. You might have an objection to naked shorting. but you can't redefine naked shorting as "pretending" because you don't like the rules.

They're not pretending to follow the rules of the market, they are actually following the rules of the market. Having actual posession of the item at the precise moment of sale is not a rule of the market in question. Lay investors still get their shares delivered, so I have no idea what you're worrying about.

Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#34

Post by roel_v »

Yrlec wrote: post #24
roel_v wrote: post #20

Earlier quoted context omitted.

What's the problem with it, really? If A promises B to sell him something and then A can't deliver for some reason, then B will stand to be compensated by A for any damages resulting from that. Why would it be special for stock? Of course there is the risk that massive naked trades will influence the price of stocks, but that should just be priced in, like any other risk, no? What am I missing?

When you're selling something you don't own you're distorting the market's price discovery mechanisms. In many contexts I think most people would consider it fraudulent to sell something before you've bought it.

"When you're selling something you don't own you're distorting the market's price discovery mechanisms."

How? It only does so if one sets out to do it on purpose, and in that case there is no difference between selling something that own, or that you don't (yet) own.

Let's say I sell grain to you for 300 USD per ton, to be delivered in Fall 2012. How does that distort the market? Alternatively, how is this example different from naked selling? Or isn't it, and do you think that this sort of insurances should be prohibited too?

"In many contexts I think most people would consider it fraudulent to sell something before you've bought it."

I'm not sure. There are many retailers who only order something from their wholesaler or manufacturer after you've bought it from them. Why would a buyer be concerned with when or how a seller gets his merchandise? It only becomes a problem after failing to deliver the goods, and when no adequate compensation for such a failure can be given (i.e., a seller going bankrupt because of a naked sale gone wrong). Something that could be controlled, regulated or mitigated in many ways that are much less intrusive than forbidding 'naked shorts'.

Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#35

Post by anamax »

Yrlec wrote: post #24
roel_v wrote: post #20

Earlier quoted context omitted.

What's the problem with it, really? If A promises B to sell him something and then A can't deliver for some reason, then B will stand to be compensated by A for any damages resulting from that. Why would it be special for stock? Of course there is the risk that massive naked trades will influence the price of stocks, but that should just be priced in, like any other risk, no? What am I missing?

When you're selling something you don't own you're distorting the market's price discovery mechanisms. In many contexts I think most people would consider it fraudulent to sell something before you've bought it.

How is "naked short selling" of stock any different from selling corn that hasn't been grown yet? Or, taking out a construction loan. etc.

There are lots of "don't have it yet" processes. Consider the typical loan. The borrower typically doesn't have the money at the time that the loan is made.

Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#36

Post by cynicalkane »

Yrlec wrote: post #30
cynicalkane wrote: post #29

Earlier quoted context omitted.

I've never got the impression that most economists think short selling distorts the market's price discovery mechanisms, and it's really dishearting that the GP is being downvoted for, plainly and clearly, stating what is economic orthodoxy. Anyway, the futures market has functioned for centuries with people buying and selling what they don't own, and the big institutional buyers and sellers commonly use futures pric…

Normal short selling doesn't distort price discovery. Khan Academy describes this quite well: http://www.youtube.com/watch?v=zAkMhEqWFF0 . However, with naked short selling it's a different story. When you're short selling something that you don't own you're in effect making it look like the supply is bigger than it actually is. This distorts the price discovery mechanism.

Naked short interest is almost certainly too ephermal to distort the price, but suppose it does due to illusory oversupply.

So what's the objection? If you buy, hold, and sell, you want prices to be overall lower. Selling low isn't bad if it means you were also buying low. In short, as Warren Buffet likes to point out, low prices are good for investors.

Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#37

Post by rapind »

twoodfin wrote: post #31
rapind wrote: post #16

Every time I read about complex wall street scams I get so unreasonably infuriated. At this point I can't help but unfairly assume that anyone who works at an investment bank is a complete douche. Just thinking about the bailouts gets me worked up.

The bailouts that have largely been paid back? At this point, even if you're a high income taxpayer, these guys lost very little money that you didn't choose to give them. And really, getting your blood boiling is just about all Taibbi is good for.

I'm not sure I'd say largely paid back. http://projects.propublica.org/bailout/main/summary

Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#38

Post by [deleted] »

twoodfin wrote: post #31
rapind wrote: post #16

Every time I read about complex wall street scams I get so unreasonably infuriated. At this point I can't help but unfairly assume that anyone who works at an investment bank is a complete douche. Just thinking about the bailouts gets me worked up.

The bailouts that have largely been paid back? At this point, even if you're a high income taxpayer, these guys lost very little money that you didn't choose to give them. And really, getting your blood boiling is just about all Taibbi is good for.

[deleted]

Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#39

Post by tedunangst »

jblow wrote: post #11
tedunangst wrote: post #2

Article lists a bunch of interesting details, and even is very careful to make sure the term 'muppets' gets incorporated twice, but doesn't quite connect the dots and explain just exactly how the naked shorting fucked the muppets. For example: More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to “short an impossible name and fully expecting not to receive it” he would th…

I think you didn't understand that paragraph. The implication is that Goldman couldn't get the stock, and in fact did not bother, and just lied and said they did.

I get that. But there's no explanation as to why that's bad for the client, as is implied by the article.

Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'

#40

Post by tedunangst »

pppttt wrote: post #15
tedunangst wrote: post #2

Article lists a bunch of interesting details, and even is very careful to make sure the term 'muppets' gets incorporated twice, but doesn't quite connect the dots and explain just exactly how the naked shorting fucked the muppets. For example: More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to “short an impossible name and fully expecting not to receive it” he would th…

It's actually quite clear. Much like printing money takes value away from savers, naked short selling takes value from existing stock holders. The lawsuit between Overstock and the banks concerned a phenomenon called naked short-selling, a kind of high-finance counterfeiting that, especially prior to the introduction of new regulations in 2008, short-sellers could use to artificially depress the value of the stocks t…

Overstock's shareholders were not Goldman's clients. I want to know how the 'muppets' were harmed, as the article claims.

There is a story here, but this is not the author who's going to write it.

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