A fun quick guide to short selling, or how a few greedy people are destroying society

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Darth Jello
Now lately, there's been a lot of talk about hyperinflation and the tanking economy and a little bit (but not quite enough) talk about short selling in the news and those who don't know may be wonder, What is short selling? Let's explore together.

Short selling in theory is when a special kind of broker called a short seller borrows stocks or bonds or other shares and securities from a stock broker. He then sells them to investors. If the price goes up, then when the investors sell he loses money, if the price goes down, he profits. He then returns the shares to the broker and pays his fee.

Now in practice, ones the shares are sold, the short seller manipulates the market via planted news stories, corporate sabotage, and hearsay in order to insure a big payoff, the losers being the broker who now owns worthless stock, the investors who've lost their money, and the company/government/country being invested in and it's perfectly legal!!! It is the market equivalent of buying fire insurance on a house and then burning it to the ground. Companies such as overstock.com and even the state of New York were almost bankrupted but these schemes.

But wait, how does this effect inflation and why is this the biggest cause of hyperinflation (including in the pre-nazi weimar republic wherein a billion marks could barely buy a loaf of bread)? Well, the Federal Reserve is a central bank and is therefore a private corporation and other nations invest by buying our currency, some of it from short sellers.
Now America works on a fairly stupid system of determining its economic health based on the Dow Jones Industrial Average which is an index of the largest US companies which are by no means the entire economy. So short sellers borrow currency from the Fed and sell it to other countries. Then the news coincidentally puts too much emphasis and focus on the JD tanking and no attention to the rest of the economy causing countries to dump dollars as an investment. This drives the value of the dollar down, allows short sellers to make a killing, and forces the government to print more money because it loses it's value by a factor of 10 compared to just printing more to cover costs.

And that's another way in which you're having a buffalo wing jammed up your ass without you even knowing it.

KidRock
You must hate the billionaire Democrat financier George Soros.

leonheartmm
****ing capitalism.

Darth Jello
For short selling, yes. For trying to corrupt the government with money even if it's in opposition to conservatives, yes.

But I have to admit for me personally, it's very ****ing hard for me to hate a holocaust survivor.

KidRock
Originally posted by Darth Jello
For short selling, yes. For trying to corrupt the government with money even if it's in opposition to conservatives, yes.

But I have to admit for me personally, it's very ****ing hard for me to hate a holocaust survivor.

I guess surviving the holocaust makes up for destroying society..lol

Darth Jello
Yeah well, see if you don't feel at least some sympathy after someone shoves half your family in an oven.

KidRock
Originally posted by Darth Jello
Yeah well, see if you don't feel at least some sympathy after someone shoves half your family in an oven.

That gives him the excuse to destroy society as you put it?

Darth Jello
no dumbass, it means i hate what he does but I can't bring myself to completely hate him.

KidRock
Originally posted by Darth Jello
no dumbass, it means i hate what he does but I can't bring myself to completely hate him.

Lol you have some issues then. If someone is destroying society I would hate their guts, no matter what happened to them 50 years ago.

What about some guy that molests and rapes small children? Would you not hate there guts because they were beatin when they were kids?

lil bitchiness
Originally posted by KidRock
You must hate the billionaire Democrat financier George Soros.

I hate Soros. Not because he's a democrat, but because he an imbecile and a moron and a propaganda funding shithead.

Darth Jello
Originally posted by KidRock
Lol you have some issues then. If someone is destroying society I would hate their guts, no matter what happened to them 50 years ago.

What about some guy that molests and rapes small children? Would you not hate there guts because they were beatin when they were kids?

so you don't see how a jew can feel some slight shred of sympathy for a holocaust victim as a jew and only on that level? And you'd rather bring in George Soros as an example of liberalism because you assume that because I seem like you're stereotype of what a liberal is that I love George Soros rather than actually debating the topic of the thread? I'm surprised that you're so ignorant of health care costs considering that anyone who tries to have a reasoned debate or conversation with you either feels like walking away from you or punching you in the head. You're debate tactics are ironically taken straight out of Lenin's playbook.

leonheartmm
^naaah, more like LRH.

KidRock
Originally posted by Darth Jello
so you don't see how a jew can feel some slight shred of sympathy for a holocaust victim as a jew and only on that level? And you'd rather bring in George Soros as an example of liberalism because you assume that because I seem like you're stereotype of what a liberal is that I love George Soros rather than actually debating the topic of the thread? I'm surprised that you're so ignorant of health care costs considering that anyone who tries to have a reasoned debate or conversation with you either feels like walking away from you or punching you in the head. You're debate tactics are ironically taken straight out of Lenin's playbook.

Okay so you sympathize with the guy, I understand that already. Still though, destroying society like George Soros is doing according to you I think would take over a bit more then feeling sympathy for the poor billionaire.

It's just funny how ignorant people claim Capitalism is so terrible, yet the politicians they support who are against capitalism..are funded by capitalists.

Darth Jello
I never said I was against capitalism, retard. I said I was against free market capitalism and the specific practice of short selling. How about you explain to me why short selling is good and why it should remain legal and largely unregulated and why insurance fraud should remain illegal by the same logic.

King Kandy
Originally posted by KidRock
It's just funny how ignorant people claim Capitalism is so terrible, yet the politicians they support who are against capitalism..are funded by capitalists.
What politicians would those be? Obama and the other main candidates were all capitalist to the core.

KidRock
Originally posted by Darth Jello
I never said I was against capitalism, retard. I said I was against free market capitalism and the specific practice of short selling. How about you explain to me why short selling is good and why it should remain legal and largely unregulated and why insurance fraud should remain illegal by the same logic.

What does insurance fraud have to do with short selling?

And why shouldnt it be legal? It's a perfectly good tool that can be used to make money when the stock market is plummeting.

And I didn't say you were against it, but nice insult..real intelligent.

Darth Jello
Because it's exactly like insurance fraud. You're banking on the economy failing and people losing their jobs then you make it happen. How is that any different than someone buying fire insurance on a building and then burning it down? Not only are you banking on the bad economy, you're maintaining the bad economy and making it worse. How can you not understand that?

KidRock
Originally posted by Darth Jello
Because it's exactly like insurance fraud. You're banking on the economy failing and people losing their jobs then you make it happen. How is that any different than someone buying fire insurance on a building and then burning it down? Not only are you banking on the bad economy, you're maintaining the bad economy and making it worse. How can you not understand that?

That would be like an insider trading scandal.

Your telling me I have a hand in collapsing a company if I short sell its stock? Yes or no?

Darth Jello
If you do what the vast majority of short sellers do and manipulate the market through both legal and illegal means in order to drive prices down, then yes. You're devaluing currency, devaluing stock, devaluing the government's money by shorting municipal bonds, etc. You're ripping off everyone you sell to, you're ripping off you're broker, and you're destroying whoever you're shorting and potential throwing people out of work, bankrupting other investors and peoples' pensions, bankrupting public works projects, maintenance, and social programs, and astronomically driving up inflation.

dadudemon
Darth Jello, I could just look it up, but it would probably be better if I just asked.


I know nothing more about short selling after your explanation, than I did before.


I still don't know how the short seller is turning a profit.


Use numbers for me...and trace "the dollar/s" through the process to show me how the short seller ends up with a profit.

Symmetric Chaos
Originally posted by dadudemon
Darth Jello, I could just look it up, but it would probably be better if I just asked.


I know nothing more about short selling after your explanation, than I did before.


I still don't know how the short seller is turning a profit.


Use numbers for me...and trace "the dollar/s" through the process to show me how the short seller ends up with a profit.

I think he's missing a step.

Buy --> Sell --> Drop Price --> Rebuy --> Sell

And yes, it does allow one to profit from driving a business (or entire economy) into the ground. Definitely not good for anyone in the long run.

Darth Jello
Ok, here's an example/walkthrough. Stockbrokers own a certain surplus of stock. A short seller borrows some of the stock at the price of a transaction fee. He then sells the stock. Let's say the stock is worth $20 a share and the business is an online retailer in the spirit of amazon or overstock. The short seller then uses some of that money to create other accounts and pays people to use those accounts on the site to buy items and then flood the site with bad reviews so business goes down. As business goes down so does the price of the stock. So let's say now the price of the stock is only 5 cents a share and investors want to sell. So the short seller buys back the stock but now that the price has fallen, he doesn't pay the investors back 20 bucks a share, he pays back 5 cents. He then returns his shares to his stock broker, again paying only the transaction fee and keeps his profits.

so it's borrow->sell->devalue->buy->return

dadudemon
Originally posted by Darth Jello
Ok, here's an example/walkthrough. Stockbrokers own a certain surplus of stock. A short seller borrows some of the stock at the price of a transaction fee. He then sells the stock. Let's say the stock is worth $20 a share and the business is an online retailer in the spirit of amazon or overstock. The short seller then uses some of that money to create other accounts and pays people to use those accounts on the site to buy items and then flood the site with bad reviews so business goes down. As business goes down so does the price of the stock. So let's say now the price of the stock is only 5 cents a share and investors want to sell. So the short seller buys back the stock but now that the price has fallen, he doesn't pay the investors back 20 bucks a share, he pays back 5 cents. He then returns his shares to his stock broker, again paying only the transaction fee and keeps his profits.

so it's borrow->sell->devalue->buy->return

Okay.

I think I've got it now. The short seller "borrows" stocks for a fee. That short seller then sells those stocks to someone, rather quickly. Then the short seller waits until the stock price drops enough to turn a profit before buying the stocks he or she borrowed.

I didn't understand this, at first, because I couldn't understand why a stockholder would let someone borrow their stocks for a fee. But it makes sense, now. If the stock price goes up and the borrow agreement comes due, then the stockholder actually turns a profit. This is the other part of what I understand as "long" selling or something. So, this means that the original stockholder has the option of turning a profit from the short seller...while also getting a slight security in the form of the fee....meaning, it isn't a complete loss.


But, why would a stockholder allow the stock to be borrowed in the first place...it seems more risky than safe.

Darth Jello
he doesn't wait for the stocks to drop in value and then buy them, the investors sell the stocks back when they drop in value. Theoretically if the stock price went up and the investor sold, the short seller would lose but again, the short seller does everything he can to make sure the price goes down. The stock broker does it to collect the fee. It's a stock broker, not a stock holder, the stocks belong to his/her firm not to him personally and they always own some surplus of stock.

here's a more fun and entertaining report, tho it is a bit simplified-
http://www.thedailyshow.com/video/index.jhtml?videoId=220550&title=The-Money-Honey-Bee

jaden101
Originally posted by dadudemon
Darth Jello, I could just look it up, but it would probably be better if I just asked.


I know nothing more about short selling after your explanation, than I did before.


I still don't know how the short seller is turning a profit.


Use numbers for me...and trace "the dollar/s" through the process to show me how the short seller ends up with a profit.

There's several ways it can be done.

A short seller will borrow shares from someone who owns them. Sells them at the current market value of, say, a dollar each. The very act of selling a large number of shares is enough to drive the price of that share down so it goes down to say 90c...The short seller then undermines the company by starting false rumours of the company being in difficulty. This drives the share price way down. The short seller then uses the money he/she made from selling the shares at a dollar each to buy back the shares they borrowed in the 1st place at 30c a share and then gives those undervalued shares back to the person they borrowed from.

jaden101
Oh well...waste of time me explaining that then...hahaha

KidRock
Originally posted by jaden101
There's several ways it can be done.

A short seller will borrow shares from someone who owns them. Sells them at the current market value of, say, a dollar each. The very act of selling a large number of shares is enough to drive the price of that share down so it goes down to say 90c...The short seller then undermines the company by starting false rumours of the company being in difficulty. This drives the share price way down. The short seller then uses the money he/she made from selling the shares at a dollar each to buy back the shares they borrowed in the 1st place at 30c a share and then gives those undervalued shares back to the person they borrowed from.

Okay what you're talking about is something that should be illegal and ALREADY IS illegal.

That is like saying buying stock should be illegal because it's like insurance fraud too. I can make rumors that the company just signed a new contract or will develop a new product that will be highly successful, this will drive the price up and make my shares worth more money. I can then sell my shares for a profit and when the truth comes out that it was all a lie, the stock will plummet and those people will lose their money.

Darth Jello
What current laws does that violate?

dadudemon
Originally posted by jaden101
There's several ways it can be done.

A short seller will borrow shares from someone who owns them. Sells them at the current market value of, say, a dollar each. The very act of selling a large number of shares is enough to drive the price of that share down so it goes down to say 90c...The short seller then undermines the company by starting false rumours of the company being in difficulty. This drives the share price way down. The short seller then uses the money he/she made from selling the shares at a dollar each to buy back the shares they borrowed in the 1st place at 30c a share and then gives those undervalued shares back to the person they borrowed from.

So why wouldn't the stockholder decline to allow the borrow at fee? Wouldn't "short sellers" become obvious and they be black listed, eventually?

Darth Jello
On what grounds if the money's green?

Symmetric Chaos
Originally posted by dadudemon
So why wouldn't the stockholder decline to allow the borrow at fee? Wouldn't "short sellers" become obvious and they be black listed, eventually?

Maybe no one cares as long as the money keeps coming.

dadudemon
Originally posted by Darth Jello
On what grounds if the money's green?

Maybe because they will lose money in the long term, but you're correct. Stockholders are usually short sighted.

KidRock
Originally posted by Darth Jello
What current laws does that violate?

Originally posted by Darth Jello
If you do what the vast majority of short sellers do and manipulate the market through both legal and illegal means in order to drive prices down, then yes. You're devaluing currency, devaluing stock, devaluing the government's money by shorting municipal bonds, etc. You're ripping off everyone you sell to, you're ripping off you're broker, and you're destroying whoever you're shorting and potential throwing people out of work, bankrupting other investors and peoples' pensions, bankrupting public works projects, maintenance, and social programs, and astronomically driving up inflation.

You said by legal means as well. If you can manipulate the market to bring prices down why cant you manipulate it to artificially bring them up?

Darth Jello
you can do that too, you didn't answer my question

KidRock
Originally posted by Darth Jello
you can do that too, you didn't answer my question

What question? What laws does that currently violate?

Fraud would be one.

Or by that logic..are you okay with people short selling if they do nothing illegal?

Darth Jello
Hiring new agencies to do hatchet jobs isn't fraud, it's slander and liable. Those are civil, not criminal offenses and so require a lot of work to prove, usually long after the fact if the victim files suit at all. Writing negative reviews, real or fake may be disingenuous and underhanded but it's technically not illegal. Sabotage is illegal but again, requires a justice department and/or SEC that is interested in equal justice which the Madoff scandal and the current investigation into their lawyers proves that they aren't. Selective reporting and corporate editorial control isn't illegal either.
And yes, I do think it should be illegal in all cases because of the extensive harm it does to society and the economy. It's one of those methods like government corruption, monopoly, and oligopoly by which you're precious laissez-faire free market destroys itself.

KidRock
Originally posted by Darth Jello
Hiring new agencies to do hatchet jobs isn't fraud, it's slander and liable. Those are civil, not criminal offenses and so require a lot of work to prove, usually long after the fact if the victim files suit at all. Writing negative reviews, real or fake may be disingenuous and underhanded but it's technically not illegal. Sabotage is illegal but again, requires a justice department and/or SEC that is interested in equal justice which the Madoff scandal and the current investigation into their lawyers proves that they aren't. Selective reporting and corporate editorial control isn't illegal either.
And yes, I do think it should be illegal in all cases because of the extensive harm it does to society and the economy. It's one of those methods like government corruption, monopoly, and oligopoly by which you're precious laissez-faire free market destroys itself.

The scenario I gave is fraud. "# imposter: a person who makes deceitful pretenses "

Lieing about a company that will do well to pump up the value of your own stock, then selling it off at a high price causing the value of everyone elses to drop. You're using deception and and injuring people.


Originally posted by Darth Jello
It's one of those methods like government corruption, monopoly, and oligopoly by which you're precious laissez-faire free market destroys itself.

Are you saying Government corruption and even monopolys don't occur under a socialist or communist style economy roll eyes (sarcastic)

Darth Jello
no i'm not. are you a monochromat sir?

CATMANEXE
wow. this stuff is is news to who now?
move to Costa Rica, invest your money in condominiums.
your problem with Wall Street is solved.

jaden101
Originally posted by dadudemon
So why wouldn't the stockholder decline to allow the borrow at fee? Wouldn't "short sellers" become obvious and they be black listed, eventually?

Sometimes the stock holders have their eye on the long term and know their stock will recover. They'll then use their fee to reinvest in shares at the lower cost and play the waiting game.

Quark_666
Originally posted by KidRock
Okay so you sympathize with the guy, I understand that already. Still though, destroying society like George Soros is doing according to you I think would take over a bit more then feeling sympathy for the poor billionaire.

It's just funny how ignorant people claim Capitalism is so terrible, yet the politicians they support who are against capitalism..are funded by capitalists. What if I told you half the things you consume fueled a massive worldwide slave market that is growing continuously? Would you convict yourself for your crime? No. You'd plead ignorance, because it's not a crime. What if you didn't stop consuming? would you be guilty then? No. Of course not. You are totally apathetic towards a world that is completely abstract from your own, because you're human. But you are the exact same as businessmen that exploit others and cause strife in an unpredictable game called economics. Honestly. They look at what they take from people, and they see a middle class of consumers happy to give it to them. Would you even expect them to wonder whether they are helping the economy? Do you wonder if you are helping a slave market when you buy a house made of bricks or a diamond mined from the depths of a toxic cave?
And you preach ignorance...

leonheartmm
^but actually, business who are fairly succesful know full well the effects their actions are having on the economy and the lived of people. and unlike the person who lives a comfortable life while the slave trade grows, the BUSINESSMAN, often earns far more than he needs, and keeps on growing this amount, often not even needing it for personal use, luxurious or otherwise. unlike the citizen who cant help it without significant personal sacrifice, the businessman CAN help it with little to no sacrifice to his own person or family in any reasonable, consumer way.

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