Wasnāt Enron audited?
Wasnāt Bernie Madoff audited?
Edit: time to go to sleep now
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good shout lol guess it all comes down to corruption
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Bring on tomorrow I canāt wait!
Whilst I agree with Raul, I hope this goās as WSB planās and some serious regulation is brought in to stop this from being abused like it is in the future.
Itās good to see them get their hands slapped.
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A world with only long-only funds would have less efficient markets (in terms of liquidity and price discovery)
If the only way to be compensated was by finding good news then all research would be focused on that. If you can be compensated for finding bad news (by shorting then disclosing the information) then there is an incentive to look for bad news (beyond DD on your existing longs).
Hereās are summary article on hedge funds, on P25 it looks at short selling and price discovery and it cites a couple of papers that investigated the effects of historic bans on short selling:
Beber and Pagano (2011) examine the consequences of short-sale bans around the world during the 2007-2009 crisis. They find that bans had negative effects on liquidity, especially for small cap stocks and stocks without listed options. Moreover, they find that the bans slowed down price discovery, especially in bear markets and failed to support prices in the vast majority of markets
Also a summary of another paper:
The authors find that, through the period of the ban, markets for financial stocks were substantially less efficient and that the role of the trading process aiding in price discovery was greatly reduced.
Auditors arenāt as heavily incentivised to find fraud, itās clear in the past they have avoided disclosing it either through negligence / bad incentives. Shorts are always incentivised to disclose fraud.
I really donāt think the evidence supports an argument to ban short selling entirely, although that doesnāt preclude further regulation.
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Check out the WallStreetBets Reddit thread. I doubt very much this is over just yet. Justin Sun has claimed to take a $1m long position on Friday (I think that was the date off the top of my head).
Appreciate the insight, and will definitely check out the papers youāve linked there.
I guess what doesnāt sit right with me, how one can sell something they donāt own. Further regulation and accountability sounds like the right answer, but not sure what that would like.
Thanks @Cameron
I hope short selling is not banned, nor over regulated. Maybe all it takes to prevent overshorting in the future is for a stand to happen. That stand might be the GME squeeze if it causes so much damage that it gets printed with fire in everyoneās memory.
It might lead to regulatory intervention. But how could that work?! As far as Iām aware naked shorts are illegal, yet some geniuses managed to over-short a stock in a process that some call counterfeit stock scheme and regulators didnāt notice. Private investors did.
Maybe Chamath Palihapitiya is right when he calls for daily full transparency on the sizes of short positions. According to his argument if every long mutual fund has to disclose their long positions on a daily basisā¦ Because transparency
Retail investors will be keeping an eye on the list of shorts now, just as they have this week with all the non-GME memes. Then its up to the hedge funds if they want to risk it.
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It happens all the time, thatās what contracts are for - committing to a future obligation that you canāt immediately fulfil. Contract law gives people faith in those obligations and has enabled non-trivial transactions that are very important.
Derivatives such as futures and options involve selling something you donāt own.
Developers sell houses that they havenāt built yet.
People can pre-order a whole range of consumer products.
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Lance Armstrong was caught after a campaign by a few journalists- you donāt need to be able to make millions of dollars to be able to hold people to account and for people to call out cheating / fraud.
The financial markets will tell you that itās different and theyāre special. I donāt buy it, sorry. As we mature into the Information Age where I have access to more information on my smartphone than a Wall Street broker had 10/15 years ago this kind of behaviour belongs in the past.
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I agree it should be more public, but this information (short interest) is already available to everyone with a Bloomberg terminal.
Itās crazy that so many conspiracies persisted about institutions not closing short positions for so long when hundreds of thousands of people can literally look up this information in seconds.
David Walsh, Armstrongās journalist nemesis, has made an entire career out of exposing Armstrong. Yes, there was an ethical motive there to keep the yellow jersey to those who deserve it, etc but I doubt weād have heard of the Tour de france doping scandal if journalists had to do it all for free.
The same goes for the Boston Globe when it came to exposing widespread paedophelia in the Catholic Church, or Lawyer Rob Bilott when it came to suing the DuPont company for poisoning thousands. Clearly an ethical motive in there, but the financial motive plays an important part. I donāt think thereās anything wrong with that, if you work hard enough to expose wrongdoing on these kind of scales you deserve a payday in my view.
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And thatās basically the entire premise of The Big Short, which is one of the 3 films that forms the entire financial education for most of WSBās subs.
People love the film which depicts a massive bubble growing in an asset class that canāt be shorted until Burry creates an instrument that enables shorting, which in turn is used to incentivise hedge funds to research the mortgage bubble and ultimately correct prices.
Yet now they hate it?
Obviously the real answer is that views havenāt changed, the people have. Iām sure 90% of wsb would support short selling 1 year ago, yet now they make up 10% of the current subscribers.
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Donāt have access to a Bloomberg terminal. Only have access to a Google terminal
Some institutions opened new positions while overlooking the short to float ratio. Maybe thatās common practice, but itās the seed, root and stem of the current problem. Maybe it wouldnāt have became a problem with the potential to obliterate the entire system if it wasnāt noticed. But it was. And Iām glad it was.
I believe itās wrong to sell more stuff than what you have available.
Of course one can argue that airlines overbook flights because more often than not thereās people loosing their flights and that way with overbooking more people have the chance to be served. But there are also times when thereās 2 people with a ticket for the same seat. Thereās no way to create extra seats on the spot. And one is asked to leave the flight and wait for the next one. I think this is wrong. I think this should be obscenely compensated for the troubles causedā¦
With overshortings thereās a potential twist though. Management of the overshorted company could issue new shares to raise capital in an opportunistic move.
Edit:
Funny you mention
I feel like that character right now. But now on the opposite side of the tradeā¦ and tell to myself āOkā¦ buy itāā¦ but these prices are insane and one day they will free fall. Hope everybody realises that
Edit2: time to go to work
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Yeah and to be honest now this has happened I imagine market forces are going to prevent it happening again (no one wants to be the next loser). That said further regulation may also help.
Some people have just taken the argument against shorting to extremes. When cars crash we regulate for safety, not banning cars.
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Sorry, but I donāt think thatās fair.
As I understand it, Bury was a contrarian investor. He was doing the opposite of what most hedge funds were doing - so much so that he had an investor revolt (ārunā on his fund) on his hands. itās part of the reason he made so much money - the opportunity he uncovered was overlooked big time.
most hedge funds, on the other hand, were buying the collateralised debt obligations (CDOs; mortagge bund;es) - which were ticking time bombs, sometimes with peoples pension money.
There are great, ethical hedge funds/short sellers out there. Hell, Carson Block is one of my heroes. But I think itās fair for wsb to say wall street/hedge funds on the whole need to be put in their place.
Scion got its reputation (and most of itās capital) from the massive returns he made shorting tech stocks in the early 2000s collapse of the .com bubble. It was very much a traditional hedge fund
People were scared about his move to FI products from equity, shorting was nothing new for Burry.
Yes hedge funds buy some long products, but you know who buys more long products? Long-onlys.
I think I probably didnāt get my message across right: Iām saying that scion were indeed a hedge fund (ofcourse), but their ābig shortā was not a play the other hedge funds were doing. The bet, not the fund was contrarian.
But no one else was shorting the housing market bar scion, frontpoint, etc. Most hedge funds, on the other hand, were pumping the CDO market and in turn causing/worsening the crisis - look up magnetar, etc.
I may or may not have posted a tweet about Freetradeās Honey newsletterā¦ I mean it definitely didnāt age well 
https://twitter.com/ctspeck/status/1355170211809398787?s=21