Is anyone else following the Citron short seller vs WallStreetBets chaos?

Wasn’t Enron audited?

Wasn’t 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 can’t wait!

Whilst I agree with Raul, I hope this go’s as WSB plan’s and some serious regulation is brought in to stop this from being abused like it is in the future.

It’s 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).

Here’s 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 aren’t as heavily incentivised to find fraud, it’s clear in the past they have avoided disclosing it either through negligence / bad incentives. Shorts are always incentivised to disclose fraud.

I really don’t think the evidence supports an argument to ban short selling entirely, although that doesn’t 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 you’ve linked there.

I guess what doesn’t sit right with me, how one can sell something they don’t 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 everyone’s memory.

It might lead to regulatory intervention. But how could that work?! As far as I’m 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 didn’t 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 basis… 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, that’s what contracts are for - committing to a future obligation that you can’t 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 don’t own.

Developers sell houses that they haven’t 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 don’t 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 it’s different and they’re special. I don’t 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.

It’s 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, Armstrong’s 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 we’d 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 don’t think there’s 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 that’s basically the entire premise of The Big Short, which is one of the 3 films that forms the entire financial education for most of WSB’s subs.

People love the film which depicts a massive bubble growing in an asset class that can’t 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 haven’t changed, the people have. I’m 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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Don’t 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 that’s common practice, but it’s the seed, root and stem of the current problem. Maybe it wouldn’t have became a problem with the potential to obliterate the entire system if it wasn’t noticed. But it was. And I’m glad it was.

I believe it’s wrong to sell more stuff than what you have available.

Of course one can argue that airlines overbook flights because more often than not there’s people loosing their flights and that way with overbooking more people have the chance to be served. But there are also times when there’s 2 people with a ticket for the same seat. There’s 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 caused…

With overshortings there’s 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 trade… and tell to myself “Ok… buy it”… 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 don’t think that’s 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 (“run” on his fund) on his hands. it’s 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 it’s 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 it’s 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 didn’t get my message across right: I’m saying that scion were indeed a hedge fund (ofcourse), but their ‘big short’ 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 Freetrade’s Honey newsletter… I mean it definitely didn’t age well :upside_down_face:
https://twitter.com/ctspeck/status/1355170211809398787?s=21