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.
Sentinelgre
(The Spaniel in my photo is Archie)
234
Itās a short thesis that doesnāt give me the counter factual Iām afraid. Bottom line is that the research doesnāt actually explain adequately, for me, cause and effect. It is a great guess that the short ban may have caused the behaviour described but fails to take to account other factors that could have contributed to it. Certainly KPMGās summary of evidence suggests bias, but thatās just my reading.
The bit that I find dangerous though is the idea that somehow funds are the āpolicemenā of markets. Let me be clear here. Iām not saying you are dangerous to voice this. I am saying that over reliance on for profit organisations to āexposeā wrongdoing is dangerous. Not in the least because as we have seen with the whole GME example they will do anything but
Iām really not sure how you came to that conclusion, the original authors wording is very similar.
Marsh & Payne:
The deterioration was symmetric, affecting the limit buy and limit sell side of the order book equally. Finally we show 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.
Beber and Pagano:
The evidence in this paper suggests that the reaction of most stock exchange regulators
around the globe to the financial crisis ā imposing bans or regulatory constraints on shortselling
ā was detrimental for market liquidity, especially for stocks with small market
capitalization, high volatility and no listed options. Moreover, it slowed down price
discovery, and was at best neutral in its effects on stock prices.
There are other things to consider (e.g. HFT vs traditional hedge) but I still canāt see why anyone would support a complete ban on short selling, given the historical evidence.
āA complex system is a system composed of many components which may interact with each other. Examples of complex systems are Earthās global climate, organisms, the human brain, infrastructure such as power grid, transportation or communication systems, social and economic organizations (like cities), an ecosystem, a living cell, and ultimately the entire universe.ā
Complexity by design
Humans are not rational but rationalizing animals.
Thats why we love stonks.
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Sentinelgre
(The Spaniel in my photo is Archie)
237