Hedge Funds and the Global Economic Meltdown (Part 2)

Short selling hedge funds lit the spark that led to the global economic meltdown. Now they want to help craft the laws Congress will pass to fix our broken regulatory system. That's insane.

Category:

News & Politics

Tags:

• wall street
• hedge funds
• naked short selling
• lehman brothers
• bear stearns

[jphlfcjphlfc]

why is naked short selling linked to these IOUs ~ I really don't see the link

[writerjudd]

@jphlfcjphlfc a byproduct of naked short selling is stock trade delivery failures. When trades fail, "share equivalents" are credited the buyer's account. These share equivalents are IOUs, which trade like regular shares and have the effect of artificially boosting the supply of shares trading. When supply goes up, price falls.

There are other reasons why trades might fail, but when it happens on an ongoing basis, it's usually a result of naked shorting,

[RejectKillers]

Ahh I see, someone kept selling these "IOUS' and since they never really got the share he sold them to many different people which then caused the price to go down, or am I way off?

[writerjudd]

@RejectKillers the market treats these IOUs like normal sell orders. When sell orders exceed buy orders (in the stock market, there are "market makers", which make is so that a seller doesn't necessarily mean there's a buyer on the other end, and vice versa) price always drops. If you flood the market with IOUs, price drops quickly, and that causes those who wouldn't normally want to sell to sell in a panic, and a vicious cycle develops.

[writerjudd]

@digitalbots If you mean "high speed trading" or "flash trading," no it's not the same, though I'd say naked short selling and flash trading are symptoms of the same corrosive greed on Wall Street. At some point, one must ask oneself whether it's ok to profit from some tactic merely because one can.

[repeat108]

@jphlfcjphlfc If you invest in the stock market, you are either hurting yourself, or hurting someone else.....is that Clear??

[writerjudd]

@MysticPotato68 It had to be naked shorting, because the extreme volume exceeded the supply of shortable shares many times, additionally, legitimate shorting generates very few delivery failures, and in these cases there were millions. It's sort of hard to feel sorry for Bear Stearns in this case, since Bear was one of the worst perpetrators of naked shorting while it was alive. Lehman much less so.

[MysticPotato68]

@writerjudd Do they know who were naked short selling or just short selling Bears Sterns or Lehman before they collasped? And Why? Is this a case of vultures eating each other?

[BruceD1776]

Also, just because a company's stock price tanks does not mean it goes bankrupt. The price of a company's stock is an indicator of its value, not a determiner. A company goes bankrupt when its costs outweigh revenues and its reserves and credit are exhausted, and can't pay it's bills. Unless that happens, it stays in business regardless of its stock price. Bear-Stearns went belly up because assets tanked & illiquidity ensued, not because of shorting.

[BruceD1776]

He doesn't understand "naked" shorting. The price is ultimately determined by the actual physical market - where the actual stock or commodity changes hands. Any form of IOU is a poor proxy because ultimately the IOU must be made good on. When someone shorts a stock ultimately one will have to deliver or sell the short contract for an offsetting long. If there isn't fundamental weakness in the stock, one could get caught in a short squeeze where one is forced to pay a higher price to make good.

[smartification1]

Does the SEC work for the falsely named Federal Reserve? It sounds like they are just as corrupt.

[hubeef]

@writerjudd simple supply and demand. they sell sell sell sell sell sell sell sell more sell more than they have sell sell any buy order is countered, a stock is a "fixed" number of shares and ANY sale of stock that is not true is BAD BAD BAD for the system!

[hubeef]

I WORKED AT BEAR STEARNS as a broker!!! The day they changed the uptick rule, Im tellin ya, trading changed, and crocks took over. I went from a wealth and retirable man, to broke as a joke! Really crazy that this was allowed to go on!!!! Im not sure what to think anymore

[jphlfcjphlfc]

@repeat108 I am guessing u know nothing about this subject either then