"Shorting" is not a big deal. Shorting is a very sensible--sometimes risky--investment

[Mike 03]

strategy. This notion that was propogated today at this hearing that shorting is some exotic, Un-American thing is ridiculous. When Ebay got very high, I shorted it, to my detriment. Its Price to Earnings average was ridiculous, and I bet and I lost. But there have been many fairly obvious short opportunities. Fortunately, I had better luck with long positions, but this idea, from this Committee today, that brokerage firms should not short, that it is Un-American, or something, is absolutely ridiculous.

Shorting is strategic and intelligent.

[pitohui]

1. what committee is that, mike?

i think maybe i don't know what you're talking about

who said it was wrong to "short" stock? it's a valid way to make $ if you're good at guessing when the price of stock will fall

[AnArmyVeteran]

45. It leads to inherent corruption to many times. And shorting with other people's money is a crime...

[islandmkl]

2. maybe the problem being addressed is...

SHORTING THE VERY PRODUCT YOU ARE PROMOTING...

an 'inside short' is nothing you can do at home...unless your address is wall street...

[Mike 03]

5. This Committee.

http://www.c-span.org/Watch/Media/2010/04/27/HP/R/32263/Senate+Hearing+on+Goldman+Sachs+the+Financial+Crisis.aspx

[mmonk]

53. Yep.

[Lost4words]

3. its shorting your own portfolio, which you know is garbage while selling it

to other customers. Or shorting the market because you know something tragic was going to happen.

[A HERETIC I AM]

You can not sell short securities you own.

That is the definition of being "short" ie: you don't own what it is you are selling.

It is buying low and selling high in reverse. You are selling high then buying low.

[sharesunited]

13. They do have shorting against the box.

It is a way to lock in a profit in a security you hold without actually parting with your long position.

[A HERETIC I AM]

18. Shorting against the box is a tax reduction strategy that no longer applies.

http://www.investopedia.com/terms/s/sellagainstthebox.asp

But fair enough, my statement was incorrect.

As a general rule one typically sells short positions one does not hold.

As with many trading strategies, there are exceptions.

[WCGreen]

34. You can hold a long term position and still purchase short

At least that is what I always thought you could do.

The short is a different transaction from the long term position you have in the stock.

[Lost4words]

41. I just lost my thought, sorry folks!

[backscatter712]

16. What Goldman Sachs did...

was to first sell the securities, knowing that they were toxic garbage, then short them, knowing these investments would implode.

There's a word for that - FRAUD.

[Warren Stupidity]

22. no shit

[Angry Dragon]

60. Fraud ......... You have the right word for what they did

[Lost4words]

40. I know that , I have traded shorts and puts, I was refering to brokerage houses not an individual.

I may be dirt poor today but I once moved some change on the market............................

but my wording could have been much better I wasnt being very clear.

sorry for the confusion and thanks for the correction.

[BlooInBloo]

4. Yep - that's the result of Americans being dumb.

[Richardo]

6. "bet"

That's why it's not appropriate.

[Trillo]

7. if there are no sellers, there can be no buyers....

that said, it is questionable whether the seller should be the same brokerage that is acting, supposedly, on behalf of the client.

[bluerum]

8. As long as the deck isn't stacked.

And it was.

[KeepItReal]

9. You shorted a viable going concern. An honest transaction.

GS shorted instruments (packaged home loans) they knew either had no future value or were fraudulent while they sold those same instruments to people who took (losing) long positions.

[AnArmyVeteran]

44. Me start company, Company grows, Me short company, Me deliberately cause it to fail, Me get RICH!!!

Corporate leaders could make more by shorting their company through a third party and then causing the business to fail, destroying the financial stakes of all the people who holding stock. It's done all the time. Wall Steeters told others to buy when they were SHORTING. That makes them CRIMINALS.

[aquart]

10. Shorting is selling something you don't have, isn't it?

With the intention of buying it cheaper elsewhere and pocketing the difference?

How is that not fraud?

[DaveinJapan]

20. What you are describing (no possession) is naked short selling, which is a crime

Normal short selling requires (borrowed) possession of the security. And you have to pay interest on the loan.

Synthetic short selling, or in other words using derivatives against your own stock in case it falls, is simply a hedge (insurance).

[aquart]

38. Interesting.

And I do have a vague impression of someone being quite scared when he did it but it was so long ago and I was in so many places on Wall Street that I have no idea where it was.

But this naked thing has been going on a long time.

[DaveinJapan]

42. Almost anybody familiar with the risks would be a little scared.

Short selling is potentially far more costly than regular stock buying. When you buy shares, assuming no margin is used, your potential loss is limited to 100% of your investment.

Short positions on the other hand, can lose much more. It's theoretically limitless, but in any case I've personally seen some rocket stocks increase by 200% or more in a matter of days (penny stocks or OTC are even more ridiculous, but you can't really short those).

[Ozymanithrax]

11. When you tell your customers to buy something "go long" and you go short...

there is a problem. It is a conflict of interest, and quite possibly fraud. That is what these jerkoffs were doing.

[paulsby]

12. as a trader AND investor, i short frequently also

i use futures, options, ETF's and stocks to do so

[pnwmom]

14. Were they talking about brokerage firms or banks?

I think it would be reasonable to not having banks making bets with their deposits.

[backscatter712]

15. Shorting's OK, if you're an unaffiliated investor without inside information.

Now, Goldman Sachs' tactic of effectively shorting a financial instrument they created, and certainly have every bit of inside information about, is a different matter.

It's like an arsonist buying fire insurance...

[Warpy]

17. Shorting somebody else's stock or doing naked shorting is a crime

or it certainly should be.

Dumping a stock you think is going down with the intent of buying it back when it does so and pocketing the difference is risky but sound.

The stuff the big institutions were doing is not.

[DaveinJapan]

19. Dumping a stock is not short selling.

Naked short selling IS a crime (but wall street institutions do it anyway and get away with it).

Not sure what you mean by "shorting somebody else's stock", but if by that you mean borrowing shares (which is how a short sale is done), it's not a crime at all afaik.

[Art_from_Ark]

37. "Risky but sound"

Seems to be a contradiction there-- a sound investment is presumably not a risky one. I assume you meant "risky but legal".

[Odin2005]

21. So? that doesn't make this crap right!

IMO Financial "innovation" = FRAUD. "Shorting" sounds like the perfect way the Big Guys can steal people's investments by talking up the market and then shorting like crazy.

[AmericaIsGreat]

23. That's not true

Not only did a couple of the senators specifically say there was nothing wrong with shorting itself but after several questions they reiterated that they knew GS did not do anything illegal or necessarily out of the ordinary.

The question being posed again and again was whether GS saw any conflict of interest in proactively selling junk securities on which they were planning to take the short side without any disclosure to customers.

[Oilwellian]

29. I'm sorry, but...

The SEC is suing GS for fraud. In my book, fraud means a crime was committed.

[MilesColtrane]

24. Mike, is your first name Agent?

[Rex]

25. The issue was not how they did it, but why. The why was to make

more money off of a guaranteed loss. That is not speculative risk, that is fraud.

[BootinUp]

35. bingo.

[cbdo2007]

26. Most people lose WAY more money shorting than they make.

The people who make money doing it are these huge investment banks who can drive the prices up or down, whichever way happens to benefit them the most at the time.

The only investment strategy that actually works is to pick good companies and be in them over the long term. Every other strategy loses people much, much more money than it makes them.

[Art_from_Ark]

46. Even "good" companies can tank

GM and Citigroup are just two recent examples. Not to mention Honeywell International Inc., Altria Group Inc. and American International Group Inc., which were all, until recently, members of the elite Dow Jones 30 Industrials.

[cbdo2007]

57. Well....you do have to put SOME minimal effort into watching the companies through the years.

No reputable stock picker would have still been in GM over the past decade when they've been bleeding money. Same with Citigroup, AIG, everyone else you mentioned. Everyone paying attention was out of them all long before the troubles started because none of this happens overnight.

[MadHound]

27. Shorting is very sensible, in moderation

The trouble is all of Wall St. was shorting, and then deliberately tanking what they had just shorted.

[Mojeoux]

47. This is the point, shorting is cool unless people conspire to cheat.

People cheat.

I worked for Optionetics.com

You know that i know that you know that I know that you know that People Cheat!

[lonestarnot]

28. Not with my fucking tax payer dollars! Short your shorts if you want but not fucking mine!

[Incitatus]

32. Yes, the problem I have is that if I own shares, my shares can be used by shorts

Someone correct me if I'm wrong.

Say I buy 10K shares of XYZ with Scottrade. Another Scottrade client can short that 10K shares, driving down the price of the stock. Unless I take physical possession of the shares, the amount of shares I own can be shorted by someone else. I shouldn't have to let them borrow my shares to short. That would be against me best interest and it's BS.

[Blue-Jay]

30. What is your position on "pantsing"?

[kentuck]

31. It's a self-fulfilling prophecy...

When you start to believe that a company or stock is going to fail, after a while, they all begin to look like failures. This has left capitalism standing naked in the rain.

[lonestarnot]

33. Without shorts or naked. either way.

[dbmk]

36. But is it sensible from societys viewpoint?

The moment you allow people to gamble on something specific failing you generate an interest in seeing it fail.

It would be a hard sell to explain how that can move a society forward.

[ThomWV]

56. Of course it is, and investing in the market is not gambling.

Short selling of a companies' stock has no effect what so ever on the company and certainly no effect on society moving forward, whatever that's supposed to mean.

[dbmk]

61. Ehm..

.. I might be mistaken here, but short selling is not investing anything _in_ the market? But quite the opposite?

And are you saying that stock trades have no effect on stock prices? Or are you saying that stock prices have no effect on the company? Or both?

[Bluenorthwest]

39. Many things are sensible when done legally

which are simply criminal when not done legally. Mike, a fire is a great way to stay warm or cook food, but that does not mean it is sensible to use fire to clean your rug. Understand? Nothing wrong with trading, but there is much wrong with fraud.
I have seen major players go down in my day. People with seats on the exchange. Because they were using insider tactics and information, and defrauding one set of people to enrich another, which is what happened here. When I say 'I have seen' I mean I have seen the wife throw them out and weep for a year, suddenly realizing that her 'successful hubby' was a flat out thief. He avoided jail. Lived a life of sorrow, then died young. You see Mike, he legally traded, then illegally traded. The 'trade' part does not make it automatically good or legal. Stock trading is a great way to do crime, which is why there are laws around it.
It amuses me, the people on this thread talking about 'shorting' things. They use the word 'bet' which is correct. But if you or they think you are anything like the guys who are playing these scams on the public, you really need to stop making these 'bets' until you understand the house rules.
I'm sure your 'shorting' was lovely and cute, you say you lost money, so if that is your trip, you won. But that was just a bet you made, with your own cash, a guess the weight booth, not an investment, and most certainly nothing like what the Big Boys do at all. To think so is to be wearing a dunce cap, if you ask me.
Plus, I heard the hearings, and they did not say what you claim. You should listen again. They are correct and you are not.
Enjoy those bets!

[AnArmyVeteran]

43. They shorted knowing it would go down. They CAUSED it to go down.

They were insiders who manipulated the game. They are criminals who should be in prison, for LIFE.

[Rex]

48. Yep.

I wish people understood they caused the world to come close to an economic ruin. I guess Enron was their greenlight.

[bridgit]

49. Yup

[Mojeoux]

50. People Cheat. Greedy People Cheat More!

They are all just like Mr."Made off" with everyone's money.

[AnArmyVeteran]

59. WHY HASN'T ANYONE ASKED THIS!

What is produced when someone shorts a stock or derivative, or whatever? Nothing! They produce nothing. Just like Wall Street. The entire Wall Street of executives produce absolutely nothing of substance that society needs to survive. Nothing!

A migrant farm worker picking fruits and vegetables produces more for others in one hour than ALL of Wall Street does in their lifetimes. That farm worker is helping bring the food to you so you can survive. You need food and water. Wall Street produces neither. Nothing! All they do is manipulate and deceive using exotic shell games skimming off money out of your retirements, your savings plans and your banks using a myriad of fees, schemes and other dishonest tactics. They sit behind a computer generating nothing for society, but are clever enough to devise financial scams to steal at will.

Who would you count on when times got rough and you and your family needed to eat? Would you count on a Wall Street executive who hasn't a clue how food and water are even produced? Or would you depend on a farm worker who toils 12-14 hours a day for minimum wage?

What is sickening is that "those who produce the most get paid the least, while those who produce the least get paid the most". I was sixteen when I realized that paradox and wrote that line in the school newspaper. But now the gap between production and salary are at an all time high in the history of the world. There are no links between actual productivity and compensation. None.

Conservatives or anyone against financial regulation wants to keep the status quo of rampant corruption. They are in favor of continuing to allow people to steal at will. Conservatives love to tout they are for personal responsibility, but the exact opposite is true. They want personal responsibility for the poor and middle class, but they want to completely insulate the rich and powerful from any liability. Why do they fight so fiercely for the most corrupt segment of our population? Somehow regular conservatives have allowed themselves to be duped by right wing radio, Fox News and republican leaders, all of which support corporate domination and control. When will regular conservatives wake up and realize they are being duped, swindled, and robbed?

[KG]

51. it's so nice to see fraud getting a fair shake on DU!

:eyes:

[WeDidIt]

52. Creating a fucked up security, selling it to your clients as the next Wonder Bread

after conniving with analysts to get your fucked up security a AAA rating, then shorting that security because you know it's going to go belly up is FRAUD.

Last I checked, fraud was illegal.

[trotsky]

54. It is far easier to manipulate a stock into going down...

than it is to make it go up. Spread a false rumor. Make up a press release. Or if you're in it to win it, do some corporate espionage. Whatever, there are far more ways to get something to tank. I think the potential for abuse here is just far too great, and the cons far outweigh the pros.

[ThomWV]

55. You have to remember, there isn't 1 person out of 10 who have a clue what selling short means

And then they complain about how its destroying the universe.

Selling short is a perfectly rational, legal, and moral thing to do for anyone who has an account with a broker and believes a stock or class of stocks is going to decline in price.

[izzybeans]

58. The difference between what you are talking about and what was

discussed in the hearing is tremendous and you should know that.

If you are a "market maker" packaging products you know are worthless at inflated values and selling them to pension fund clients, your short bet on that product is fraudulent and is nothing short of shakedown or theft.

Petty thieves get years in jail, yet the sociopaths at GS who pretend to not understand what they did was stealing get millions in compensation. They robbed hundreds of banks with these transactions and they knew that was what they were doing.

Shorting a stock you own is quite different. But if you were the CEO of Ebay and you were tanking the business so that your short bet paid out while you were on your way out the door, you are a criminal and deserve a long, long stint in jail, far longer than the common bank robber. You've just stolen from all of our retirement funds. The same is true for these synthetic CDO's. It serves the same function as if Kraft Foods were poisoning its mac and cheese, harming little children, and betting against itself in the market.