Friday 19 September 2008

Short Selling

So the new villains of the piece are short sellers - those scalliwags who sell stock they do not own in the hope of buying it back at a lower price. Obviously not owning the stock is a problem but only if you do not have a friendly broker who is prepared to lend you the stock. The risk of course is that the stock price goes the wrong way and then the risk is far more than the cost of a shirt.

So what's wrong with it? Why has that financial genius George Bush decided to ban it and condemn any perps (as they say in the US) to eternal damnation? Well it appears that one or two of the naughty knaves shorting various financial institutions may have been spreading rumours like: 'have you read x banks balance sheet'. 'Look at the losses they are carrying' etc. The answer is of course that this is a load of tosh to divert attention from those who have been short selling on a far grander scale - the politicians and the regulators who have allowed banks and other FI's to issue loans to those who are manifestly incapable of paying them back. Making short selling illegal will hardly stop speculation on falling markets. I prefer put options myself - small downside slightly reduced upside. There are plenty of ways of skinning a cat!

1 comment:

student said...

what does this line means sir


"I prefer put options myself - small downside slightly reduced upside. There are plenty of ways of skinning a cat!"