Short Selling is a Scam

This is something I’ve thought basically since I was first exposed to the concept of “short selling” stocks. The Gamestop fiasco has really brought this to the forefront. People who lost money, like Nancy Pelosi and the Hedge Fund managers for whom “short selling” is a major part of their business model are trying to imply that the Reddit crew who burned them did something nefarious.

Then, when the trading companies shut down trading in Gamestop and a couple of other stocks because of the Reddit interest, and the servers that the Reddit crew was using to communicate was shut down, it made it abundantly clear that the stock market is only intended to make rich people richer, it’s not intended for the everyday Joes to make any money, because that money comes at the expense of the big guys.

But, hey, none of that would have been possible without the scam known as the “short sale” to begin with. The interesting thing is that I haven’t heard or seen a single place that describes what short selling really is in any kind of accurate way. They use metaphors and dance around it but won’t (or can’t) come right out and say it.

I keep hearing them say that a short sale involves “borrowing” stock to sell, or “making a bet” against a company.

If it was “borrowing” stock to sell, then someone explain to me how they can short sell more shares than exist in the market? Can I borrow two cups of sugar from my neighbor if they only have one to loan?

If they were just “placing bets” on a company, then how can they close out their position before the game is over? When you bet on the Vikings, can you pay off the bookie half-way through the game before it gets any worse?

Those are just metaphors to make it sound less shady than it really is.

A short sale is when an investor…primarily a hedge fund…sells stock they don’t own. It’s as simple as that, and yes, it’s just as shady as it sounds.

They’re basically channeling George C. Parker…”hey buddy, wanna buy the Brooklyn Bridge?”

The problem isn’t that the Reddit crew found a way to beat them at their own game, the problem is that it’s allowed to happen at all. It’s a con, a scam, a grift; and it’s perfectly legal because the people who do it are billionaires who can make the people who regulate the finance world and write the laws millionaires or billionaires too.

And, to make it even worse, the big players in the market like the hedge fund managers are the very people that other investors listen to for advice. It becomes a self-fulfilling prophecy. A hedge fund starts heavily shorting a company, other investors notice and believe it portends disaster for the company, so they start selling, the price drops dramatically and the hedge fund makes more millions or billions.

So…they had to crush a company to do it…you’ve got to break some eggs to make a billion dollar omelet right?

Even worse, they or their minions often go onto the major network TV financial shows and talk down the stocks that they’ve shorted, actively trying to sabotage them to make the share prices go down to support their “short position”. And then use the very result that they caused as further evidence of their unique ability to predict market trends. Rinse, lather, repeat.

So, here’s the scenario:

My neighbor has a pretty decent car that an acquaintance of mine is interested in buying. The car’s not for sale right now…and I don’t own it…but I sell it to my buddy for fair market value with an agreement to deliver it at some future date.

Then, that night, I go over to the neighbor’s house, slash the tires, key the paint and pour sugar in the gas tank.

The next day I commiserate with the neighbor “that’s too bad, it was a decent car…maybe I could fix it back up.” We negotiate and I agree to purchase the car for some amount significantly less than yesterday’s fair market value. As soon as I have the title, I sign it over to my acquaintance who’s already paid me fair market value and I pocket the difference.

Quite a scam, huh.

I’m pretty sure that would be called fraud anywhere outside the financial world; but to billionaire hedge fund managers it’s just another day in the office.

I’m glad they got taken and I hope it continues…but I have a feeling they’ll pass new laws or promulgate new regulations to protect their scam and their fortunes. That’s the way it works.

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