Earlier I threw in something about the practice of short-selling. While I have dabbled in securities from time to time, I don’t have any personal experience with shorting stocks, but there are people who have and will say so:
I shorted for clients without the stock to back it up at least a thousand times and naked shorting has been illegal for at least twenty years. I was able to do this because I had a great reputation on the floor as being “good for it” so I never had to show anyone the goods. I always knew this was a part of organized efforts to bust a stock, sometimes a perfectly good company stock. What you don’t seem to understand is that massive shorts are almost always “covered” by buy stops and/or similar positions on other stock on other exchanges. Writing puts with a stop is also done. The real true short risks next to nothing … unless the stock is thinly traded (too few shares outstanding) and I’ve never seen any big spec ever play a stock or commodity like that. Shorts have been a speculation vehicle for at least twenty years but rationalized (falsely) as a hedge. Hell, if you want to hedge there are a hundred ways you can do it without going short, but rarely does an investor go short, he just bails out and lives to buy another day. Bear Raids, in which large groups of short sellers with massive capital, get together by phone and plot to short a stock to near zero for no reason other than that they can. [George] Soros? The pig of all time. He singlehandedly broke several South East Asian countries until big bad China stopped him cold when he tried that stunt there. Massive shorting needs to be controlled by position limits, period.
None of this makes me feel any better about things, but if I had had any notion that the current Wall Street bollixment was purely a matter of negative feedback loops correcting excesses — well, I think I’m over that.