Wednesday, September 17, 2008

Defining Securities

It is easier to tear things down than build them up.

IMHO, one of the great faults of the libertarian movement is this absurd belief that everything businesses do is good. They are ways the businesses and packs of investors can attack people that are simply underhanded and destructive.

For example a publicly traded company might have a decent plan that it is executing okay. It is possible for a hedge fund conspiring with a pack of investors, bloggers and newsreporter (often from large attack journals like the NY Times) to hit the company with a massive naked short position. A few planted attack stories coupled with the steep drop in the share price can be enough to panic the people working with the company and topple an otherwise healthy firm. In reward for the attack, the attackers can walk away with a sizeable portion of the company's market value to use in their next attack.

I have been following the short positions on stocks for the last year. I am more worried now about the short position taken against the American business community than I am about the mortgage mess.

As people talk about reform, I hope people listen to voices like Patrick Byrne and not just politicos who are on the payroll of Fannie Mae.

Mr. Byrne is restricting his commentary to naked short. A short sale occurs when you borrow a stock and sell it. With a naked short, you don't even bother finding a stock to borrow, you just sell the stock.

I think the whole idea of short selling is a negative thing. Hedgefunds can make massive purchases of stock in one account, then short the same position. This affectively gives them political control of a company, with zero risk. There's value in having a negative position for a stock. The massive shorting that we are seeing at the moment is something new to the economy.

Unfortunately, Mr. Byrne is an outsider who gets ridiculed by the press. I think he is on the right track in pointing out the crap going on in the shorts on Wallstreet. The louder voices demand unregulated short selling.

Speaking of unregulated short selling. If I were the CEO of a company, I would be tempted to have the company take a massive short position against itself. I suspect there are rules against such things. It's funny, the people who argue for unregulated short selling would probably balk at the idea of companies being allowed to short themselves. A company shorting itself make sense as it would raise funds for the company without much in the way of risk. It would then spare the risk of the company collapsing in a short attack, which would protect the investors. He he he, I can be as evil as the rest of the pack.

Crass Commercial Intrusion: Patrick Byrne is CEO of Overstock.com OSTK. I just happen to have a handy list of ads from Overstock.com.

2 comments:

Anonymous Coward said...

Kevin, you might want to update your comment

"As people talk about reform, I hope people listen to voices like Patrick Byrne and not just the Barrak Obamas and Barney Franks of the world who are on the payroll of Fannie Mae."

It seems to be incorrect:

http://politicalticker.blogs.cnn.com/2008/09/19/fact-check-did-obama-profit-from-fannie-and-freddie/#more-19364

y-intercept said...

I made the change. The political jab detracts from the message. The real reason for the jab was that all of the changes I've heard from the creation of Fannie Mae style programs for reinsurance in Health care to outright socialization of health care lead to greater centralization of the economy.

Fannie Mae pays top dollars to get its centralist message heard. The centrist message is the only message being heard.

BTW, Asking that lobbyists make their donations through individuals doesn't really mean anything. Lets assume that there was no deals where the lobbyists encouraged or somehow funded the donations. Well, then the big donations from individuals who are part of the current regulatory regime show that the members of this regime see Obama as a kindred spirit.