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Comment by JMTQp8lwXL | Hacker News Reader

Prematurely causing companies to go under puts thousands of people out of work. Kind of like how the Fed keeps interest rates low so zombie corporations can keep rolling over the debt --keeping many people employed-- stopping Wall Street from tanking businesses helps middle class people keep their jobs, so the thinking goes.

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Shorting stocks doesn't cause businesses to tank.

What determines the success of a company like GameStop is whether people go to their stores and spend enough money to cover business expenses. It has nothing to do with the price of the stock.

That's an oversimplification. A low stock price affects a lot of things, including a company's ability to raise capital.

You're right, but shorts don't _cause_ a stock to be low (in normal/retail circumstances). They're a bet on a stock being overvalued to begin with.

- yes, shorting involves selling stock which nominally pushes prices lower, etc etc hat tip illegal S&D

I kinda disagree, shorting messes with the supply/demand curve by "creating" more shares.

If person A has a share, then B borrows it to short and sells it to person C, now both A and C are effectively holding the same share. Put another way, two people have had their demands met by a single share, increasing supply.

Only if A sells naked shorts, which is illegal. In ordinary circumstances A and C do not and cannot hold the same share. A only holds a claim against B to return the same number of shares as were borrowed.

No that's not the case. The scenario I described actually happens, and is not naked shorting. That's how GME got >100% short interest.

For all you know, you could be the "A" in this situation. Many brokers will lend out your shares, but from your perspective you are just long.

The explanation I heard was not that the shorting itself causes the company to tank, but that hedge funds are incentivised to do whatever they can to cause companies to tank once they hold large short positions - via disinformation campaigns, for example. I seem to remember Toys'R'Us suffered a somewhat similar fate not so long ago?

Amazon, Walmart and Target were the ones most responsible for Toys R Us going out of business.

They actively ran ads to attract customers away from Toys R Us.

It depends, the PE firms that bought Toys R Us did what is considered a hostile move in an leveraged buyout (LBO) which is to saddle Toys R Us with lots of debt (aka they raised debt financing to buy the company) so it had to do everything it could to pay the debt and also generate profits for the PE firms and probably not enough to focus on anything else innovation or operation-wise. Its been noted that LBOs have lead to the demise of several famous companies as noted by Investopedia and LBOs has since gained notoriety.

See: https://www.barrons.com/articles/private-equity-firms-provid...

https://www.latimes.com/business/la-fi-toys-r-us-leveraged-b...

https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...

https://www.investopedia.com/terms/l/leveragedbuyout.asp#:~:....

While true that has nothing to do with shorts.

It wasn't intended as an example of short selling because my point was that the GME saga isn't about short selling per se, but about sticking one in the eye of organisations that tank businesses just to make a profit.

Businesses need credit to get anything done. With a low stock price, businesses need to put larger collateral, which could be more than a bussiness's liquidity.

The stock price does matter

whether the markets affect a company's viability depends on their capital structure, of which the public offering is a part, as well as how leveraged the company's various income streams and assets are. it's not as simple as having enough income to cover expenses, although cash flow is a crucial part of the calculus.

What is the cost per middle class job saved? I'm sure someone has statistics on this.

The logic seems to go that the Fed should contract out job creation to private companies, which in theory produce economic growth. But this creates a feedback loop, where public revenues generated by said growth goes back to private companies.

The ultimate, hidden truth of the world is that it is something that we make, and could just as easily make differently.” - David Graeber

The academic evidence is overwhelmingly against this hypothesis[1]. Short sellers make money by identifying companies that are unhealthy, overvalued, or even outright fraudulent. Almost all the time these conditions precede the short selling activity. The evidence shows that short selling improves corporate governance, reduces fraud, improves price efficiency, and slows the formation of speculative bubbles.

Even the lay notion that short sellers hurt companies by taking capital away misses the bigger picture. Virtually all short selling takes place in a long/short portfolio. (Dedicated short sellers make up less than 1% of hedge fund assets.) The proceeds from short sales are reinvested in other companies. Even if you think short selling "destroys jobs" at the shorted companies, then the converse is that it must also create jobs at other, better companies.

[1]https://www.reddit.com/r/slatestarcodex/comments/la88gv/shor...

This would make more sense as a narrative if there were any prominent examples of short sellers materially harming the operations of a company, but I can't find any. In theory short sellers could help push a company into insolvency, but so could a lot of other vicious cycles for a failing company- worse terms from suppliers, worse credit terms, less trust from customers.

The Wikipedia page on "bear raid" mentions a single example, from 1609. https://en.wikipedia.org/wiki/Bear_raid

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