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Comment by marcus_holmes | Hacker News Reader

You don't need short selling for a stock's price to drop. Markets for everything else use the normal mechanism of "if no-one is going to buy this at this price, I need to drop my price if I want to sell it".

For example: you can't go to the bakery, borrow a loaf of bread, sell it to a passing punter, and then pay the baker at 5pm when they drop the price to get rid of their stock before it goes stale.

The rest of the economy manages to find the "correct" price for things without shorts. So could the stock market.

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You could absolutely do that bread trade (if you could convince a baker to lend you a loaf of bread), but then a smart baker wouldn't drop their prices at the end of day because they know a short seller needs to buy a bread to cover their position. The example is also wrong because stocks don't go off like bread does. For commodities that keep better like frozen orange juice or steel you can definitely borrow (for a price) a few hundred tons of most commodities if you want to short it.

For some reason people think borrowing a stock and selling it is some super nefarious plot to kill companies, but apart from some special circumstances like secondary offerings or employee equity compensation there is really no reason a company should worry overly much about their stock price. If the company keeps making a profit, no amount of short selling can make it go bankrupt.

But one of the GME points was (is?) that stock is sold without being borrowed first. Or being borrowed without permission and multiple times...

If you sell empty bags on the street, promising the buyers there is bread inside, only to collect those empty bags back when the buyers throw the (supposed) bread away because it became worthless, is not good business. You're the only one profiting, both the bakers and the buyers are loosing money.

I don't understand why you seem to be so sure that there is indeed "no bread inside"? If an investor buys a share of GME on the stock market, it does not matter at all if they buy it from a shorter, a retail investor or even from GME itself. A share is a share, there are no "empty bags" being sold. Shares also don't go off like bread, so if you get your share back at the end it is like nothing happened: you still own one share and it is of exactly the same quality as before. Unless you are a VERY large investor, having your broker lend out shares also has zero impact on being able to sell it at any time.

A short seller making a bet that a stock goes down by selling the stock is simply the same (but in reverse) as someone betting the stock will go up by buying a stock. The underlying business is not affected at all.

The parent's point was that it does matter if it was sold by someone who had never secured a share of their own to sell in the first place, which puts artificial pressure on prices.

(And before someone jumps in to give me the speech about how the future of civilization depends on market makers being able to fabricate shares long enough to cover: Yes, I know about the exception that permits this. The purpose of my comment was just to clarify what the argument was and that the parent of this comment was not replying to it.)

It does put (a little) pressure on prices, sure. Borrowing money to buy stocks puts a little extra upward pressure on prices. But neither is illegal, neither brings guaranteed profits (naked shorting is regulated so much exactly because of the risks to unrelated market participants if the stock goes up) and neither has the capability to directly harm the underlying company.

Again, the parent was talking about fabricating non-existent shares, not borrowing existing ones.

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