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Comment by mattchew | Hacker News Reader

"Wall Street has turned the economy into a giant asset-stripping scheme, one whose purpose is to suck the last bits of meat from the carcass of the middle class . . . an economic drought temporarily left the hyenas . . ."

I can't take this sort of writing seriously in an article like this. It's fine for an internet rant that is supposed to make me laugh. In an article that is pretending to be an economic analysis, well, I quit reading.

I did see something about naked short selling. Naked short selling sounds fraudulent to me, but I'd like to read a intelligent defense of it from supporters of the practice. Anyone know of one?

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Not too many people will defend naked short selling, it is an illegal scam.

It's perfectly legal.

http://www.businessinsider.com/john-carney-why-matt-taibbi-i...

Your link said absolutely nothing about the legality of naked shorting. It instead just made a half assed and rather incorrect argument how naked shorting is beneficial or how it is not that different from ordinary shorting.

It's perfectly legal and the link was for information about how naked shorting works. What was incorrect?

Does this judgement apply to all forms of getting paid in advance? If not, what makes stocks different?

No. Other party still has to deliver your order and you enforce the delivery vigorously. The speed and extent of stock price changes is what makes them different.

> No. Other party still has to deliver your order and you enforce the delivery vigorously.

One expects "no" will be followed by supporting argument. Instead, we see more argument for same. After all, the "other party ... vigorously" is just as true of stocks as everything else.

Note that the argument against short selling is actually driven by folks who argue against it because they think that it "unfairly" drives prices down and lets people profit from that. They bring up non-delivery because that's an appealing argument, but it's not a huge problem and it's not what they're trying to stop.

Yes, I know about the VW short-squeeze a year or so ago. What of it? (Before you get too excited about the fact that some folks lost a lot of money, make sure that you understand WHO lost a lot of money.)

It's not necessarily illegal. Nokia, Nintendo and Tesla all openly do naked short selling of their products. They call this a "preorder" -- you preorder a Wii/N900/whatever and they deliver it on or before a fixed date.

It's only illegal when you do it to manipulate a market or if you intend not to deliver the shares.

Bad analogy. When you pre-order something you agree on the terms.

In naked shorting when someone buys a share from a naked shorter in a stock exchange, they do not agree to buy a fake share or a share that will not be delivered. Instead they expect to get a real share. So if the naked shorter does not deliver the share by the end of the three day period it is violation of contract.

Also, Nintendo (or the reseller) doesn't charge your card until it ships.

Nintendo may not yet have the Wii, but they have made some and they are in production.

The difference is that Nintendo can complete your order - if it were a naked short sell then the seller knows they probably can not genuinely get hold of the shares that they sold you, it may be impossible, Some other trade may have had a promise to borrow those shares and may have sold them to some other buyer.

Nintendo may well actually have stockpiled your Wii already awaiting delivery (I think this is the most likely position).

Nintendo hopes they can complete your order after they build the wii, and naked short sellers hope they can complete your order after they buy your shares.

In the event Nintendo doesn't build the wii, they refund your money. The naked short seller also needs to pay a large penalty.

Naked short selling is more or less the same as "naked wii selling". That's why it's only illegal when you are attempting to manipulate the market.

But the limitations on Nintendo are less than on the NSS (naked short seller), the NSS can know that they are selling someone else's shares that have already been borrowed by someone else, indeed they can sell more shares than exist as they're not actually required to locate the shares before they sell them.

Theoretically Nintendo could sell more than they can ever manufacture, but they at least are able to manufacture the product at the point at which they pre-sell it.

The NSS is more like Nintendo now pre-selling a Star Trek holo-deck - they'd know it's almost certainly not achievable.

Perhaps I'm stupid - certainly I'm no economist - but I don't see what's wrong with naked short selling.

For a market to work well you want liquidity, in order for the traded prices to reflect all the information known to market participants. One of the problems in the UK electricity market (which happens to be my day job) is that relatively few companies trade other than those who physically produce or use electricity, which hampers the effectiveness of the markets and (probably) increases the prices customers end up paying for their electricity.

So why are shares so different to any other market? Why should only people who physically own them be able to trade them?

Presumably the attraction of such a policy is that it allows share prices to remain artificially high. Even if many market participants believe that a price is too high, they won't necessarily be able to act on that belief, and the bubble will remain inflated. But is that such a good thing in the long run?

Within the framework of current regulations, I'd consider naked short selling as a close cousin to something like insider trading. It's not so much fraudulent as it is both an indicator and piece of knowledge that the rest of the market doesn't have.

In general it's disallowed because people just betting on the price of stocks instead of owning them (at least in some derivative way) is considered a bad idea.

It's disallowed because it can cause failures to deliver if a borrow can't be located. Lots of fails can lead to systemic problems.

Insider trading is actually a form of fraud against the entity that owns the information.

For example, Google is allowed to trade on the fact that it's doing biz with Intel. Google's employees are not.

But let's say Google enters a deal with Intel that is going badly. Let's say it's 100% Intel's fault.

Google shorts Intel stock just before announcing to the public that the deal is off and it's Intel's fault? I don't think that's exactly allowed.

The article is not pretending to be economic analysis! It is author's investigative piece on collapses of two huge firms and practices that contributed to them. Economy related, sure, but not an "analysis"!

Naked short selling sounds fraudulent to me, but I'd like to read a intelligent defense of it from supporters of the practice.

So you think it is illegal, but would like to know how would practitioners justify it? Kinda perverse, like asking rapist how would (s)he defend rape.

Here's standard Naked Shorts' defense: it provides liquidity and makes markets more efficient.

> I can't take this sort of writing seriously in an article like this.

I flagged it - it doesn't seem very germane to hacker news, and comments like the one you cite seem to set people off in directions that meander ever further away from the topic. And that includes 'intellectual curiosity' as part of the topic; mine certainly isn't satisfied by politicized ranting.

I'd agree that it starts out as rather polemic, but if you start reading from "The roots of short-selling date back to 1973...", it's quite an informative article.

It's also amazing that we have to turn to Rolling Stone for this kind of investigative reporting. Where is the rest of the Fourth Estate?

Being told on what they can report, and it doesn't include this or anything else that they masters don't want the light of day on.

Most of the rest of the Fourth Estate is large, publicly traded companies who are already taking a beating in the stock market.

I think it shows a rather interesting way of 'hacking the system' actually for a worldwide system- and getting away with it.

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