You can borrow money from a friend. Right? You can borrow stock from anyone who holds it. If your friend wants his money back, you can pay him cash and the bill

You can borrow money from a friend. Right? You can borrow stock from anyone who holds it. If your friend wants his money back, you can pay him cash and the bills don't have to have the same serial numbers as the ones you borrowed. Same with stock. (Entrepreneurs note: You are currency issuers. Think about that.) The main difference is that everyone holds their shares at a broker so they let the broker handle this loan for them. You borrow the shares via the broker, the broker sells them, and then lets you have access to some of the proceeds (limited by regulation) and uses the rest as a low interest loan to itself. Small brokerage accounts get nothing out of this even though they lent the shares. That's probably the main reason it seems so mysterious. Most people aren't aware of the mechanism. Your pension fund or insurance company is aware and makes sure they get a cut of the benefits of share lending.