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I'm surprised this guy didn't bring up the famous story of Overstock.com around 2005-2006, where at one point there were more shorts in existence than actual sh

I'm surprised this guy didn't bring up the famous story of Overstock.com around 2005-2006, where at one point there were more shorts in existence than actual shares. The CEO of the company sued a bunch of large investment banks (who all heavily shorted his company). For those that don't understand, that is called "naked shorting", and that constitutes fraud by NASDAQ and the major investment banks. In the end, all of the investment banks that he sued, except for two (Goldman Sachs and Merrill Lynch) settled. The banks that did settle? Ended up getting their junk kicked in when their shorting scheme failed to work, and they lost a lot of money because the suit against them signaled there was no truth to their claims and the Overstock.com price went back up. I have no reason to believe that is not what is happening to Tesla currently. Given that this example and the example given on the forum post are very similar, and both turned out appropriately, maybe Elon Musk should consider suing the largest firms shorting his company.

snarf21 8y ago
Interesting. It seems like there should be a cool name for this (ala pump and dump) where you take a short position and then bad mouth a company until it self fulfills and then flip your shares. Maybe clip and flip?
- telotortium 8y ago
  I think I've heard short and distort before.
- irq-1 8y ago
  Short to Mort (death)
koliber 8y ago
Shorting a stock involves first borrowing it from someone, and them immediately selling it. Everyone who is short stock does not own it! Naked shorting is selling stock you have not even borrowed to create a short position. The scenario you describe did not require naked shorting in order to exist. To keep things simple, imagine a corporation that has 100 outstanding shares on the public market. Bob owns them all. Mark wants to short them, so he borrows all 100 from Bob and sells them to Mary. At this point, Bob is "owed" stock from Mark, and Mark owes Bob stock. Mary owns all 100 shares of stock. No one shorted anything naked. Now say that Craig wants to short this company as well. He borrows 100 shares from Mary, and sells them to Sally. At this point, in addition to the above positions of Bob and Mark, Craig is short 100 shares of stock, which he owes to Mary. Sally owns all 100 shares of stock. Looking from the perspective of any one person, they are not short more shares than there exist in the company. No one shorted anything naked. And yet, on the macro level, there are 200 short positions, and one person owns the 100 shares of the company. No one shorted anything naked. And yet, the situation you described arose. Should the need arise for Craig and Mark to return the stock they borrowed (someone calls in their shorts), they will probably need to pay a lot to convince the people who own the actual stock to sell to them, especially if the owners are aware of the macro situation.
- dhimes 8y ago
  So are you disputing the claim that there was in fact naked shorting of Overstock? Or just that having more short positions than stocks existing requires naked shorting?
  - jessaustin 8y ago
    Obviously, it's a general point about the nature of short selling. However, since thread parent made such a big deal out of it, which is analogous to breathlessly informing us that "banks don't keep all deposits in their vaults!", it does somewhat undercut thread parent's entire comment. Even though lots of people like Tesla, it's not an injustice for other people (or the same people, I guess?) to short it.
    - dhimes 8y ago
      It wasn't at all obvious to me that koliber knew that naked shorting was, in fact, suspected (at least initially) in the Overstock situation. Documents were sealed, but partially leaked, which is why I asked. And while I enjoyed reading koliber's very clear explanation, I am confused as to whether or not it applies specifically to Overstock, which is what the thread parent was addressing.
      - koliber 8y ago
        I am not aware of the Overstock case in detail. I was making a point that just because the short position is larger than outstanding stock does not mean the naked shorting was taking place. It is entirely possible, but we can no make that conclusion based on the fact that there were more shorts than longs.
        dhimes 8y ago
        Thanks for following up here.
- defen 8y ago

snarf21 8y ago

Interesting. It seems like there should be a cool name for this (ala pump and dump) where you take a short position and then bad mouth a company until it self fulfills and then flip your shares. Maybe clip and flip?

telotortium 8y ago
I think I've heard short and distort before.
irq-1 8y ago
Short to Mort (death)

koliber 8y ago

Shorting a stock involves first borrowing it from someone, and them immediately selling it. Everyone who is short stock does not own it! Naked shorting is selling stock you have not even borrowed to create a short position. The scenario you describe did not require naked shorting in order to exist. To keep things simple, imagine a corporation that has 100 outstanding shares on the public market. Bob owns them all. Mark wants to short them, so he borrows all 100 from Bob and sells them to Mary. At this point, Bob is "owed" stock from Mark, and Mark owes Bob stock. Mary owns all 100 shares of stock. No one shorted anything naked. Now say that Craig wants to short this company as well. He borrows 100 shares from Mary, and sells them to Sally. At this point, in addition to the above positions of Bob and Mark, Craig is short 100 shares of stock, which he owes to Mary. Sally owns all 100 shares of stock. Looking from the perspective of any one person, they are not short more shares than there exist in the company. No one shorted anything naked. And yet, on the macro level, there are 200 short positions, and one person owns the 100 shares of the company. No one shorted anything naked. And yet, the situation you described arose. Should the need arise for Craig and Mark to return the stock they borrowed (someone calls in their shorts), they will probably need to pay a lot to convince the people who own the actual stock to sell to them, especially if the owners are aware of the macro situation.

dhimes 8y ago
So are you disputing the claim that there was in fact naked shorting of Overstock? Or just that having more short positions than stocks existing requires naked shorting?
- jessaustin 8y ago
  Obviously, it's a general point about the nature of short selling. However, since thread parent made such a big deal out of it, which is analogous to breathlessly informing us that "banks don't keep all deposits in their vaults!", it does somewhat undercut thread parent's entire comment. Even though lots of people like Tesla, it's not an injustice for other people (or the same people, I guess?) to short it.
  - dhimes 8y ago
    It wasn't at all obvious to me that koliber knew that naked shorting was, in fact, suspected (at least initially) in the Overstock situation. Documents were sealed, but partially leaked, which is why I asked. And while I enjoyed reading koliber's very clear explanation, I am confused as to whether or not it applies specifically to Overstock, which is what the thread parent was addressing.
    - koliber 8y ago
      I am not aware of the Overstock case in detail. I was making a point that just because the short position is larger than outstanding stock does not mean the naked shorting was taking place. It is entirely possible, but we can no make that conclusion based on the fact that there were more shorts than longs.
      - dhimes 8y ago
        Thanks for following up here.
defen 8y ago