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Shorts are fine, the problem is having an underregulated risk mitigation tool that’s effectively limited to the wealthy. But even disregarding that, a hedge fu
by cannabis_sam 6y ago
Shorts are fine, the problem is having an underregulated risk mitigation tool that’s effectively limited to the wealthy.
But even disregarding that, a hedge fund’s job is literally to manage risk using more complex financial instruments.
A complacent hedge fund that overextends itself don’t just need to fail, they need to burn long and hard
Sadly, they usually get “bailed” out (by their buddies in their industry, not the government), like we just saw with Melvin. Which in turn creates enormous inefficiencies in our economy..
- dingaling 6y ago> Shorts are fine Why so? They're based on asymmetry of information, the shorter having more insight than the lender. And their purpose is to convert that information into money at the lender's expense; by the time he gets his shares back, they've tanked.
- thekyle 6y agoYou could say the same thing about Longs. They're based on asymmetry of information where the person buying has more insight than the person selling. If the stock goes up then the seller will have effectively lost money (via opportunity cost).
- cannabis_sam 6y agoThen the lender should not lend out their shares, no? There are obviously problems with who actually has access to short stocks, but in theory they are a reasonable counterbalance: If you believe in the stock, buy it, if you don’t believe in it sell it. And if you don’t currently own any shares, you can borrow shares from the people who believe in the stock, sell them now and cash out when/if the stock goes down. The information imbalance is fundamentally a part of how we operate our markets, since information literally can’t instantly be distributed to everyone (regardless of what faith-based “economists” try to convince people to believe about the efficient market gospel)