4 ms·

What makes no sense to me as a layman is how can you sell something you don’t own legally? If I borrow your cow and sell it that’s illegal without consent, if y

What makes no sense to me as a layman is how can you sell something you don’t own legally? If I borrow your cow and sell it that’s illegal without consent, if you give me consent to sell the cow, there is still only one cow and ownership changes hands, there are not now two cows.

mehwoot 6y ago
Because cows aren't really fungible, but stocks are. If I borrow $10 from you, you don't expect the literal note that you gave me back. I can give you $10 back in coins, or $10 transferred to your bank account. I can burn the $10 note you gave me, give it to a homeless person, or re-lend it to my friend. There's nothing illegal about that. On the other hand if I borrow your car, you're expecting the same car back. I can't sell it and then give you another similar car in return. I can't borrow your car and then lend it to my friend.
- otoburb 6y ago
  >>I can burn the $10 note you gave me [...]. There's nothing illegal about that. Not to detract too much from your analogy but burning money is illegal in some jurisdictions[1], and in the United States is prohibited under 18 U.S.C. §333: "Mutilation of national bank obligations"[2]. [1] https://en.wikipedia.org/wiki/Money_burning https://en.wikipedia.org/wiki/Money_burning [2] https://www.law.cornell.edu/uscode/text/18/333 https://www.law.cornell.edu/uscode/text/18/333
CGamesPlay 6y ago
Cows aren't fungible, so that analogy isn't great. The key thing to keep in mind is that here you do legally own the share you bought, except that when buying it you also signed a contract that says you will resell a share to the original owner at the original price, plus interest. This is exactly how loans from banks work. You took money from the bank and bought a house. You now do not have enough money to pay back the bank, but the bank doesn't mind, because they only care about the contract that says they will get their money back plus interest.
- SigmundA 6y ago
  Right but the bank no longer has the money in their account they let you borrow, so one dollar does not become two.
  - pishpash 6y ago
    The bank has an "asset" in their account that is the debt note from you. This asset has the value of the money you borrowed, plus interest, and it can be sold for that. One dollar just became two. (If it's a mortgage it's called a mortgage-backed security which the Federal Reserve will gladly take off your hands currently. The money they pay is created from nothing.)
    - SigmundA 6y ago
      That asset has associated risk vs cash that for the most part doesn’t. The risk being you don’t get the cash back. One dollar did not become two. If you sell the asset you get your cash back from whoever bought it, and it comes out of their account, again one dollar did not become two, unless it’s the Fed sure, they can create money. Shares aren’t created unless the company issues more right?
      - CGamesPlay 6y ago
        So I think you do actually have it right. That's why you'll see careful commenters in this thread referring to "synthetic shares", which are like normal shares but come with that risk that you don't get it back. Except, if I understand correctly there are also laws around shorts which say that you are required to have the money to cover the share, which helps diminish the risk.
        SigmundA 6y ago
        "Synthetic Shares" just sounds like a fancy way of saying you have a loan on the books. Its like if I loan you money and saying now I have "Synthetic Money" in the form of the loan you owe me. Money people seem to love to make up new terminology to obfuscate the meaning.
adolph 6y ago
Apparently there is some consent and interest payment involved. https://www.investopedia.com/ask/answers/how-does-one-make-money-short-selling/ https://www.investopedia.com/ask/answers/how-does-one-make-m...
- SigmundA 6y ago
  Again one cow does not become two, you just may owe two cows when there is actually only one in circulation because you sold the same one twice. I guess the talk of creating new shares threw me off this is just IOU’s
  - noncoml 6y ago
    Absolutely correct. The cows remain 100. When I said buy 200 cows back, I meant by the 100 cows TWICE. Buy them, give them back to the second person you borrowed them from, then buy them again, and give them back to the person you borrowed them from originally. Sorry for making it confusing in my attempt to simplify it.

mehwoot 6y ago

Because cows aren't really fungible, but stocks are. If I borrow $10 from you, you don't expect the literal note that you gave me back. I can give you $10 back in coins, or $10 transferred to your bank account. I can burn the $10 note you gave me, give it to a homeless person, or re-lend it to my friend. There's nothing illegal about that. On the other hand if I borrow your car, you're expecting the same car back. I can't sell it and then give you another similar car in return. I can't borrow your car and then lend it to my friend.

otoburb 6y ago
>>I can burn the $10 note you gave me [...]. There's nothing illegal about that. Not to detract too much from your analogy but burning money is illegal in some jurisdictions[1], and in the United States is prohibited under 18 U.S.C. §333: "Mutilation of national bank obligations"[2]. [1] https://en.wikipedia.org/wiki/Money_burning https://en.wikipedia.org/wiki/Money_burning [2] https://www.law.cornell.edu/uscode/text/18/333 https://www.law.cornell.edu/uscode/text/18/333

CGamesPlay 6y ago

Cows aren't fungible, so that analogy isn't great. The key thing to keep in mind is that here you do legally own the share you bought, except that when buying it you also signed a contract that says you will resell a share to the original owner at the original price, plus interest. This is exactly how loans from banks work. You took money from the bank and bought a house. You now do not have enough money to pay back the bank, but the bank doesn't mind, because they only care about the contract that says they will get their money back plus interest.

SigmundA 6y ago
Right but the bank no longer has the money in their account they let you borrow, so one dollar does not become two.
- pishpash 6y ago
  The bank has an "asset" in their account that is the debt note from you. This asset has the value of the money you borrowed, plus interest, and it can be sold for that. One dollar just became two. (If it's a mortgage it's called a mortgage-backed security which the Federal Reserve will gladly take off your hands currently. The money they pay is created from nothing.)
  - SigmundA 6y ago
    That asset has associated risk vs cash that for the most part doesn’t. The risk being you don’t get the cash back. One dollar did not become two. If you sell the asset you get your cash back from whoever bought it, and it comes out of their account, again one dollar did not become two, unless it’s the Fed sure, they can create money. Shares aren’t created unless the company issues more right?
    - CGamesPlay 6y ago
      So I think you do actually have it right. That's why you'll see careful commenters in this thread referring to "synthetic shares", which are like normal shares but come with that risk that you don't get it back. Except, if I understand correctly there are also laws around shorts which say that you are required to have the money to cover the share, which helps diminish the risk.
      - SigmundA 6y ago
        "Synthetic Shares" just sounds like a fancy way of saying you have a loan on the books. Its like if I loan you money and saying now I have "Synthetic Money" in the form of the loan you owe me. Money people seem to love to make up new terminology to obfuscate the meaning.

adolph 6y ago

Apparently there is some consent and interest payment involved. https://www.investopedia.com/ask/answers/how-does-one-make-money-short-selling/ https://www.investopedia.com/ask/answers/how-does-one-make-m...

SigmundA 6y ago
Again one cow does not become two, you just may owe two cows when there is actually only one in circulation because you sold the same one twice. I guess the talk of creating new shares threw me off this is just IOU’s
- noncoml 6y ago
  Absolutely correct. The cows remain 100. When I said buy 200 cows back, I meant by the 100 cows TWICE. Buy them, give them back to the second person you borrowed them from, then buy them again, and give them back to the person you borrowed them from originally. Sorry for making it confusing in my attempt to simplify it.