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She's absolutely right. Ro Khanna on the other hand is just throwing spaghetti at the wall to see if it sticks by suggesting [0] a > financial transaction tax

She's absolutely right. Ro Khanna on the other hand is just throwing spaghetti at the wall to see if it sticks by suggesting [0] a > financial transaction tax on hedge fund shorting In practice, that would reduce market functionality because lots of shorts are used to reduce/hedge risk. Two basic examples are short SPY versus long single name and short underlying stock versus long calls. Really we need limits on short sales beyond a certain % of float (or a certain borrow rate), as well as 13F transparency for institutional short positions. [0] https://mobile.twitter.com/RoKhanna/status/1354835649250078722 https://mobile.twitter.com/RoKhanna/status/13548356492500787...

na85 6y ago
I see no reason why shorts should be allowed to go beyond 100% of float.
Ericson2314 6y ago
I've always wondered how a "post-growth" economy can be financialized, i.e. how the "menu" of short and long positions/instruments would actually be symmetrical. Anyone know?
- newen 6y ago
  You let the real economy be post-growth and you do a money printer go brrr. There, now the economy is financialized and stonks only go up.
  - Ericson2314 6y ago
    money shredder go brrr too?
toast0 6y ago
> Really we need limits on short sales beyond a certain % of float. The market seemed to be doing a fine job of correcting. Not sure we need a regulation to prevent sophisticated investors from throwing their money away. Transparency sounds good though. Also, my impression is that short interest data has a high delay/low frequency of publishing; more transparency there could be useful too.
- totalZero 6y ago
  The market can't really correct for this; it's essentially equivalent to lending the same thing to several people...like going to Avis and renting a car from them, only to turn around and rent it to someone else. There exist listed and over-the-counter derivatives for the purpose of institutional levering, but if you can double-borrow shares, you're essentially adding instability to the asset market in a way that is not immediately discoverable. That makes prices unstable and (as evidenced) makes it harder for the price to equilibrate. In a normal market, you have damping -- as the price impact goes further, there's more resistance to further impact. This is not so in an unstable market (either due to shorts covering or to short option gamma) because you end up with inverse price elasticity of demand. In other words, as the price goes up you get more demand rather than less. If you're hedging delta by hand on a short-gamma position, you can feel the stock run away from you. In these situations, sometimes the best way to reduce your delta is to trade the other way and let the gamma offset the shares that you trade. I have traded options positions of this sort, and it is unsafe because it incentivizes shorts to double down in order to send the price back lower. In my opinion, the existing requirement for a locate (presently, you have to know where the shares can be borrowed from before you're allowed to sell short) should be interpreted to preclude recursive rehypothecation, on a first-come-first-served basis. Furthermore, a firm should not be able to buy back or otherwise retire its stock when short interest equals 100% of the float. Institutional traders already have several different restrictions that don't make much sense. Much of this is because regulators don't always understand the mechanics of how a trading business operates. This rule on the other hand would IMO make markets run better by forcing leveraged bearish bets into the options market where risk monitoring is more thorough and product sophistication is a barrier to entry.
AzzieElbab 6y ago
I understand how people are viewing this as some kind of David vs Goliath, and in a way it is. However, the freaking Goliath is made of pension funds money and David is a few hundred traders. It is very unlikely that the guy who runs Melvin will suffer significant personal financial consequences if the firm goes boom. What is going to happen when this thing escalates to citadel and whoever is backing them and whoever else who up the chain. There are no good guys here, just an incredibly screwed up and fragile system.
- totalZero 6y ago
  > Goliath is made of pension funds money Well let's assume that's true (it's not). The logical implication would be that Plotkin is shorting video game developers and retailers with pensioners' money. The only practical way for market forces to disincentivize that kind of irresponsible and unsuitable risk-taking would be for him to publicly suffer losses. If that happens, the pension funds withdraw their money. If they withdraw their money, Plotkin's take-home pay and social status diminish. So as they say, all roads lead to Rome. No matter where his trading assets came from, he suffers personal financial consequences from the loss and the resulting fallout.
  - AzzieElbab 6y ago
    They will have to sell their long bets to cover loses on shorts. The financial system is incredibly interconnected, no one knows what happens when 12b fund goes out of business and how that escalates up. Just like during the housing crash- bad mortgage- bad tranche - bad MBS - bad synthetics- bad insurance. I wouldn’t be too worried about one year take home pay and social status.
  - juanuys 6y ago
    And the tax payer bails him out?

na85 6y ago

I see no reason why shorts should be allowed to go beyond 100% of float.

Ericson2314 6y ago

I've always wondered how a "post-growth" economy can be financialized, i.e. how the "menu" of short and long positions/instruments would actually be symmetrical. Anyone know?

newen 6y ago
You let the real economy be post-growth and you do a money printer go brrr. There, now the economy is financialized and stonks only go up.
- Ericson2314 6y ago
  money shredder go brrr too?

toast0 6y ago

> Really we need limits on short sales beyond a certain % of float. The market seemed to be doing a fine job of correcting. Not sure we need a regulation to prevent sophisticated investors from throwing their money away. Transparency sounds good though. Also, my impression is that short interest data has a high delay/low frequency of publishing; more transparency there could be useful too.

totalZero 6y ago
The market can't really correct for this; it's essentially equivalent to lending the same thing to several people...like going to Avis and renting a car from them, only to turn around and rent it to someone else. There exist listed and over-the-counter derivatives for the purpose of institutional levering, but if you can double-borrow shares, you're essentially adding instability to the asset market in a way that is not immediately discoverable. That makes prices unstable and (as evidenced) makes it harder for the price to equilibrate. In a normal market, you have damping -- as the price impact goes further, there's more resistance to further impact. This is not so in an unstable market (either due to shorts covering or to short option gamma) because you end up with inverse price elasticity of demand. In other words, as the price goes up you get more demand rather than less. If you're hedging delta by hand on a short-gamma position, you can feel the stock run away from you. In these situations, sometimes the best way to reduce your delta is to trade the other way and let the gamma offset the shares that you trade. I have traded options positions of this sort, and it is unsafe because it incentivizes shorts to double down in order to send the price back lower. In my opinion, the existing requirement for a locate (presently, you have to know where the shares can be borrowed from before you're allowed to sell short) should be interpreted to preclude recursive rehypothecation, on a first-come-first-served basis. Furthermore, a firm should not be able to buy back or otherwise retire its stock when short interest equals 100% of the float. Institutional traders already have several different restrictions that don't make much sense. Much of this is because regulators don't always understand the mechanics of how a trading business operates. This rule on the other hand would IMO make markets run better by forcing leveraged bearish bets into the options market where risk monitoring is more thorough and product sophistication is a barrier to entry.

AzzieElbab 6y ago

I understand how people are viewing this as some kind of David vs Goliath, and in a way it is. However, the freaking Goliath is made of pension funds money and David is a few hundred traders. It is very unlikely that the guy who runs Melvin will suffer significant personal financial consequences if the firm goes boom. What is going to happen when this thing escalates to citadel and whoever is backing them and whoever else who up the chain. There are no good guys here, just an incredibly screwed up and fragile system.

totalZero 6y ago
> Goliath is made of pension funds money Well let's assume that's true (it's not). The logical implication would be that Plotkin is shorting video game developers and retailers with pensioners' money. The only practical way for market forces to disincentivize that kind of irresponsible and unsuitable risk-taking would be for him to publicly suffer losses. If that happens, the pension funds withdraw their money. If they withdraw their money, Plotkin's take-home pay and social status diminish. So as they say, all roads lead to Rome. No matter where his trading assets came from, he suffers personal financial consequences from the loss and the resulting fallout.
- AzzieElbab 6y ago
  They will have to sell their long bets to cover loses on shorts. The financial system is incredibly interconnected, no one knows what happens when 12b fund goes out of business and how that escalates up. Just like during the housing crash- bad mortgage- bad tranche - bad MBS - bad synthetics- bad insurance. I wouldn’t be too worried about one year take home pay and social status.
- juanuys 6y ago
  And the tax payer bails him out?