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Shitty companies failing is a necessary and important mechanism of a functioning economy. Look at the Soviet Union for an example of what happens when no compa

Shitty companies failing is a necessary and important mechanism of a functioning economy. Look at the Soviet Union for an example of what happens when no companies ever go bankrupt. Short activists expose shitty companies and as such, they play an important role in the economy. Maybe Wirecard's fraud scheme would still be going on if it wasn't for short sellers. Maybe shorting, in particular naked shorting, is not ideal. But there needs to be a way to reward people for taking shitty companies down.

sanxiyn 6y ago
Japan banned naked shorting (of course Japan did not ban shorting) and seems to be doing fine. US probably can ban naked shorting without much problem too.
- konschubert 6y ago
  I am not sure Japan is doing well. (Not saying this is due to the lack of naked shorting) https://www.economist.com/finance-and-economics/2020/09/24/will-japan-see-a-new-generation-of-zombie-firms https://www.economist.com/finance-and-economics/2020/09/24/w...
- ploika 6y ago
  The US already did ban naked shorting without much problem, over a decade ago.
rcMgD2BwE72F 6y ago
>Shitty companies failing is a necessary and important mechanism of a functioning economy. True >Look at the Soviet Union for an example of what happens when no companies ever go bankrupt. The Soviet Union was not a free market economy. >Short activists expose shitty companies and as such, they play an important role in the economy. In free market economies, shitty companies fail by themselves because their competitors offer better good or services. Short activists don't help make better competitors. Companies in the Soviet Union needed more competition than short selling. >Maybe Wirecard's fraud scheme would still be going on if it wasn't for short sellers. Who knows? Tesla wouldn't exist if short sellers had their way either.
- Dylan16807 6y ago
  > In free market economies, shitty companies fail by themselves because their competitors offer better good or services. Short activists don't help make better competitors. If you want the market to encourage people to investigate fraud and bad news, then they need to be able to profit off of announcing it. When people don't figure out fraud, the company still suffers eventually but it does so much harder and hurts more people. For example, if Enron's cheating had been exposed a lot earlier it could have been stopped. Shorting has real and important benefits. And real downsides too, when shorters try to tank companies that had perfectly acceptable fundamentals. But it's definitely a tradeoff, not shorters being parasites.
- konschubert 6y ago
  Why would Tesla not exist? A low stock price doesn't bankrupt a company.
  - sumedh 6y ago
    It can because if you want to raise money, the banks wont accept your shares as collateral making your job to raise money very difficult.
    - konschubert 6y ago
      Only if you need to raise money in order to survive. Which most companies don't.
      - sumedh 6y ago
        > Which most companies don't. and some companies do, that is the point.
- MrMan 6y ago
  in free market economies people can lend each other ownership shares in public companies
dandanua 6y ago
Shitty company will go down in a natural way in a free market economy. Why do you feel you need to help it to go down? Why let people make money on someone's fail? Why let people have incentives to ruin other people lives?
- konschubert 6y ago
  > Why let people have incentives to ruin other people lives? We should build safety cushions for people, not companies. > Why do you feel you need to help it to go down? https://en.wikipedia.org/wiki/Wirecard_scandal https://en.wikipedia.org/wiki/Wirecard_scandal
  - dandanua 6y ago
    Fraudulent company is not a general case. Such companies must be closed by regulators, not short sellers. Do you think it is a good idea to help Intel go bankrupt because it's shitty right now in comparison to AMD?
    - Dylan16807 6y ago
      > Do you think it is a good idea to help Intel go bankrupt because it's shitty right now in comparison to AMD? Of course not. But if either one of them has secret bad information, it's good for everyone to have it revealed to the public so the stock price can be more accurate. Fraud may be rare but companies have negative info all the time.
    - konschubert 6y ago
      No company goes bankrupt because of a low stock price.
    - threedots 6y ago
      What is the mechanism by which you think shortsellers cause companies to go bankrupt? Can you think of any examples of short sellers causing a bankruptcy?
sampo 6y ago
> Shitty companies failing is a necessary and important mechanism of a functioning economy. Are you thinking of Melvin Capital, GameStop, or both?
- konschubert 6y ago
  I am thinking Wirecard
  - pepy 6y ago
    Luckin Coffee
polack 6y ago
> Maybe shorting, in particular naked shorting, is not ideal. But there needs to be a way to reward people for taking shitty companies down. That's what disclosed shorting is for. Why is naked shorting needed?
syl_sau 6y ago
> Shitty companies failing is a necessary and important mechanism of a functioning economy. What about shitty hedge funds overusing illegal[1] financial mechanisms to their advantage? [1]: https://www.investopedia.com/terms/n/nakedshorting.asp https://www.investopedia.com/terms/n/nakedshorting.asp
perlgeek 6y ago
> Maybe shorting, in particular naked shorting, is not ideal. But there needs to be a way to reward people for taking shitty companies down. And there's already a less risky mechanism for that: put options.

sanxiyn 6y ago

Japan banned naked shorting (of course Japan did not ban shorting) and seems to be doing fine. US probably can ban naked shorting without much problem too.

konschubert 6y ago
I am not sure Japan is doing well. (Not saying this is due to the lack of naked shorting) https://www.economist.com/finance-and-economics/2020/09/24/will-japan-see-a-new-generation-of-zombie-firms https://www.economist.com/finance-and-economics/2020/09/24/w...
ploika 6y ago
The US already did ban naked shorting without much problem, over a decade ago.

rcMgD2BwE72F 6y ago

>Shitty companies failing is a necessary and important mechanism of a functioning economy. True >Look at the Soviet Union for an example of what happens when no companies ever go bankrupt. The Soviet Union was not a free market economy. >Short activists expose shitty companies and as such, they play an important role in the economy. In free market economies, shitty companies fail by themselves because their competitors offer better good or services. Short activists don't help make better competitors. Companies in the Soviet Union needed more competition than short selling. >Maybe Wirecard's fraud scheme would still be going on if it wasn't for short sellers. Who knows? Tesla wouldn't exist if short sellers had their way either.

Dylan16807 6y ago
> In free market economies, shitty companies fail by themselves because their competitors offer better good or services. Short activists don't help make better competitors. If you want the market to encourage people to investigate fraud and bad news, then they need to be able to profit off of announcing it. When people don't figure out fraud, the company still suffers eventually but it does so much harder and hurts more people. For example, if Enron's cheating had been exposed a lot earlier it could have been stopped. Shorting has real and important benefits. And real downsides too, when shorters try to tank companies that had perfectly acceptable fundamentals. But it's definitely a tradeoff, not shorters being parasites.
konschubert 6y ago
Why would Tesla not exist? A low stock price doesn't bankrupt a company.
- sumedh 6y ago
  It can because if you want to raise money, the banks wont accept your shares as collateral making your job to raise money very difficult.
  - konschubert 6y ago
    Only if you need to raise money in order to survive. Which most companies don't.
    - sumedh 6y ago
      > Which most companies don't. and some companies do, that is the point.
MrMan 6y ago
in free market economies people can lend each other ownership shares in public companies

dandanua 6y ago

Shitty company will go down in a natural way in a free market economy. Why do you feel you need to help it to go down? Why let people make money on someone's fail? Why let people have incentives to ruin other people lives?

konschubert 6y ago
> Why let people have incentives to ruin other people lives? We should build safety cushions for people, not companies. > Why do you feel you need to help it to go down? https://en.wikipedia.org/wiki/Wirecard_scandal https://en.wikipedia.org/wiki/Wirecard_scandal
- dandanua 6y ago
  Fraudulent company is not a general case. Such companies must be closed by regulators, not short sellers. Do you think it is a good idea to help Intel go bankrupt because it's shitty right now in comparison to AMD?
  - Dylan16807 6y ago
    > Do you think it is a good idea to help Intel go bankrupt because it's shitty right now in comparison to AMD? Of course not. But if either one of them has secret bad information, it's good for everyone to have it revealed to the public so the stock price can be more accurate. Fraud may be rare but companies have negative info all the time.
  - konschubert 6y ago
    No company goes bankrupt because of a low stock price.
  - threedots 6y ago
    What is the mechanism by which you think shortsellers cause companies to go bankrupt? Can you think of any examples of short sellers causing a bankruptcy?

sampo 6y ago

> Shitty companies failing is a necessary and important mechanism of a functioning economy. Are you thinking of Melvin Capital, GameStop, or both?

konschubert 6y ago
I am thinking Wirecard
- pepy 6y ago
  Luckin Coffee

polack 6y ago

> Maybe shorting, in particular naked shorting, is not ideal. But there needs to be a way to reward people for taking shitty companies down. That's what disclosed shorting is for. Why is naked shorting needed?

syl_sau 6y ago

> Shitty companies failing is a necessary and important mechanism of a functioning economy. What about shitty hedge funds overusing illegal[1] financial mechanisms to their advantage? [1]: https://www.investopedia.com/terms/n/nakedshorting.asp https://www.investopedia.com/terms/n/nakedshorting.asp

perlgeek 6y ago

> Maybe shorting, in particular naked shorting, is not ideal. But there needs to be a way to reward people for taking shitty companies down. And there's already a less risky mechanism for that: put options.