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The law of supply and demand doesn't require shorting in order to "correct" prices downward. The counterpoint to your Theranos example is the fact that Enron e
by danhak 6y ago
The law of supply and demand doesn't require shorting in order to "correct" prices downward. The counterpoint to your Theranos example is the fact that Enron existed too. Both of them were fraudulent. Both collapsed after some number of years. One privately held, one publicly-traded and shortable. Same outcome, no?
I can't (directly) short the price of strawberries at my farmer's market, or the cost of rent in my small town, or the prices of artwork at an auction house. Price discovery seems to work reasonably well in all these venues. What is with this canard that shorting is necessary for price discovery to occur? There is no such requirement in the law of supply and demand.
- kasey_junk 6y agoShort and long positions are important for things that a) have a future value of money component and b) have risk that can be mitigated in a cost effective way. Artists would take advantage of this in the form of working on commission. Large enough commissions do in fact allow shorting in the form of insurance. The same is true of strawberry farmers & landlords at various places on the size distribution. One of the complaints my farmers market strawberry vendors have is that they don’t have access to the same finance agreements that large producers have. Part of that is because it’s not cost effective enough to short them.