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There's two key ways new stock can be created to avoid this risk: companies can issue it, or short sellers can create it. If the company sees its stock rising,
by HALtheWise 4y ago
There's two key ways new stock can be created to avoid this risk: companies can issue it, or short sellers can create it. If the company sees its stock rising, it can and should see that as a cheap source of capital and absorb some of it through a stock sale to do more of whatever business they're in.
- ItsMonkk 4y agoYou think that companies are going to issue new stock in order to ensure that the value of their company doesn't go UP? If anything, the more they take out loans and buyback their stock, the faster it goes to infinity. And the faster it goes to infinity, the more collateral it has, to take out another loan, to buy more stock... And you think short-sellers are going to risk infinite losses? This is a prisoner's dilemma that you aren't going to win.
- jbay808 4y ago> If the company sees its stock rising, it can and should... absorb some of it through a stock sale That's ultimately down to the incentives in place. If the board members have a lot of options in their compensation package, they might prefer to see the stock price climb and climb. In fact if the incentives are set up that way they might do a buyback to help fuel the rise, even at the cost of longer-term harm to the company.
- nightski 4y agoShort sellers do not create stock. They are selling borrowed stocks. What am I missing.
- svnt 4y agoSynthetic longs.
- nly 4y agoPrivileged market participants can definitely lend out more stock then they hold, provided eveurnting is collateralised
- deleted 4y ago[deleted]
- lupire 4y agoThe person they borrowed it from also still owns the original share. The borrow creates a share, and the repayment destroys it. Fractional reserve stockholding.