May 5, 2009
Short selling a company's stock ALWAYS is the counterfeiting of that company's stock. The liquidity argument in favor of short selling is partially valid in that short shelling was originally allowed to facilitate brokerages' ability to balance, in the very short-term, supply and demand for individual companies' stock. Confined to this function, with appropriate boundaries, short selling is a good thing for the stock market and individual companies.
However, today's proponents of short selling argue that short selling is a basic investor "right" to profit in the publicly traded stock market. Since when? Is a company not authorized (limited) to issue only a given number of shares of its stock? Why should companies and individuals NOT authorized to issue a company's stock be allowed to do so endlessly? Since the abolishment of the uptick rule, AND the creation of short ETFs prior to abolishment that circumvented the uptick rule, the supply of stock on numerous companies has vastly exceeded the authorized shares (by multiples in many cases).
Why is counterfeiting any asset a right? We don't allow it in Real Estate. Should I have the right to short sell my neighbor's house without first buying it (maybe multiple times)? Could we not argue it would enhance the "greater good" by individual experts discovering hidden flaws that most potential homeowners are not capable of seeing/understanding? Maybe if we could just short sell automobiles, that would surely take the "lemons" off the street and protect all car purchasers. How about short selling Defined Benefit Retirement Plans - would that not expose the mathematical failures long before it was too late for the retired workers who had bet their entire productive life on the company's promise?
The reasons to not allow the counterfeiting of assets, any assets, should need no explanation to intelligent people. Counterfeiting ALWAYS preys on the honest, the hard-working, the entrepreneur who produces a good/service by deflating the value of their investment AND benefits the lazy with enormous resources. Counterfeiting simply destroys value - why is it illegal to counterfeit a nation's currency? Why should we allow counterfeiting a company's "currency"?