Short Squeeze

I have to admit, this is one of the more brazen acts of rebellion against the establishment I’ve seen in some time. They nearly bankrupted a hedge fund, and I’m not honestly sure this is over yet. The reaction is telling. Everything is fine when we manipulate the market, but if you proles do it, we’ll have investigations and demand the rules of the game be changed.

It looks like the hedge funds have been doing what I understand is called “naked shorting,” meaning shorting shares that you don’t actually own and may not even exist. The practice is illegal, but it wouldn’t surprise me if there was a wink, wink, nudge, nudge, as long as the right people were making enough money.

I am far from any kind of expert in finance, so this stuff both fascinates and confuses me. I know someone who trades, and have had him try to explain it all to me, and I keep coming back to: “How is this different than gambling?”

7 thoughts on “Short Squeeze”

  1. Well any form of investing is a gamble in the sense that it might not pay off. But yes, naked shorts seem more Vegas-like than most.

  2. “I am far from any kind of expert in finance, so this stuff both fascinates and confuses me.”

    Watch that “fascinate” part, because the first step of any really big financial scam is to convince enough people who have a little spare change that they really are experts, or at least that they have an inside line on what’s going on. Ask those of us who were “gold bugs”, or who were into reading the “doomsday economists” of the 1970s; stuff that was de rigueur for Real Conservatives at the time.

    1. Right. And now we know now how all the “BUY GOLD” stuff was actually just a crock of it… Charlatans as you would say, Andy…

      And we’ve probably arrived at that conclusion today mostly because our entire retirement system since the 1970s has shifted away from defined benefit to 401(k)s. Now we’re all reliant on the proper functioning of the system for our livelihoods.

      1. “. . .all the “BUY GOLD” stuff was actually just a crock of it. . .”

        I suppose there are some people who did OK by accidental timing, but I don’t know how many such windows there were. In my own case, the money I put into gold in the late ’70s, early ’80s would have yielded more buying power over the years if I had put it in passbook savings accounts or U.S. Savings Bonds. I try to tell myself it was sort of like “insurance”, but that wasn’t the prevailing attitude at the time. We gold bugs thought we’d be the guys in the catbird seat when doomsday came and the SHTF.

        Your example of the erasure of defined benefit pensions is just one of many examples of the sly ways the hard-fought benefits won by earlier generations of working people were rolled back over the course of my career.

      2. I thought I’d extend my remarks into one of my broader sorta-sermons:

        One of the things that frustrates me about virtually all of my former “activist” friends is they will never admit or even talk about things they/we did, that they now know were mistakes, or to put it in plainer words, they now know that issues they were involved in were utter bullshit. All of us were to some extent “useful idiots”, though we may be flattering ourselves by thinking we were ever “useful.”

        I’m thinking of two long-time friends who were separately into an issue I never was “active” in, though I sympathized with their positions. With each, the closest I ever came to losing them as friends was when I suggested they could go to jail. Both were so convinced of the infallible foundation in law of what they were doing (“experts” had told them so), there was not the slightest chance of that, and they regarded my warnings as the worst kind of faithless apostasy.

        One went to jail for a short amount of time, and the other, who lives in another state, went from being an outspoken advocate for his issue, to total silence about it, as if his involvement in it had never existed. I have no idea what happened, but he has been silent about the issue for over 20 years. It was like a door closing. I’m sure his total experience contains some valuable, illustrative lessons, but I’m just as sure they will be lost. So, our kids or grandkids will someday get to waste their time in exactly the same ways.

  3. My guess is that what made this work is the surprise. The hedge funds weren’t watching the Deplorables. They will the next time. It will have the advantage of making the sharks more cautious and less profitable. Until they forget.

  4. From what I understand, it only worked because the big hedge fund announced what they were doing in an investment prospect. Not only did they massively over-leverage themselves, but they announced that they were doing it to everyone who wanted to throw money at them.

    Any of the other investment firms could have done what the Redditors did. They didn’t because… um…
    “Ape shall not kill ape.”

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