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Comment by philip1209 | Hacker News Reader

A lens to look at this through is - "why is short selling allowed?" Advocates cite increased "liquidity." But, does society really benefit? Short-selling really just lets trading firms extract value from the failure of others. In that sense - professional trading firms that participate in short-selling could be grouped into a monolithic "Wall Street" in the sense that they are extracting value without a benefit for society.

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Most advocates argue that short-sellers help find the accurate price of a security, in service of the broader market goal of capital allocation. People who argue that markets should be long-only wind up advocating for frauds and failures to be mispriced in the market.

Liquidity is not usually the primary benefit. That’s usually the argument for high frequency trading firms.

It's a little on the nose when wsb is happy that Michael Burry bought into GME about a year ago?

It's almost like they forgot who Christian Bale portrayed in that movie.

Being on the short side isn't a problem per se. Having 140% short float is.

A company existing is not just automatically a good thing. If there weren't any Gamestop stores anymore that opens up the retail space for, say, Micro Center or Fry's Electronics to step in and fill that role and do a better job, create more jobs, etc. That's true also for all the other resources Gamestop consumes, their exclusive contracts with businesses, pre-order bonuses, underpaid labor, whatever.

There's a term, 'Zombie Corporations' for businesses that are both stagnant and also generally aren't very beloved by their customers, but are still able to stay in business due to some localized monopolistic factors. Those kinds of companies exist in every sector and still 'make money' but they're usually the kind of companies short sellers target.

Getting rid of them is not some fundamental ill of society - yes it could in theory make some people lose their jobs, but it also keeps the economy going. If this kind of things didn't happen it would be impossible for new businesses to come up and with those new businesses new job creation, new ideas, etc.

The act of shorting a stock puts downward pressure on the stock price, similar to the way buying a stock puts upward pressure on it.

Suppose you see an ongoing pump-n-dump---sketchy pseudoinformation being passed around to raise the price of a stock someone has already bought, so they can sell later. If you short the stock, you act to reduce the price excursion and potentially help the eventual victims.

Suppose it's not a pump-n-dump, but rather "irrational exuberance"---people buying a stock and raising the share price for non-economic reasons. Short selling applies alternate pressure on the stock price, reducing the effects of a subsequent correction.

No, advocates cite improved "price discovery". You know, the only rational reason why stock markets exist in the first place.

Markets also exist for capital allocation.

Yes, and in order to have efficient capital allocation, you need price discovery.

Personally, I am not a fan of shorting but in addition to "liquidity" there is also "price discovery". Using excess leverage to short and floating 150% of the shares short is potentially a problem but the same would be true if it was the reverse (ie. buy or long positions). Price manipulation is the real problem here.

Given more capital and a reasonable amount of time, the short sellers in this instance will be correct. The value of the GameStop stock using commonly accepted valuation methods of our day is much lower than $300 or even $100 per share. Unfortunately brick-and-mortar companies with declining revenue and no visible growth prospects are valued differently than high flying tech stocks. Keep in mind that I understand the rules of the game dictate that shorts can be squeezed and the share does not have to trade at the commonly accepted valuation.

If stocks prices being close to their true value is beneficial to society, then traditional short selling is also beneficial.

Another reason is hedging, a form of insurance.

because it’s a free country. why would we restrict people from taking loans and who is the government to say the loan has to be denominated in dollars instead of shares?

short sellers have also discovered a lot of fraud companies because they have a monetary incentive

and for society as a whole, we should want the markets to price things accurately. things that are overpriced just means capital that isn’t being used somewhere else efficiently

it may seem ugly but capitalism is creative destruction. it’s an evolutionary system, the weak need to die so the strong can thrive

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