A Quote by Matt Taibbi
By incentivizing Wall Street players to sniff out inefficient or corrupt companies and bet against them, short-selling acts as a sort of policing system; legal short-sellers have been instrumental in helping expose firms like Enron and WorldCom.
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I think that the failures of Enron and WorldCom and other companies are partially failures of investors to recognize companies that are selling for a thousand times nothing, but chances are they may be worth only that.
If it were not for government regulation of big corporations, executives at companies like Enron, WorldCom, Tyco, they could have cheated investors out of millions.
Enron had already collapsed and filed for bankruptcy protection by the beginning of 2002. But despite complaints from short sellers that corporations had used accounting gimmickry to inflate their profits, many investors thought the crisis at Enron was an isolated case.
While short sellers probably will never be popular on Wall Street, they often are the ones wearing the white hats when it comes to looking for and identifying the bad guys!
If you think Wall Street has a short memory, you're dead wrong. No, the folks who work on Wall Street, regulate Wall Street - and, above all, invest in its wares, notably its hedge funds - don't have a bad memory. They don't have any memory at all.
The legal system doesn't work. Or more accurately, it doesn't work for anyone except those with the most resources. Not because the system is corrupt. I don't think our legal system (at the federal level, at least) is at all corrupt. I mean simply because the costs of our legal system are so astonishingly high that justice can practically never be done.
I do not use short selling. The fund has not shorted a stock since the 2002 to 2003 time frame. At that time I did short three stocks, on which I broke even on two and made money on one of them. The experience taught me that I was not going to be using short selling going forward for a slew of reasons.
Trust-me companies are companies whose financial results gallop ahead of their businesses, companies with seemingly perfect control over their quarterly sales and profits. Companies whose financial statements are loaded with footnotes: companies that short-sellers often attack but rarely dent.
The not-quite-sort-of lie works here too - often an ad will announce that "Congressman Johnson voted for a bill that gave tax breaks to companies like Enron." True - although the bill allowed all companies to accelerate depreciation of copying machines. Yes, Enron benefited, but Enron also benefited from the revolution of the Earth around the sun. Hardly an argument to freeze the planet in one spot.
Wall Street can be a dangerous place for investors. You have no choice but to do business there, but you must always be on your guard. The standard behavior of Wall Streeters is to pursue maximization of self-interest; the orientation is usually short term. This must be acknowledged, accepted, and dealt with. If you transact business with Wall Street with these caveats in mind, you can prosper. If you depend on Wall Street to help you, investment success may remain elusive.
The dirty little secret of what used to be known as Wall Street securities firms-Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns-was that every one of them funded their business in this way to varying degress, and every one of them was always just twenty-four hours away from a funding crisis. The key to day-to-day survival was the skill with which Wall Street executives managed their firms' ongoing reputation in the marketplace.
I think Wall Street is very important, especially to tech companies. Wall Street will get in their rhythm and go fund tech companies, and tech companies will go create jobs and employ a lot of people, so there's that aspect of Wall Street.
What helped me a lot is the fact that I have a very short neck. If I had a neck like a stack of dimes, you can bet I couldn't take a good shot. But the fact that I had a short neck and worked on it a lot (as opposed to most fighters who don't work on their neck muscles) definitely helped. I would stand on my head against a wall and move my head back and forth, side to side, for half an hour or so while talking on the phone.
I'll always understand the Schadenfreude aspect to short-selling. I get that no one will always like it. I'm also convinced to the deepest part of my bones that short-selling plays the role of real-time financial watchdog. It's one of the few checks and balances in the market.
No man can control Wall Street. Wall Street is like the ocean. No man can govern it. It is too vast. Wall Street is full of eddies and currents. The thing to do is to watch them, to exercise a little common sense, and … to come out on top.
Allowing short selling is allowing people to sell - instead of having to buy the stock and then sell it, which doesn't do much; allow them to sell it, and then buy it. In which case they can express that information and the idea is that you would get more accurate valuation of companies by letting people express both their positive information and their negative information through either long or short selling.
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