Tuesday, September 30, 2008

Who Cares?

From an article in the Wall Street Journal:
Public pension funds and other big investors have long squeezed out a few extra bucks by lending stock held in their portfolios -- for a fee -- to short-sellers. Now those funds are starting to feel a squeeze of their own.

The collapse of Lehman Brothers Holdings Inc. and Washington Mutual Inc. have set off new troubles in the securities-lending business, and the recent freeze in short-term debt markets has only compounded the problem.
So they bought stocks with your retirement savings and then loaned them out to short sellers? And this helped invest your money in the economy in what way?

This is exactly the kind of thing that is turning me away from the bailout. What kind of wacky idea is that? Buying stocks and then lending them out for short sellers is such an obscure concept that I'm almost glad they're getting their fingers slammed in the door just because the whole thing reeks of gambling.

Why not buy stocks and then take the certificates to Vegas for a turn at the roulette wheel?

America's steelworkers rely on you to take out subprime loans, use the money to buy stock in their firms, loan that out to short sellers and use your profits to buy third order derivatives on Brazilian wheat futures so that they can continue to produce the steel we need!


Anonymous said...

It sounds odd but short sellers help to establish better prices on assets. If the only ones who establish prices are those that own a particular asset you are much more likely to get bubbles. If a bunch of folks are allowed to borrow your stupidly priced asset and sell it, then buy it back after it has gone down, that process places what they know into the price; it speeds the market to a better price.

All the hype about speculators is overblown, in most instances they simply expose a problem everybody else doesn't want to see.

K T Cat said...

I understand about the short sellers, but it's this endless search for new and obscure financial instruments to squeeze a few dollars more out of the system that drives me crazy. At some point, the machinations are not about investing in companies, but are playing with numbers and graphs.

Anonymous said...

I like the creativity of the financial industry. Loan money to a bunch of people who can't pay it back, then bundle up all those bad loans and sell them? Brilliant! If only I could think of ways to profit from deadbeats and patsies I wouldn't need to work any more...