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.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?
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.
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?
3 comments:
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.
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.
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...
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