The ban on short selling in the City ended last week, and resulted in Barclay’s losing 25% of its share value.
How to do short selling (SS):
1 Borrow some shares.
2 Sell them
3 Wait, in the hope and expectation that they will fall in value
4 Buy them back cheaper than you sold them
5 Pocket the difference between the buy price and sell price
6 Give the shares back to the idiot who lent them to you in the first place
7 Go and have another well-earned line of coke
Short selling introduces instability in the system, which is why they banned it in October. Free marketeers say the value of short selling is that it reveals the true value of a company. If a company dies as a result of short selling, its demise has just been brought forward.
Well, maybe, or maybe not. Given that successful short selling depends on the shares falling in value, the SS pack is motivated to bring the company down, not just by selling the shares, but by being seen to be selling the shares. So they aim to bring about and amplify the fall in the share price of their target.
Then there is an ethical question. If I lend you my mole wrench (not that I would), I expect you to look after it, and make sure you return it. I do not expect you to sell the bloody thing while my back is turned.
The fact that the ban on SS was only temporary shows that Government, despite obediently shelling out untold squillions of taxpayers’ money to keep the banks alive, is still in awe of the erstwhile “Masters of the Universe”. Government is afraid to nationalise, afraid to ban the SS, afraid to apply the firm hand of regulation, afraid to offend the privateers of finance.
Let us take up the cry “They are not Masters of the Universe, they are just a Wunch of Bankers”