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Suck It, Wall Street - (Matt Taibbi article)
DerekJohnson
Administrator, Swaye's Wigwam Posts: 60,174
DerekJohnson
Administrator, Swaye's Wigwam Posts: 60,174
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(Btw, NOBODY has better NFL draft analysis than Matt Taibbi. His ten rules for the NFL draft are great. In particular: Take "The Weed Guy.")
While it isn’t a complicated story, some of the awesome humor of GameStop is in the mechanics.
Unlike betting on a stock to go up (i.e. betting “long”), where you can only lose as much as you invest, the losses in shorting can be infinite. This adds a potential extra layer of Schadenfreude to the plight of the happy hedge fund pirate who might have borrowed gazillions of GameStop shares at five or ten hoping to tank the firm, only to go in pucker mode as Internet hordes drive the cost of the trade to ten, twenty, fifty times their original investment.
Short-sellers bet by borrowing shares from so-called prime brokers (Goldman, Sachs and JP Morgan Chase are among the biggest), selling them, and waiting for the price to drop, at which point they buy them back on the open market at the lower price and return them. The commonly understood rub is that prime brokers don’t always really procure those original borrowed shares, and often give out more “locates” than they should, putting more shares in circulation than actually exist (as in this case). GameStop is exposing this systematic plundering of firms using phantom shares and locates, by groups of actors who now have the gall to complain that they’re the victims of a “get rich quick” scheme.
Short-sellers are not inherently antisocial. They can be beneficial to society, instrumental in rooting out corruption and waste in whole sectors like the subprime industry, or in single companies like Enron. Moreover, the wiping out of such funds isn’t necessarily to be cheered. Sorkin correctly notes that many hedge funds invest on behalf of entities like pension funds, though maybe they shouldn’t, given their high cost and relatively mediocre performance, as I’ve noted before.
However, that’s the point. The degree to which even the beneficial functions of short-sellers are cheered or not is dependent upon whose corruption they’re uncovering. Let the record show that when the S.E.C. imposed a ban on shorts of financial stocks in 2008, they routed short-sellers who were dead right about the insolubility of America’s banking sector. The state prevented their correct judgment about companies like Wachovia and Washington Mutual, whose stocks kept plunging even after the ban and went bust soon after.
The shorts were right about all the other banks, too. The Inspector General of the TARP, Neil Barofsky, eventually told the Financial Crisis Inquiry Commission that 12 of the 13 biggest banks were on the brink of failure when they got saved — by the short ban, by emergency overnight grants of commercial bank licenses to companies that weren’t commercial banks, by the bailouts, by the subsequent avalanche of underwriting fees, and most of all, by the lies about all of the above.
Level of importance in the system:
Banks > Hedge Funds > Pension Funds > Average Investors
If somebody is going to get screwed look to that and go down the list to the last bag-holder.
More than the race and politics shit, the economis shit is where it hits. In this respect at least, Marx was right. It's not about morality, ethics, political theory, or anything else. It all comes down to the benjamins (and the Tubmans) and who has them. It's the base of the pyramid.
She's sliding Swaye!!!!!!!!!