Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation
This is mostly nonsense. There is nothing wrong with there being more shares short than shares outstanding. It just seems problematic, until you think it through.<p>Person A has 1 share of company Y. Person B borrows 1 share of company Y from person A, and then sells it into the market. This is called a short sale. But person B just <i>sold</i> their borrowed share. Now that share is owned by person C. Person C can now lend it back out to person D, or to person B again, and the process can repeat infinitely. The idea that short interest is constrained by shares outstanding is just a fundamental misunderstanding of how the short market works.<p>Shorting behaves the same way that fractional reserve banking does, and there is a &#x27;money multiplier&#x27; like leverage effect in the process. There is nothing nefarious about this, and it certainly isn&#x27;t &#x27;countfeiting&#x27;. Short sellers provide an important service to capital markets, maybe the most important service: they help to identify mismanaged or fraudulent companies. The idea that attacking short sellers is attacking wall street is completely backwards. Most of Wall Street hates short sellers, because they drive down the prices of companies and confidence in markets (in the short run, in the long run, they increase it).