> Well, lending new money (i.e. an increase of lending over previous lending) does expand money supply and create inflation.
You are talking about lending by banks, and/or the central bank, which is quite clearly money creation.
New lending of your money to your friend does not create additional money.
There's also a word game going on here. What you are describing is a situation where I lend money to my friend, and for the purpose of your analysis, you assume that I will always have lent out a similar amount of money forever starting now.
That's fine if that's what you want to analyse. But that isn't the situation I described.
Ok, I've done it. I told my children that I'm going to take them to McDonald's tomorrow evening. They see this promise as 100% good, as real as if they were actually holding the burger. The only difference from their point of view, is that if they were holding a physical burger now, by tomorrow evening it would be cold and bad to eat. The ones I have promised them are real burgers which are deliverable tomorrow evening, at the time we're going to want to eat them. So I've created two additional burgers owned by my children, in addition to all the physical burgers that currently exist, which are owned by either McDonald's, if they haven't been sold yet, or by customers if they have.
Does this mean that I've found an infinite supply of free burgers and should go into competition with McDonald's? No. Because I'm going to have to buy the burgers from McDonald's to supply to my children. They own two new paper burgers, but I'm short two burgers. So the net total world supply of burgers is unchanged.
It doesn't inflate the supply, because the amount of people who own the share is equal to the number of actual shares, plus the number of people who are short the share. All the people who are short the share have to buy it back in the future. So the additional supply has exactly been matched by additional demand.
What you are saying is like saying that lending money to your friend creates inflation by expanding the money supply, because you still have $10 (that he's holding for you), plus he also has $10. In fact, since he knows he owes you $10, he's going to have to cut back on his spending at some point in the future, to pay you back. (Your mileage may vary with actual friends.)
This is a perfect compendium of the flimflam put out by those who object to short selling.
'a physical share' No. There's no such thing. Even a physical share certificate is not a physical share. It's a physical piece of paper which documents a nebulous thing - the set of rights you have, and terms between you, the company, its management and other shareholders.
'slippage and volatility'. No. You bought the share at the price you were filled on. No slippage. One share gets lent out, one share gets returned. You are not affected by volatility in any way, because the share your get back is exactly the same as the one you lent, and the price change would have affected you anyway.
'A substantial loss' When a share your broker lent out fails to deliver (which you would never know about), the broker doesn't write to you and say 'oops, your share didn't make it back, your loss'. First of all they didn't write your name on the same before they lent it. They have a bunch of shares which they lend out. Secondly, someone will have to produce either the share or the exact amount of money required to buy an identical share at some point. Thirdly, even if they didn't, the broker would make good any loss, whether inadvertent or due to some mysterious malfeasance. That's literally the reason your broker holds capital and is regulated.
A share is not like an apple. You buy a share with the clear intention of selling it to someone else one day. It's a speculative activity par excellence. People who buy apples in order to trade them are generally quite comfortable with the fact that 'their apples' are in reality just a binding contract on someone else to produce those apples when asked. In the same way, the bank does not have 'your money' in a pot somewhere. They just promise to produce it under certain conditions, and there are regulations making sure they keep this promise. I get that some people think this in itself is suspect, but if so, you are opposed to most aspects of modern finance, why pick on short sales?
If you buy a share, your order to buy one will most definitely be met. They can't lend out something that hasn't been bought. You might be confusing short selling with another bugbear, order internalisation and PFOF.
> If instead my money is “borrowed” without my concent for some nefarious activity
What activity? Who is borrowing your money?
> whose money is being stolen
Your money was used to buy the share.
Want to sell the share? It's there. Want to vote the share? It's there provided that you actually paid for it with cash. Oh, you bought the share on margin? Well, the same as a car which you borrowed money to buy, the share does not fully belong to you in those circs. So depending on the rules, you might not be able to vote it.
> That these shares do not exist, isn't some slip-up.
The share definitely exists. Allowing retail investors to bet on shares going up and down without any actual shares trading hands is illegal, since the 1930s.
'without your knowledge'. Everyone knows about this. That's literally why we're taking about it.
>loan it out in order to sell it in the hopes of earning money if its value drops
The broker doesn't earn money if its value drops. They lend out a share, they get back an identical share.
>Clearly you'd want to know if your property is being loanded out, because it means that you're incurring risk
No more risk than the general risk that your broker (or bank) will fail, that the regulator got it wrong and they don't have enough money to pay everyone back, and that the govt won't step in if this happens.
And you do know.
And you are allowed to ask them not to do it. If you paid cash for the share.
Oh, you bought the share on margin? So the broker stole someone else's money from their pot at the bank where they thought it would be taken care of, lent it to you for nefarious activity, and you spent their money on a share you couldn't afford yourself, with the express intent of making the price go up? Shouldn't that be illegal? No, margin investing is conceptually very similar to short selling and is also an accepted part of modern finance. The broker lends you money, you buy a share, you hope it goes up, when you sell the share you pay back the money. The broker lends a short seller a share, they sell it, hold onto the money, hope it goes down, when they buy back the share they give it back to the broker.
There are tons of problems with finance and financialization in modern society. This isn't one of them.
I mean, you're just reciting the arguments that the science establishment generally recites.
We have spent tons of money on particle accelerators to no clear benefit, either to science or to society. If a similar amount of money had gone to SETI, many of the above objections would have been addressed and resolved, with the advantage that science is being done which the average person paying for it is likely to a) understand what is being asked and b) be interested in the answer.
If person A wants to get paid to do something and person B wants to do the same thing to a similar quality for free as a leisure activity, isn't it sort of expected that it will become hard for person A to make a living? Doesn't it make sense that to make a living they will have to either produce something far better than the amateur, or do the parts that amateurs don't want to do, or differentiate themselves in some other way?
It seems to me that it would be an odd society which didn't even allow people to ask questions about the relative merits of person A and person B's work, in case they found out something which would be disruptive to person A's business model.
Something called a Failure To Deliver. Basically you have to pay extra to keep the stock one more day or whatever, and you have to deliver it the next day, or next settlement period.
The fee could be quite punitive, or fairly trivial depending on the market. In some markets failure to deliver would be a very big deal and multiple could lead to some sort of disciplinary action. In other markets they might be commonplace for whatever technical reason, and everyone expects that they will happen, just tries to avoid them because of the fee.
There are various theories that in certain markets everyone fails to deliver all the time and it means that there isn't enough of whatever to meet all the obligations. I can't really comment on how much they make sense.
I don't know they aren't, but it's illegal. Large hedge funds are unlikely to be breaking the law, and I haven't seen any evidence that they are which wasn't based on a misunderstanding of the free float numbers.
Stock borrowing is very very commonly done and renewed per-day, in the vast majority of situations this works fine.
You can have a short squeeze without naked shorting. Shorts who aren't naked have borrowed the stock from someone. If that person asks for it back, they have to go out and buy it in order to return it.
At least in theory, if retail investors buy up the stock, some of the institutional investors who own it, and who have lent it out, will sell it to them. This could mean that they recall lent stock. As this happens, shorts might have to compete to buy the stock. Equally, as the price gets higher, shorts might have to cut their losses, which also means buying back the stock. If the people buying it now don't sell it and don't lend it they will withdraw a lot of the supply.
You are missing something - these aren't naked shorts. The fact that more than the whole float is out on loan does not imply that naked shorting is going on.
> These points doubtless make me appear to be a complacent shill for the financial industry, talking down to the rubes
For context, in 2008 John Authers was a (very senior) Financial Times reporter on Wall Street. He became aware that there were queues of financial workers outside retail branches of banks in South Manhattan. These people had cash in various US banks, more than the insured deposit limit, and were withdrawing it and/or shifting it between accounts to protect themselves against the bankruptcy of major banks. They has a better idea than the newspaper-reading public of what was about to go down.
John decided that this wasn't worthy of being covered in the FT. He did however queue up himself to move his own money so it was protected.
You can judge for yourself whether that makes him likely to be a complacent shill for the financial industry, talking down to the rubes.
I don't want to dismiss what she experienced and how upsetting it must have been, but "she received death threats" covers a lot of ground.
Apparently lots of people make internet death threats all the time. Every single case like this mentions death threats. I don't think these death threats are in general credible. Clearly at least some of them are made by people who just join in with and escalate online arguments for amusement. I assume at least some of them are made by people hoping to 'discredit the other side'.
You are talking about lending by banks, and/or the central bank, which is quite clearly money creation.
New lending of your money to your friend does not create additional money.
There's also a word game going on here. What you are describing is a situation where I lend money to my friend, and for the purpose of your analysis, you assume that I will always have lent out a similar amount of money forever starting now.
That's fine if that's what you want to analyse. But that isn't the situation I described.