Re:Naked shorting: The curious incident of the shares that d...
by colechristensen on Sunday January 31, 2021 @11:30PM
(#25985545)
Owners don't short, owners lend.
A owns a widget and lends it widget to B; B sells the widget to C; C lends a widget to B; C buys another widget from B.
A has 1 IOU from B and no widgets.
B has no widgets and owes one to A and 1 to C.
C has one IOU and one widget.
There you have 2 IOUs and only one widget. To settle debts, B will have to buy a widget from C, return it to him, and then buy it again and return it to A. The widget isn't "tainted" by being at one point borrowed, anybody buying it can lend it out. Doing so can create more IOUs than there are widgets.
Imagine getting in a circle with all of your friends, you have a dollar and the person on your right borrows it from you, then the person on their right borrows from them until you get around the circle and you borrow the dollar from the person on your left. There was only ever one dollar but now there are as many IOUs as people in the circle. That's of course a silly thing to happen, but if you rearrange it to make it messier the result is the same, more IOUs than there are things to be borrowed.
A owns a widget and lends it widget to B; B sells the widget to C; C lends a widget to B; C buys another widget from B.
A has 1 IOU from B and no widgets.
B has no widgets and owes one to A and 1 to C.
C has one IOU and one widget.
There you have 2 IOUs and only one widget. To settle debts, B will have to buy a widget from C, return it to him, and then buy it again and return it to A. The widget isn't "tainted" by being at one point borrowed, anybody buying it can lend it out. Doing so can create more IOUs than there are widgets.
Imagine getting in a circle with all of your friends, you have a dollar and the person on your right borrows it from you, then the person on their right borrows from them until you get around the circle and you borrow the dollar from the person on your left. There was only ever one dollar but now there are as many IOUs as people in the circle. That's of course a silly thing to happen, but if you rearrange it to make it messier the result is the same, more IOUs than there are things to be borrowed.