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A comment on Counterfeiting Stock – Explaining illegal naked shorting and stock manipulation. Parent comment

Re:Counterfeiting Stock – Explaining illegal naked shorting ... by varispeed on Monday February 01, 2021 @07:21AM (#25988021)
This is the problem - someone is selling something they don't own. It's like you borrowed a car from a rental company and then you sold it to someone. Pretty sure that's a crime. If this is allowed on the stock market, then I think this is laziness of law enforcement that they don't know what to do with it. What if the owner wants the item back and the person you sold it to won't sell it? It seems like this may be the problem with Gamestop. If people hold on to their shares, whoever "shorted" them is in a big trouble and rightfully so.
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Re:Counterfeiting Stock – Explaining illegal naked shorting ... by cousin_it on Monday February 01, 2021 @07:49AM (#25988158)
You can think of shorting as betting that the stock will go down. For example, Alice can write on a piece of paper: "Anytime anyone wants to sell this paper back to me, I'll pay a sum equal to the price of GME at that moment". Now if Alice sells the paper to Bob, Alice is short and Bob is long, even though none of them touched any stock.

Of course if many Alices do that, that will push down the price of GME, because it's market-relevant information that many people think GME will go down.

The real problem is counterparty risk. What happens if Alice runs out of money and can't pay up, or there's a run on all Alices at once? So a system of guarantors is needed. But this is far from the simple argument that "selling a borrowed car is stealing".

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Re:Counterfeiting Stock – Explaining illegal naked shorting ... by varispeed on Monday February 01, 2021 @08:24AM (#25988429)
What this example has anything to do with selling something you don't own? It's like a thief would explain why he "borrowed" a car and then sold it and will promise it will get it back to the owner. Apparently stockmarket has an exemption for this behaviour, maybe they pay big sums to law enforcement to turn the blind eye.
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Re:Counterfeiting Stock – Explaining illegal naked shorting ... by cousin_it on Monday February 01, 2021 @08:54AM (#25988677)
The rules of the stock market say reselling borrowed securities is ok though, and both borrowers and lenders agree to these rules when entering into deals. I'm not sure why anyone needs to turn a blind eye.
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Re:Counterfeiting Stock – Explaining illegal naked shorting ... by varispeed on Monday February 01, 2021 @09:15AM (#25988847)
But the rules of stock market is not law. If this was legal then you could do any sort of money laundering, so why authorities turn the blind eye to this?
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Re:Counterfeiting Stock – Explaining illegal naked shorting ... by goodluckchuck on Monday February 01, 2021 @07:40AM (#25988106)
Yep, just like fractional reserve banking, it demonstrates for a lot of people that there can be a “run” on a stock / brokerage / the entire market.

Well, the FDIC insures up to 250k of bank accounts, but what happens when there’s a run on your 401k?

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