"Just one comment - the words naked shorting means nothing to the general public. I see the SEC and Donaldson using the word shorting in front of senators to try to fool them. Let's start calling this what it is "Share counterfeiting." Counterfeiting has a solid ring to it and the public needs to understand it is wrong."
The readers comment puts things in perspective. It is illegal to counterfeit U.S. currency but not illegal to counterfeit stock shares which is representative of "investor money". Basically, it appears that they are walking away with the money and leaving the investor holding a "bogus" piece of electronic paper that says they own stock in a company when they really do not. What is wrong with this picture! Counterfeiting is counterfeiting and stealing is stealing.
I don't really understand this. Maybe you can help me.
When a bank meets its reserve requirement with the Fed and makes loans based on that, it is creating money. The money is subsequently counted by the Federal Reserve when it reports the data on money supply (M1, M2, etc.). We, of course, do not call this money creation "counterfeiting" even though the money is created out of thin air.
When an investor borrows a stock and sells it to someone new, we do not call this counterfeiting. Even though two people now have the beneficial value of that same share of the stock, we all acknowledge that nothing has been counterfeited.
When a someone shorts a stock without a borrow, this is counterfeiting, right? Why?
My understanding is that, when someone counterfeits currency and gives it to someone for payment, that payment is worthless. The recipient has been gypped. But when a naked short-seller sells stock, he's on the hook. Take the current case, where everyone is saying that any day now CMKX will be acquired for .20-.34 a share. All those naked (and covered) short-sellers are on the hook for that money. Everyone agrees about that--isn't that what all the excitement is about?
So I don't get why this is counterfeiting. It seems like the fundamental opposite of counterfeiting; instead of giving something of no value, all these CMKX short-sellers have given something of remarkable value.
Maybe you can illuminate me on what I'm missing here. Thanks in advance.
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