Instead of just parroting the propaganda, think about what’s going on for a minute: individual short sellers take a considerable personal financial risk on the belief that some companies are well run, productive enterprises while others are shams and scams that will ultimately fail. By shorting a company they are saying, literally as well as figuratively, “I don’t buy it, and in the long run I don’t think anyone else will.”

Short sellers are not steeling from anyone, or even taking undue advantage. When all is said and done they buy just as much (split adjusted) stock as they sell and the effect is the same as a long transaction except that the order is reversed.

As a signaling mechanism the only real problem they pose is for fraudulent, ill-managed, enterprises, in that they make it much harder to pull the wool over people’s eyes.

That’s why, whenever something shady is going down (now, Enron, WorldCom, etc.), there’s a hue and cry against the short sellers. The corrupt bastards hate short sellers about as much as elephant poachers hate vultures, and for the same reason. They draw attention to criminals who’d much rather conduct their affairs quietly and leave before anyone notices.

– MarkusQ
]

“I think that’s all fine and good but here’s what I think,” Obama said. “In the next 47 days you can fire the whole trickle-down, on-your-own, look-the-other way crowd in Washington who has led us down this disastrous path. Don’t just get rid of one guy. Get rid of this administration. Get rid of this philosophy. Get rid of the do-nothing approach to our economic problem and put somebody in there who’s going to fight for you.”

If you’re interested, but in a hurry, this quote appears at about 10:40 in the Espanola, New Mexico YouTube of his speech.

Why is it that if I send a check to my bank and tell them “I’ll be good for it in a couple of days,” that’s irresponsible and bad for the market, while if I’m a stockbroker and say “I’ll borrow your stock, sell it today, and be good for it in a couple of days,” that’s a valuable signaling mechanism?

That’s not how shot selling works. To sell a stock short you actually have to maintain enough assets in your account to plausibly replace the stocks you sold short no matter what the market does. If the stocks get called in and you can’t cover them, your assets are liquidated to buy the replacements.

The reason it is a valuable signaling mechanism is that short sellers tend to be attracted to worthless stocks that are being pumped up far beyond their actual value (think Enron) and thus the presence of a lot of short positions can be a valuable hint to normal investors who know what it means.

This is also the reason that short sellers are so hated by those who like to sell a steaming pile of stock to gullible fools–the short sellers, like flies, vultures, and law degrees from Pat Robertson’s Regent University, are a clear warning that what you are being asked to buy may not be up to snuff. They tip off the rubes and can spoil an otherwise lucrative con.

– MarkusQ