End Evil

Short Selling and the Super Rich

As the credit crunch nightmare continues with the recent collapse of Lehman Brothers, a Wall Street bank in the US and HBOS here in the UK, you may have heard the term short-selling mentioned as a possible cause. Short selling is when an investor anticipates a decrease in share price and they can sell the stock without actually owning it simply by promising to provide it in the future. The stock will be leant to you by your broker and you can then buy it later and return it to your broker. So by selling a bunch of shares you don´t own now you can effectively help drive the share price down and then acquire them on the cheap and make yourself a tidy profit, sell high and then buy low.

Interestingly some economic commentators claim short selling is a good thing as it reveals the weakness in falsely inflated share prices and obviously if the short seller gets it wrong they will make big losses. There is still an argument raging about whether short selling is to blame for the collapse of HBOS. Those critical of government regulation claim that the banks themselves are to blame for taking on too much risk and not being able to cover it, which is true up to a point but surely allowing people to profit from and accelerate the demise of large institutions is not a good thing. Those in favour of short selling also claim it can´t drive down the share price as it is all based on confidence and if people are willing to buy the stock at a higher price then the short seller will make a big loss covering their position. Naturally companies do have an obvious interest in inflating their share prices and this is also a bad thing but surely it is obvious that short sellers can deliberately destabilise the market by their actions. In any case why should you be allowed to sell something you don´t own?

I know how ridiculous this sounds but unbelievably it is a perfectly legitimate practice in our retarded economic system. Why not make it illegal I hear you ask? Well very good question, it has been banned at various points in different countries. Apparently the Dutch banned it back in the 17th century after the price of tulip bulbs suddenly plummeted. The Wall Street crash in 1929 was caused by the panic selling of millions of shares in a very short space of time which created a snowballing downward spiral. Companies had greatly inflated share prices and short sellers helped to bring them back down to earth but they also profited obscenely from what was a disaster for most people. President Hoover criticised short selling after the crash. They have now banned short selling in certain circumstances in the UK and US and a total ban is being discussed. Australia has imposed a total ban on short selling.

While short selling can´t be blamed as the sole cause it is distasteful that people can profit from this practice, as the New York State Attorney put it short sellers are like "looters after a hurricane." Naturally because of the sums of money involved this practice is a favourite of billionaires and some of them make huge profits from it. Billionaire John Paulson is one of the men who has profited from short selling stocks in British banks admitting to four short positions 0.87% of Royal Bank of Scotland worth £294m, 1.76% of Lloyds TSB worth £260m, 0.95% of HBOS worth £93m and 1.18% of Barclays worth £258m.

I for one am sick to death of profiteers who don´t care about the effects of their actions because as usual while the rich get richer we end up dealing with the consequences. When it comes to making money the capitalist system does not encourage any moral responsibility whatsoever, we are sold the lie of opportunity and rewarded effort in a supposedly free market system free of monopolies and yet the wealth of the world is concentrated in the hands of a very small group of people who manipulate the system for their own personal gain and remain relatively untouched by the fallout. People intent on generating profit cannot be left to their own devices because as has been proven time and time again they will commit immoral acts which screw over low and middle income families in order to make more for themselves. Like the argument with short selling that they are actually helping control falsely inflated share prices, even if that is true it is obviously a side effect, what they are really doing is trying to make themselves richer by any means.

What is it these billionaires are actually in pursuit of? They accumulate so much wealth that they could never spend it and it is always gained at the expense of others. Why not impose a wealth cap? It´s not like you have to apply communism as an alternative you could retain the central arguments for a capitalist system in terms of the profit drive as a motivating factor but cap personal wealth at £10 million. We have gradually evolved towards the realisation that hereditary privelege is unfair and capitalism is heralded as a fair way of rewarding people for their efforts but this is clearly not the case in the world today. People born into wealth gain a massive advantage over the rest of us, things aren´t really that different from the system of hereditary nobility we had in medieval times. The world is still ruled by a handful of people who control the wealth of the planet and they exert a massive political influence. Since the resources on which most wealth is based are finite this system will have to collapse eventually. Even during this period of supposed economic slowdown the super rich have still been getting wealthier with the combined wealth of millionaires rising by 9% over the last year while ordinary people lose their jobs and homes. Isn´t it about time that the wealthiest people in society footed the bill for a change?


Posted 24th September 2008

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