Short Selling Securities

 

Populist politicians and the bulk of the media give the impression that short sellers are bad. And that short selling causes much of our financial problems.

There are times when it does. But short selling usually has a proper function in the securities business and our economy.

This is the practice of selling borrowed securities, in the hope of buying them back at lower prices in the future.

Without short selling, overheated, overvalued securities would continue rising and add to dangerous bubbles, and thus prevent markets from being priced more rationally.

Short selling generally keeps markets honest. Dictating when to stop or retard its use will only exaggerate market extremes. (See the Earl J. Weinreb NewsHole® comments.)