Seth Friedman: A great day for making money

[LongTomH]

Seth Friedman's op-ed at the Guardian America website seems to echo much of what Kevin Phillips has been saying: Our economy has stopped being about production and is now centered on moving money around.

When the first plane hit the World Trade Centre at lunchtime on September 11, 2001, the news caused nothing more than a brief stir in our trading room; when the second tower was struck, pandemonium ensued. While the rest of the world downed tools and gaped open-mouthed at the slaughter unfolding on their screens, traders in the world's bourses went into overdrive, frenziedly dealing on the back of the massive volatility that was sweeping global markets.

Cynical as it may seem, some of my friends from my City days still recall 9/11 as one of the greatest sessions of their trading lives; the day that they cleaned up in spades on the back of the misery and massacre of thousands of others. Anyone who shorted the indices (ie, sold stocks they didn't own in the correct expectation that they could buy them back more cheaply later on) made an absolute killing, capitalising on the fear and panic that swept through the markets and sent share prices crashing through the floor.

While there is a tendency among the self-righteous to criticise individual short-sellers who make money out of the misfortune of others, the fact is that those playing the stockmarket in such a fashion are merely a product of the system, rather than the catalyst behind the so-called evil. Once upon a time, stockmarkets were there to provide companies with a means to raise capital from investors; today's financial world is a vastly different beast.

What was that line from the song - from the last Great Depression: "The rich get richer and the poor get poorer. In the meantime, in between-time, ain't we got fun?"

[aquart]

1. I think I've heard that three times already from the news anchors.

Sounded like gloating to me.

On edit: My impulse would be to shoot them like looters. Hang them from Wall Street lamp posts. But that's just me.

[kurt_cagle]

2. In Defense of Shorting

Most bears and short traders that I know of are usually realists who believe the consensus view to be wrong. Having watched as the MSM has become cheerleaders for the unalloyed hypergrowth that takes a stock into the stratosphere not because it represents a game changing product but because a CEO wants to bid up the stock in order to finance their fifth house on the Riviera, I see short sellers as people who, for the most part, want to provide the threat to keep this under check when nothing else will. Legitimate short sellers do put their own capital into play, and quite frequently can get stung badly when external forces (such as the cheerleaders from the current Fed) try to manipulate the situation from outside the markets themselves. Naked short selling is different - in essence, you "borrow" the stocks and let other people take the risk - and that to me is basically just theft under a different name, but you have to be careful not to conflate the two.

My guess is that some short sellers made a lot of money yesterday. Consider, however, that they're money was made after taking a commensurate risk, and this market has had a tendency to rip short sellers to shreds every time Treasury intervenes with yet another buyout or "emergency loan" that will never be repaid. Given how much more damage those same CEOs that are still getting millions even as their companies collapse around them have inflicted upon everyone else, I think the short sellers are pretty much on the side of the good guys for once.

Note - I'm not in the market right now, one way or another, just my two cents worth.