Thanks for taking the time to make this information available. Knowing is 99.9% of the battle. Money is supposed to be a receipt for something of value, not pieces of paper conjured by magicians.

http://www.pbs.org/moyers/journal/09192008/watch2.html

I have to take exception to your description of naked shorting as creating stock from nothing. When you short a stock, covered or not, you're getting paid for the promise to deliver the shares on the settlement date. A naked short seller still has to deliver the shares to the buyer. He's taking the same risk if the price rises as a covered short seller.

It's pretty much the same as writing calls. You can write covered calls if you want to limit your upside exposure, or you can write naked calls if you're highly confident that the shares aren't going to rise. Either way, if that call is in the money on the expiration date, you have to deliver the shares.

I know that for my part, I've done fairly well when shares I held were bumped up because the short sellers were caught with their pants down.

-jcr

In response to JCR, I do not think that promises should be for sell. A person does not have to deliver anything, especially if there is nothing to deliver. What does the buyer get if the stock is not delivered, a can beans and a pocketful of dreams? The whole point is to buy a stock, not a promise. It is easy to defend the game if you have been playing it and profiting from it. That is what is wrong with the federal government and that is what we are trying to change. Naked short selling is not the act of selling a promise, it is the practice of selling a stock without first borrowing the shares or ensuring that the shares can be borrowed. The practice causes bankruptcies, hurts companies trying to raise capital, and is open to abuse. Normal shorting is bad enough because the trader is selling securities that he does not own. If I could sell things that I do not own, I would be rich also.

I do not think that promises should be for sell.

That's the way all stock sales work. The trade happens now, the delivery happens on the settlement date. This is the case whether you're selling shares you already have, shares you have borrowed, or shares you will buy before the settlement date to cover your sale.

-jcr

What does the buyer get if the stock is not delivered

That's where the exchange comes in, actually. A stock exchange is the ultimate guarantor of all trades on the exchange. If you make a sale and can't deliver, your broker is on the hook for it. If the broker can't make good on it, then they lose their seat on the exchange and the exchange is on the hook for it.

-jcr

Mr. Randolph:

Please, give us ignorant folk some example of what short-selling is. From listening and researching, some say the short-sellers do a better job of keeping the market honest than the so-called SEC. From the several articles I have been able to read so far, I would agree.

Again, sir, if you could give us a more clear definition of what short selling is, I'd be much obliged.

Thank you.

MKC

one question that slid by at about the 7-minute point was... "so why don't we let them fail."

i'd like to hear the opinions from BJ and DW on this.

my personal feeling is that the US culture today favors bailing out failures and punishing success. isn't this just another example?

plusaf - the unpleasant truth is that we NEED to let them fail. We are in a credit bubble of historic proportions, and it's time to take our medicine and get it over with. We can no more prevent the consequences of this bubble than our ancestors could with the South Seas Land Bubble, or the Tulip Bubble.

But I'm a doctor, not a politician. We'll see if people are ready to elect a doctor, and make the necessary changes to the system so that we can allow the credit bubble to run its course, and take a different trajectory towards a prosperous and a sustainable and prosperous future.

plusaf - I concur with BJ. At this point the economic outcome is going to be unpleasant, and the best thing we can do is to take our medicine as BJ says and get it over with as quickly as possible.