Banks are, at root, little more than elaborate excercises in investor trust. By borrowing short and lending long, they perform the vital function of maturity transformation without which no modern economy could function. But they depend crucially on confidence to stay afloat. If everybody wants their money back at the same time, they are in no position to pay.
Short traders greatly contributed to the breakdown in confidence that now bedevils banking and the wider economy. It's all very well selling a share that you actually own, but there is something obviously immoral in selling securities that you don't in the hope that eventually you create such blind panic that the underlying company goes bust.
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But across the board, those who lend the stock that enables short selling to occur need to re-examine their practices. Can it really be in the interests of long-only clients willingly to participate in this wholesale slaughter of the equity markets?
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