Stop the shorting monster

Panacea comment for Financial Advisers and Paraplanners

17 Jan 2018

Stop the shorting monster

A short sale is a transaction in which an investor sells borrowed securities in anticipation of a price drop and is required to return an equal number of shares at some point in the future.

A short seller makes money if the stock goes down, a lot of money if it drops a lot.

Shorting is legal. But is it morally acceptable?

This is a question that many outside the financial services industry will be asking, especially when there is such a baying for the blood for directors’failures, political failures, huge salaries being paid for gardening leave and in particular the huge sums of money being owed to small contractors and in fact to Carillion by those it worked for.

Hedge funds have made paper profits of hundreds of millions of dollars over the last year. Shorting of Carillion stock will have done their bit to boost the coffers.

The thirty thousand small firms in Carillion’s supply chain now face an anxious wait to see if they will be eligible for any government help to pay an estimated £1bn of outstanding bills. Many will fail, quite possibly because without the cash they cannot pay their tax bills on the 31st January, but the hedge funds will have no such dilemas

Rudi Klein, chief executive of SEC Group, which represents thousands of small businesses, said it was “inexcusable” that Carillion had “imperiled the supply chain”.

Hedge funds shorting will not have helped.

Conservative MP Bernard Jenkin amazingly came out with that great stock phrase so often used in times of collective failure, on Tuesday’s Channel 4 news, that he would be calling the company’s management, employees and customers as part of a bid to “learn lessons” from this unholy governmental fuelled mess.

What!!!!!

Why not the hedge funds too, who could see only too well that this was coming ages ago?

I think all those small businesses who worked on Carillion contracts that had payment terms of 120 days may think that this is too little too late.

Perhaps now is the time for the FCA to look at shorting and considering banning the practice as shorting just rubs salt into a very large and gaping Carillion wound and will continue to do so when this type of thing happens again, which it will.

Just a thought.

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