Good Layman's guide to the financial crisis

[bourbon]

Short selling is a gamble; if the company loses value you make money, if it doesn't you have to cover your short and you can get whacked.

You are confusing naked short selling with regular short selling, which is like confusing sexual harassment with sex. Naked short sales are not covered, that’s the point – they are thus ‘naked’. Because they are not covered and thus "fail to deliver", it creates counterfeit or ‘phantom’ shares that are injected into the system increasing supply and depressing share price.

The 1.7 mil short referred to is not a major deal by Wall Street standards and nowhere nearly enough to have an impact on Companies this size.

The fact that it was $1.7 million in options is not suspicious. Its that it was such an absurd bet - that Bear Stearns would lose half its value in 9 days.

Bringing Down Bear Began as $1.7 Million of Options, by Gary Matsumoto. Bloomberg.com, August 11, 2008.