Quote Originally Posted by bourbon View Post
If the data comes back and affirms what Mitchell is saying, naked short selling would still not be to blame Lehman's collapse?
Naked short selling can hasten the collapse of a corporation that has weak or terminal fundamentals. Note that nobody was doing naked short selling of, say, Wal-Mart in such a fashion as to "drive the price down." Companies like Lehman were lying motionless on thin ice, hoping for a passerby to throw them a line and drag them to shore. Short sellers just turned up the heat so the ice would melt quicker before a good samaritan (or politician with a bag of taxpayer dollars) could come along with assistance.

Especially in a market where people with giant gobs of money are searching high and low for anything that will get them a better return than the market, taking out short positions, short sales, and even naked short sales on fundamentally weak stocks (like financials, particularly the ones made most vulnerable by subprime/MBS) were all perfectly logical (omitting the question of whether it was ethical). On the other hand, I doubt many of them wasted any time betting millions or billions on the collapse of Wal-Mart or Johnson & Johnson because if they did take out speculative short positions by way of options or short selling, then even if they had a significant impact on those stock prices, it would have been very short lived and would most likely have popped right back to the original price as soon as the market saw a buying opportunity.

Naked short sellers hastened the collapse of fundamentally weak companies. The question that I think we should be asking is whether, in the long run, that is a bad thing. I don't think the answer is an obvious one and I don't think I know the answer. Would Lehman have come out of this situation intact if it could have bought a few more months of time? Or did the short sellers just rip off the band-aid and get it over with?