As with the fractional reserve banking system, this inflates the number of outstanding shares and dilutes the value of each share just as would the issuance of more shares without any corresponding increase in the underlying assets of the company. It really is exactly the same fraudulent situation as is described in this newsletter (where a warehouse owner or goldsmith loans out other people’s on-demand property or provides counterfeit warehouse receipts to multiple people) because people owning shares of a stock have the right to demand them back from their broker (sell them) at any time. Just as is described in this article, eventually, people lose confidence in the stock and there is a “run” on the stock where all begin to demand them back from their broker (to sell them) at which time the stock price collapses because most of the outstanding shares are, at that point, worthless (counterfeit) IOUs. Obviously, this doesn’t happen with every share subject to short selling, just as there are seldom runs on banks in the fractional reserve banking system, and sometimes it can backfire on the short seller, when they greatly misjudge the stock’s price trend and have to cover their IOU at a loss, but you can be certain it does happen.

And the truly wretched thing about it is that the short seller (who made his money up front by selling the shares borrowed from the original owner) comes out of the transaction whole, while the original owner (who is left at the end trying to redeem a worthless IOU backing massively diluted shares) is wiped out. Allowing someone to sell another person’s property, with no contractual obligation to make the owner whole, is simply fraud, even if it is legally sanctioned.

Thanks for posting it.
FYONNL!
Fiercely Independent John Nada