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short selling HBoS

A brief history of short selling

It’s the investment strategy everyone’s talking about: short selling. No, nothing to do marketing summer sports wear, but a strategy for making money from falling share values in companies like HBoS. It’s easy, once you know how.

First you borrow some shares in HBoS from a bank or insurance company or pension fund, and sell you sell them on the stock exchange for let’s say £1,000k. Then you spread lots of rumours about how the bank is the next victim of the credit crunch, is sitting in oceans of sub-prime slime, has a paedophile on its corporate responsibility committee or whatever. And watch that share price turn red.

When the shares have gone down 20% to around £800k (mustn’t be greedy) you buy the shares at the lower price and then hand them back to the people you borrowed them from leaving yourself £200k richer. Yes, it’s as simple as that. Then it’s off to the lap dancing bar for some serious Cristal and a spot of executive hand relief.

Well, someone has to do it. It takes bottle to be a spiv these days and it’s not all fun and games. There’s the problem of what to do with all the money you earn for a start. There’s only so many houses you can buy at any one time and cars and boats have become so boring.

But why, you ask, do the big lumbering financial institutions lend these spivs their own shares to make quick money out of? Well, the pension fund managers and brokers charge a fee to the short sellers for the privilege of borrowing their shares. This is truly a brilliant financial innovation. It’s like a thief paying you a fee to let him steal from your wallet.

Short selling tells us something for the intelligence of your average fund manager and investment banker. Most of them are clearly a few shares short of a full portfolio if they allow this to go on. Probably down to centuries of inbreeding among the products of minor English public schools. Tim Nice-but-dim can’t see anything wrong in getting a few drinks from this nice spiv chappie who wants to borrow all those shares. Well, one isn’t doing anything much with them oneself so, er, why not?

Compulsory screening followed by voluntary euthanasia might be one solution. But we can all rest easy because Gordon has stepped in to sort it all out. The Tims are to be ordered not to sell their shares to the spivs for at least four months. Hah! that’ll teach them. It’s going to be a cold and lonely Christmas for the short sellers, but no doubt a very happy New Year

About @iainmacwhirter

I'm a columnist for the Herald. Author of "Road to Referendum" and "Disunited Kingdom". Was a BBC TV and radio presenter for 25 years - "Westminster Live" and "Holyrood Live" mainly. Spent time as columnist for The Observer, Guardian, New Statesman. Former Rector of Edinburgh University. Live in Edinburgh and spend a lot of time in the French Pyrenees. Will that do?


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