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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: kris b who wrote (75646)12/14/2006 10:23:50 PM
From: The Vet  Read Replies (1) of 110194
 
This is not new money. They would be selling existing assets.

Actually quite a lot of the SM money is new money, and completely unbacked by any asset at all... All short sales create new "phantom" assets which enter the market to be sold, borrowed against and traded just the same as real stock issued by the company.

"Borrowing" stock to short doesn't change this because in most cases the real owner doesn't even know his stock has been borrowed against and he can still sell it or use it for margin even though there is another "owner" who can do the same thing with the same actual shares. This is amplified by naked short selling but even the "traditional" short sale effectively creates a "fractional reserve" creation of credit, in this case of stock in addition to the cash that resides in the short sellers account.
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