Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (85266)	9/16/2008 12:24:17 AM
From: The Vet	Read Replies (2) of 116555

"Imagine the situation if the FED ended up holding more equities on it's books as collateral than were ever issued by the initial company and those shares were still trading. Not possible unless the Fed is accepting short equity positions as collateral." Every share sold naked short is one more added to the traded float.. Of course it is possible! What happens if a bank with a large position in a particular equity which it has lent out to short sellers who have actually legally borrowed the stock decides that instead of selling that stock they want to use it for collateral with the FED? They tell the shorts to go find another lender and then hand over the stock. If the shorts can't find stock to borrow they become naked by default and under current rules the SEC allows that.

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