debunking another myth; Shorting Stock does not kill the stock price

Shorting stocks in the market will not drop the price of the shares down. A big drop in the economy and bad management can kill the price of a stock.

This is how shorting stocks work.

The investor borrows the shares from another investor who is holding this position long in their account, typically on margin (on loan). Then he sells it in the market and waits for the price to drop.

When the price on the stock drops far enough, the investor buys the stock back and returns it to the initial investor.

This isn't a perfect system and there have been a few rules.

1. Just recently, the shares had to be shorted on an uptick to prevent any downward pressure of the stock. This rule has been in place since the SEC was created after the Great Depression and shorting stocks has not killed the economy or the markets since then. They just removed it for some reason, they might want to reinstate it.

2. You can't short shares that are not already long and available to be shared (typically long in someone else's margin account). This is where it gets tricky. If the person who loaned the stock wants to sell it, the guy who is in a short position has to give the stock back. The guy who shorted the stock has to buy back the shares at the current price and give it back to the initial owner to sell. This can happen at any time. So there can be no more shares shorted on the market than there are shares held long on margin (at most brokerage houses).

3. Also, in order for someone to have a share on margin, the share needs to be at minimum $5.00 per share. You can't short the stock to zero.

If anyone has heard the joke, "the market is up today because they're selling shorts"; well basically it means the gains in the market are a dead cat bounce.

Guess which sector his hitting the fan? The banking sector are in bed with our politicians and the CEO's are the people who ran their companies into the ground. There is nothing that one investor can do with the regulations we already have in place that can push the price of a stock down more than a bad CEO or economy can. Again, like the CRA blame they're scapegoating to avert blame and anger from their primary shareholders.

Shareholders are part owners in the company. Those investors with the most stake in a company are very influential and often on the Board of Directors. The Board of Directors and other shareholders have enough influence to "change management" (or fire a CEO & other mangement) if their shares are not performing.

And in this case, the government should not be "oversight". If the bailouts didn't happen, it's up to the shareholders to sue and fire those who committed grand acts of malpractice and corruption with their investment. It's their money and duty to do so.

Unfortunately, the non-rich taxpayers have to eat the toxic papers the shareholders don't want so the government can protect the morons that take Bailout money for AIG, waste it on lavish parties for themselves then lose $61 billion more dollars. The "anger" from Bernanke and Congress is a big act. They're paid actors. They get government paychecks to act. They know exactly what they're doing.