And what might “short selling” be? Let’s try to outline a no-frills version of what can be a complicated transaction.
Suppose I “go short” on a hundred million shares in Banco de Fatcats, which are trading at one euro a share. It doesn’t mean I buy them. Instead, I borrow the shares through a broker (who is holding them for another gambler). The broker then sells the shares for me, at the market price of one euro each, collects the €100m from the buyer and gives it to me.
To complete the transaction, I must buy the same number of Banco de Fatcats shares that I’ve borrowed and give them back to the broker by a certain date — say next Friday. The broker is essentially a bookie. I’m gambling that the price of the shares will go down. If the price goes up, I lose.
Now, if I want to improve the odds on winning, I pull the stroke that seems to have happened last week in France and other countries, and here’s how that works.
Having sold the shares, I put my people to work, quietly rioting in the market place. They put word out through their network of contacts that Banco de Fatcats is in trouble. This network will be highly trusted, an integral part of the financial world. The rumour about Banco de Fatcats may be true, something I’ve been told or figured out. Perhaps it’s false, a total invention. Doesn’t matter. The point is to attack the share price.
As word spreads, those with shares in Banco de Fatcats will hurry to sell, to get out before the price drops further. This will push the price down. By Friday, the market price of a Banco de Fatcats share may be 80 cents. So, I buy the hundred million shares for €80m and return them to the broker. And I’ve made a €20m profit.
At any minute of the day, such deals and millions of more complex gambles, are being played out. It involves attacks on banks (Societe Generale was a victim last week), on companies, on currencies, on the bonds of individual countries. This kind of looting requires specialist skills, just as a Birmingham looter needs to know how to get through a security shutter, to hotwire a van or shift three dozen 50-inch HD TV screens at a good price.
The notion of capitalist investment — the use of accumulated wealth to grubstake a business that will pay dividends — is somewhat quaint, seen in the context of this kind of sophisticated market looting. To take part in such riots, you need three things: huge wealth, membership of a gang of similarly avaricious and well-connected thugs and the morals of a Tottenham looter.
Over the past three years, the determination of various gamblers and financial powers to defend their interests, at the expense of the rest of us and with the collaboration of the politicians, has been naked. The lessons of this have been obvious — this is how you thrive. Morality is for wimps.
This is the world these people have made over 30 years of unrestrained power — though they shirk responsibility for it. They will whinge, as they habitually do, about the dangers of supposed “liberal” policies, but the liberals have long accommodated to the victory of the political right. Last week, with a shudder and a lunge, parts of that world momentarily escaped their control and frightened the hell out of them.