Porsche crashes into controversy in the ultimate 'short squeeze'
For old-timers, the "short squeeze" at the Stutz Motor Company is a favourite from financial folklore.
Combining legendary status - the cars won races such as Le Mans - with speed, reliability and beauty, they were the object of every ambitious young man's desire. But the emergence of mass production competitors at the end of the First World War spelt trouble for Stutz and financiers knew it. The smart money bet that the stock would fall.
Alan A Ryan, who controlled the company through family holdings, secretly started buying stock, often through options and opaque holding companies until, in 1920, he announced he controlled 105pc of Stutz.
When Ryan declared he would settle with the shorts at his price, the whole financial system reeled: as well as the trapped traders, a raft of brokers and intermediaries in the middle of the trade faced bankruptcy too.
Eventually, the New York Stock Exchange intervened, setting the settlement price itself. Ryan ended up buying an expensive 100pc of a declining car company and went bust. Financiers thought they'd never see the trick attempted again.
Extraordinarily, the plot - or the first part at least - was last week almost replayed at Volkswagen. Shortly after 3pm on Sunday afternoon, Porsche, the German maker of the iconic 911 sports car, revealed it had secretly bought 31.5pc of VW through a series of cash-settled options with a range of investment banks.
Added to its known holding of 42.6pc, the options handed Porsche control of nearly 75pc of its bigger rival.
The news shot through the global hedge fund industry. With shares in VW trading far above the company's fair value and a recession hitting every other car manufacturer, traders had bet millions of euros that the stock would fall. (AtW's comment: that sums up current problems - these people are gamblers who gamble with money they don't own - if this happened in casino person in question would go to jail for fraud (taking someone elses money to gamble))
But the statement screamed the opposite. With nearly 20pc of the share register held by the state of Lower Saxony and another estimated 6pc held by index trackers, traders calculated a cornered market.
As one said: "With over 100pc of the stock tied up and nearly 13pc shorted, the correct price of any available stock was infinity. It was the ultimate squeeze."
More here.
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Basically this means that hedge funds were shorting effectively non-existant stock (article suggests Porsche allowed banks to let their stock to be borrowed supposedly luring hedge funds into trap) - illegal in the USA I believe, but even there controls are pretty lax so who would know what's going on unless there is situation like this one?
Here is what needed to solve this problem:
1) ban short selling and anyone involved in it goes to jail for a long time
2) any capital gains from short term share holding should be taxed at 110% - this means it will cost you more than you gain
3) the only low tax applied to shares should be to dividends and capital gains if shares were held for a long period of time, the longer the period the bigger tax discount - exactly the fking thing retard Darling removed
For old-timers, the "short squeeze" at the Stutz Motor Company is a favourite from financial folklore.
Combining legendary status - the cars won races such as Le Mans - with speed, reliability and beauty, they were the object of every ambitious young man's desire. But the emergence of mass production competitors at the end of the First World War spelt trouble for Stutz and financiers knew it. The smart money bet that the stock would fall.
Alan A Ryan, who controlled the company through family holdings, secretly started buying stock, often through options and opaque holding companies until, in 1920, he announced he controlled 105pc of Stutz.
When Ryan declared he would settle with the shorts at his price, the whole financial system reeled: as well as the trapped traders, a raft of brokers and intermediaries in the middle of the trade faced bankruptcy too.
Eventually, the New York Stock Exchange intervened, setting the settlement price itself. Ryan ended up buying an expensive 100pc of a declining car company and went bust. Financiers thought they'd never see the trick attempted again.
Extraordinarily, the plot - or the first part at least - was last week almost replayed at Volkswagen. Shortly after 3pm on Sunday afternoon, Porsche, the German maker of the iconic 911 sports car, revealed it had secretly bought 31.5pc of VW through a series of cash-settled options with a range of investment banks.
Added to its known holding of 42.6pc, the options handed Porsche control of nearly 75pc of its bigger rival.
The news shot through the global hedge fund industry. With shares in VW trading far above the company's fair value and a recession hitting every other car manufacturer, traders had bet millions of euros that the stock would fall. (AtW's comment: that sums up current problems - these people are gamblers who gamble with money they don't own - if this happened in casino person in question would go to jail for fraud (taking someone elses money to gamble))
But the statement screamed the opposite. With nearly 20pc of the share register held by the state of Lower Saxony and another estimated 6pc held by index trackers, traders calculated a cornered market.
As one said: "With over 100pc of the stock tied up and nearly 13pc shorted, the correct price of any available stock was infinity. It was the ultimate squeeze."
More here.
---
Basically this means that hedge funds were shorting effectively non-existant stock (article suggests Porsche allowed banks to let their stock to be borrowed supposedly luring hedge funds into trap) - illegal in the USA I believe, but even there controls are pretty lax so who would know what's going on unless there is situation like this one?
Here is what needed to solve this problem:
1) ban short selling and anyone involved in it goes to jail for a long time
2) any capital gains from short term share holding should be taxed at 110% - this means it will cost you more than you gain
3) the only low tax applied to shares should be to dividends and capital gains if shares were held for a long period of time, the longer the period the bigger tax discount - exactly the fking thing retard Darling removed
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