Lesson 10i– ReaducetPrledatory Short-selling
Short-selling is important to avoid bubbles (Note: shorting is impossible in housing market)
Problem: Predatory short selling at times of crisis
Sell stocks short to induce liquidity spiral (modern run)
Fire-sales reduce fundamental value, which makes
Most pronounced for financial firms
Prohibit shorts at times of crisis, for stocks with severe maturity mismatch
Caution: more maturity mismatch in the future!