Further on Confidence Game

http://www.futureofcapitalism.com/2010/08/further-on-confidence-game

Further to the review of Confidence Game posted below, a FutureOfCapitalism reader-participant-community member-content co-creator watchdog emails to make the point that short sellers do not have to be right about their investment thesis. If they only succeed in destroying confidence in a company or creating uncertainty and doubt, they will likely succeed in making money on their investment.

In almost every case where a company failed to reverse the tide of skepticism and criticism advanced by the press, regulators, politicians, rating agencies, Wall Street analysts and others who were the front men and women for the arguments put forward by the short sellers, the targets required the ability to refinance short-term debt and to maintain short-term business relationships. For a retailer, it might be vendors who don't ship because they are convinced that the retailer may not pay for the inventory they ship. For financial companies, it could be depositors or buyers of short-term paper who balk at rolling over obligations or withdraw their funds from the institution.

It may even be easier to create this sort of negative doubt that destroys a company's reputation than it is that to create positive hype, though neither extreme is desirable.

by Ira Stoll  |  Aug 9, 2010 at 3:59 pm Related Topics:  Book Reviews, Capital Markets Regulation receive the latest by email: subscribe to the free futureofcapitalism.com mailing list