Larry Gude
Strung Out
Do you know what that means? Do you understand how it works?
Most everyone understands buying a stock and hoping it increases in value and you sell it for more than you bought it for and that is your profit. Same for buying a home. Buy low, sell high.
Shorting, hoping a stock goes down, in simple terms, is the exact opposite and should be just as easy to understand; reverse your thinking, up is now down. However, it isn't that simple to understand for most of us in the reflexive way we think of a stock or a home because of margin accounts and other shorting rules and policies. Buy high, sell low. Wha??? How?
My point is that I think we, as a people, would be in far better shape economically if we looked at economic transactions, reflexively, from the up side AND the down side; what if it goes up? What if it goes down?
We, optimistic Americans, tend to only see things from the upside. That's not bad per se, but it is only half the equation and that is dangerous.
This is what AIG and Lehman and the bailouts and, frankly GM, and all the rest are about; that other half of the equation; what if things go down?
I think every high school kid should not be allowed to graduate without being fundamentally conversant in economics, both on the upside and then the down.
AIG, an insurer, is paying off claims on companies, including foreign companies, that bought derivatives, insured them against loss AND, AND shorted those same stocks, making money both on the shorting of them, betting on US housing to fall AND getting paid off on their 'losses' as the derivatives fell.
It's one thing to understand how it all works when things are going well. It;'s quite another when things are going the other way, isn't it?
Think about that.
Most everyone understands buying a stock and hoping it increases in value and you sell it for more than you bought it for and that is your profit. Same for buying a home. Buy low, sell high.
Shorting, hoping a stock goes down, in simple terms, is the exact opposite and should be just as easy to understand; reverse your thinking, up is now down. However, it isn't that simple to understand for most of us in the reflexive way we think of a stock or a home because of margin accounts and other shorting rules and policies. Buy high, sell low. Wha??? How?
My point is that I think we, as a people, would be in far better shape economically if we looked at economic transactions, reflexively, from the up side AND the down side; what if it goes up? What if it goes down?
We, optimistic Americans, tend to only see things from the upside. That's not bad per se, but it is only half the equation and that is dangerous.
This is what AIG and Lehman and the bailouts and, frankly GM, and all the rest are about; that other half of the equation; what if things go down?
I think every high school kid should not be allowed to graduate without being fundamentally conversant in economics, both on the upside and then the down.
AIG, an insurer, is paying off claims on companies, including foreign companies, that bought derivatives, insured them against loss AND, AND shorted those same stocks, making money both on the shorting of them, betting on US housing to fall AND getting paid off on their 'losses' as the derivatives fell.
It's one thing to understand how it all works when things are going well. It;'s quite another when things are going the other way, isn't it?
Think about that.
