As the stock market takes a historic beating, not everybody is going broke. If you guess right that a stock is going down in price, you can make just as much money as when a stock rises in price.
To put it simply, to short a stock is to sell a stock that you do not actually own. You are credited with the value of the stock at that point. If the stock declines in price, you then buy to cover, closing out your position by buying the stock at the new, lower price. The difference is your profit. With a nearly 700 point drop today, the recently lifted ban on short sales certainly seemed to have an impact.
It’s not unusual for institutions and hedge funds to engage in this kind of trading. The problem is, that, like jumping on a rising stock bandwagon, short sales can cause the same phenomenon-in a different direction.
I’ve said it before: money doesn’t disappear; somebody has it, perhaps banks like Wells Fargo, who seemed to have the resources to take hold of Wachovia, even in the face of competition from Citigroup. The money is out there folks, it’s just not distributed in a way that makes the current market model run efficiently…