Difference Between Aggression and Acts Displeasing Us
There is a crucial distinction between acts of aggression and other displeasing actions in defending securities markets. Explore the roles of short sellers, rogues, and vultures in the investment world, discussing their impact on market dynamics and perceptions. Highlight the debate on short selling, market heroes, and the value they provide along with the challenges they face. Additionally, delve into the role of distressed bond investors as a source of liquidity despite being seen as vultures.
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Presentation Transcript
DEFENDING SECURITIES MARKETS UNDEFENDABLES Mises University July 14, 2020 Steve Berger 1
The chief point I wish to makeis that there is a crucial difference between the initiation of aggression and all other acts which, while they may displease us, do not involve such aggression. Walter Block, Defending the Undefendable
Rogues Gallery in the Investment World Bears --- Short Selling Vultures --- Bankrupt Companies Raiders --- Hostile Corporate Takeovers Gekkos (Gordon not GEICO mascot) --- Inside Information Gekkos Cousins --- Merger Arbitrage
Short Sellers Opprobrium Icky Unpatriotic (per Herbert Hoover) Treasonous and traitorous (per Napoleon Bonaparte) Blamed for 1929 market crash Banned by various countries including the US, during the GFC of 2008/09 Jerks who want us to die , Extreme torture Elon Musk attack on short sellers of Tesla
Short Sellers are Market Heroes Expose fraud, fads, failures and accounting irregularities (Enron, Lehman Brothers, Allied Capital, Wirecard, Valeant Pharmaceuticals) Provide buying power at market bottoms Countervailing force to market and stock bubbles Improve market liquidity Informational value for long investors Lower investment costs for long investors (security lending fees) Face often insuperable odds Painful risk/reward of shorting (unlimited losses, 100% cap on gains) Short squeezes De Jure and de facto bans Promotional managements Sell side biases
Vultures Definition : A contemptible person who preys on or exploits others Investors feeding on carcass of bankrupt companies or their distressed owners is the repugnant visceral image But, distressed bond investors are a valuable source of liquidity to investment grade bond holders, insurance companies and trade claimants; Their specialized expertise and refinancing can accelerate emergence from distress And, they too face difficult hurdles to success; Impaired assets can be difficult to turn around Intercreditor disputes are lengthy and complex battles Arcane legal, regulatory, political and environmental issues PG&E
Corporate Raiders and Takeover Artists Image is Gordon Gekko, Ivan Boesky, Michael Milken, Carl Icahn, Billions on HBO Reality The market for corporate control is highly advantageous Tonic to entrenched, inefficient managements Threat of displacement pressures management to act in interest of stockholders Management often excel in operations but poor at capital allocation decisions Raiders too battle difficult odds of success Takeover premiums Painstaking and drawn out process to accumulate shares Opposition from many constituencies: labor unions, management, regulators, politicians Illiquidity roach motel
Cousins of Corporate Raiders Merger Arbitrageurs Inside Traders / Rumortrage Do these activities violate the non-aggression principal of libertarianism? What risks do they face? (Picking up pennies in front of a bulldozer) Do they enhance market liquidity?
The Federal Reserve The Ultimate Rogue in the Investment World Counterfeiter / price manipulator Spawns zombies and unicorns unnatural market creatures Host of other evils well-known to Austrians and Libertarians
Conclusions It all begins and ends with Walter Block rogues may be market heroes Even if some may view their conduct as immoral, morality and justice are distinct concepts. As Walter says, the free market process is really amoral. Q&A
