Short John Silver

A further thought regarding the inevitability of bankrupt hedge funds, and consequent bailouts.

One of the things I have always believed about share brokers is that, when you buy a share through them, they buy it on your behalf, keep it for as long as you want, and then sell it for you when you ask them.  I might be wrong, but perhaps that's not necessarily true for all brokers and for all the time.   Under certain circumstances, your "share purchase" might only represent a liability on the part of the broker,  that is, a promise to pay you the value of the share at the time when you wish to "sell" it.   Meanwhile, the broker  might, for example, lend it to a hedge find, who might short it, and who might, as discussed, go broke.

At this point, the hedge fund has a liability to the broker, and the broker has a liability to you.   If the hedge fund goes broke, the broker still has its liability to you, that it might or might not still be able to meet.  The way I think that bailouts work is that the government hands oodles of dosh to the hedge fund, who can then pay the broker who can then pay you.  What should happen in my view, is that the hedge fund should be left to go broke, the broker also if need be, and the government sends you the value of your share directly.

Yeah, right, I can see that happening.