Setting short-selling straight; or, "But who let you short that?"

You might not be aware, but I've been short-selling some cryptocurrencies. (I would have said "been making money short-selling cryptocurrencies", but ...)

Often people ask some from of, "oh wow, what broker lets you do that?" It's actually an interesting misunderstanding, in that it misses a key insight:

You can short-sell any time you have a debt denominated in that asset.

At that point, you are short the asset. You benefit from anything that makes that asset easier to obtain, and thus extinguish your debt.

In the decentralized finance world, there are platforms (in my case, Compound.finance) that let you deposit some crypto asset A, and borrow some other crypto asset B. Once you do so, and sell B, you are now short-selling B!

The concept applies more generally too: for example, if you owe your friend the favor of helping them move, then you are "short moving services" (because anything that makes moving services cheap, also makes your debt easier to service, at least because you have the option to satisfying by paying a service rather than doing it yourself).

Also, if you borrow US dollars, and spend them, you are "shorting the dollar", although it's usually not talked about in these terms. (You hold a debt denominated in dollars, after having "sold" them for something else, which we generally refer to as "buying".) Although, there was an interesting case where people would borrow USDC (a crypto dollar substitute) and then find out they could be bought back for less than a dollar during the Silicon Valley Bank collapse. Thus making them "accidental short-sellers"!

Setting myself straight: The FDIC can't get you the principal either

Yesterday I casually dismissed concern that the FDIC wouldn't get you bank account money insured by law. Worry about inflation, not the principal, I said. But it looks like there's bad news in the IndyMac run, and some people might not even get that. Long lines formed, the kind we haven't seen in a long time (sue me if I don't know if this happened in the 80s. It sure happened in the 30s!)

Some choice quotes to get you quaking:

Noelle Gabay of Northridge, a budget analyst for the state of California, said FDIC officials acknowledged that she was owed $213,500 but provided her access only to $99,000.

"My trust in the FDIC is gone," said Gabay, 49. "The question is now, where do we put our money? Do we buy a bigger mattress?"

Yikes!

Todd Bash, ...had two certificates of deposit, a savings account and a checking account, totaling more than $180,000 ... when he finally talked to a teller, she showed him that more than $80,000 was missing from one account. Why? The teller didn't know. She referred him to an FDIC official in the branch, who also couldn't tell him what happened, he said.

"One person finally suggested that maybe there was a hold on my account, but when I asked if it was a hold, why wouldn't they just say there was a hold? . . . Nobody could give me any answers," he said.

Well, I certainly know the horrors of having to navigate a bureaucracy, and throwing all your trust into something that's been pretty reliable, only to have it blow up in your face. Luckily, it's never been about money in these amounts!

This really needs to be getting more attention: for the FDIC not to honor these insured values, means everyone's FDIC-insured account is at risk. To steal from MLK: insurer nonpayment anywhere, is a threat to its insureds everywhere. My Google-fu isn't that great, but have a look for yourself. Where are the bloggers on this one?

These folks may still actually get their money, since these incidents may just be delays, as happened in the S&L crisis. We can only hope at this point.