OO"why does one need actual shares as backing when shorting?"The...

OO


"why does one need actual shares as backing when shorting?"



The difference is between tangible and intangible value. Money is specific in value, a dollar is a dollar, and it is government guaranteed.

A share has intangible value, essentially only worth what someone will pay, and has no guarantee of value.

Credit is given in monetary terms because money is a universal legal entity, guaranteed by the government.

You cannot legally sell a car you don't own without the guarantee of supply by an owner of a car, for the same reason you cannot sell shares you don't own without a similar guarantee of supply.

Therefore I conclude:

Because credit is given in monetary terms - a universal legal entity - guaranteed by the government there is no moral issue with using credit for share purchase. On the other hand, a moral issue does exist where someone offers for sale something which is not owned by them or is not guaranteed by a third party.

One may wish to argue the validity of securities as being a legal entity, however the application of "legal entity" can be seen only to apply between the issuer and the owner of the security. It does not have universal tangible specific value.

Stu