The media and the general public is up in arms over the fact that Goldman Sachs “bet against the US housing market” and effectively “bet against America”. Some investors have even gone so far as to call this “predatory short selling”. Why is it only predatory when they are shorting? What about those “predatory” longs? What about all those people who helped drive the bubble in housing higher? Why aren’t they “predatory longs”? Why isn’t the Fed and the US government blamed for being “predatory” when we know for a fact that they substantially contributed to the housing bubble? Have they not substantially contributed to the boom/bust cycle in the USA that got us here to begin with?
The free market works. I have bet against many bubbles in my life. In my opinion, it’s betters like myself and Goldman Sachs that normalize markets. When investors get greedy there are willing market participants who bet against this “predatory” long action. Every trade has two sides. The price discovery between that buyer and seller is part of the free market.
Of course, this doesn’t justify the fact that many of these banks created instruments and leveraged them up in a fashion that resulted in excessive systemic risk, but the act of betting against something is in no way inherently evil. In fact, I would argue that it is generally healthy.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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