why companies don't buy back?

let's see - for example bear sterns cost $150
and shorts start selling it

if you company is OK and you don't have other problems than short selling

wait till shares 1$ and start buying back on the open market when you have 50% shares take company private

where is the problem?


short sellers are not guilty. even naked short sellers are not guilty - if company fails - there is a reason for that

 

You're assuming that boards of directors operate in a "logical" manner. Companies tend to do buybacks when optimism and share prices are "high". They make for good contrary indicators.

 

On CNN just now, McCain was trying to blame the melt down on short selling. He also described naked short selling incorrectly. This is probably because he wasn't reading it off a page. Hope they catch him on that.

 

Lets assume that a company has 100 million shares outstanding. Say 70% are owned by insiders and institutions.

So we now have a 30 million float that is owned by the public.

Legal shorting occurs when brokers loan out shares that are not in cash accounts for the shorts to make a directional bet that the company is going to go down. So far so good, no problem.

Naked shorting means that the hedge funds don't have to verify that the shares are owned by anyone. So for example they can short say 200 million shares even though the entire float of the company is just 100 million shares.

So even if the company tries to buy back shares, it is not even buying back real shares. This is what is wrong and why it is illegal but until now not enforced.

The uptick rule would also be helpful since it would slow down shorting during a panic in the market.

 

I agree with the OP in principle. This would mean however that every large public company would have to keep a war chest of say $3-4bln in cash so they can take themselves private once they are under attack by the shorts.

That wouldn't exactly make being public very attractive from a capital allocation point of view.

 

OP - Great point. If you're the CEO and Board of Directors of a high quality company that has been indiscriminately pummeled, back up the truck and load up as fast as you can right now.

 

Saw that. Glad Steph corrected Hussein's statement about his Muslim faith, or he wouldn't have corrected himself, either. Hmmm... Move along, nothing to see here...

 

Thanks OW. Now go and explain it to McCain.

 

makloda what about current situation?

AIG begged for 85$ bln but their current price is just 5$ bln

they could easily obtain those money any moment and buy back 100% shares

if naked short selling was involved they would have to cover for the price AIG wanted 100$ share, 1000$ share

they don't do it

what does it mean?

AIG is insolvent as all other wall street companies

 

Just because a company is private doesn't magically erase all the bad assets they are holding. They can still go belly up.