Comments on: Talking to Sebastian Mallaby A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: FelixSalmon Thu, 17 Jun 2010 13:05:11 +0000 Sure, leverage can be put to use in the service of hedging, of course. But just because you’re hedged doesn’t mean you’re not leveraged. Just ask Goldman Sachs.

By: dedalus Thu, 17 Jun 2010 03:35:13 +0000 Thanks Felix.

I can grant everything you say but I’d like to try clouding your view if possible. And to do that I want to riff on an idea propounded by Robert Shiller in his book, “The New Financial Order” (2004).

In that book Shiller says that we ought to think of ourselves as being “long” all sorts of different unhedged risks.

So, and I’m paraphrasing, he suggests that persons employed in particular industries (like Wall Street) ought to be short some quantity of index-related ETF shares (like XLF), in order to hedge against the possibility that their employer (Bear Stearns, Lehman Brothers, etc.) might one day collapse.

So, borrowing stock in order to sell it short doesn’t leave one “net short” but rather “hedged.”

What do you think?

(Shiller proffers lots of interesting ideas; I’m not doing them justice.)

By: FelixSalmon Wed, 16 Jun 2010 05:02:55 +0000 dedalus, leverage is another word for debt. Shorting involves borrowing stock: if you’re borrowing something, then you’re levering yourself up. And if you short a stock, you can always lose more than your original “investment”, however that’s defined. That’s what I mean by leverage.

By: dedalus Wed, 16 Jun 2010 03:49:34 +0000 Felix,

You say in the video “Shorting is a form of leverage….”

I don’t understand.

Is going long also a form of leverage?

By: hsvkitty Tue, 15 Jun 2010 04:44:01 +0000 No one likes having their crack taken away. And what is it with the references to GOD and money?

I am absolutely certain hedge fund managers and investors suffer from low blood pressure …