Everything I know about the stock market I learned from Eddie Haskell.

 Years ago I watched an episode of Leave It To Beaver where Eddie Haskell explained the basics of the stock market to Wally and the Beav. That enlightened me about a few things regarding Wall Street, but there is still much I do not know. For instance, if Bob buys 100 shares of stock in an initial public offering at $10.00 a share and he sells it two years later at $15.00 a share, it seems that Bob gets his original $10.00 back plus an additional $5.00. All the company ever got was the initial $10.00 which they still have in some form or another. So if a company originally sold $1,000,000 worth of shares, then all they will ever get is the original $1,000,000 even if the value of that stock goes to $100,000,000.

What has me thinking about this is the current situation with GameStop, AMC, Nokia, Blackberry, etc, causing ulcers in hedge fund operators. What hedge funds do is a process called "short selling."

What is short selling, you ask? As I understand it, it works like this. You know your friend Bob has 100 shares in Conservative Kitchen Table, Inc. You go up to him and ask, "Hey Bob, can I borrow those 100 shares of Conservative Kitchen Table, Inc.?"

Bob says, "Yeah, here you go." You then go and sell those 100 shares -- that you do not own -- and you sell them for $20.00 a share, bringing in $2000.00. You know that the stock is on a downward spiral. You wait for the stock to go down a bit then you buy the shares back at $15.00 a share, or $1500.00 total. You then bring the stock back to Bob and say "Thanks for letting me borrow the stock" and pocket the $500.00.

Or something like that. If you look up "short selling" on the internet, just about everything you see reads something like this:

The Lord created the earth in six days, and on the seventh day He created short selling. It is the fuel of the economy and provides liquidity and is the grease that keeps the the country moving forward. Blessed be short selling.

Such a practice is dependent on the value of the stock going down. If the stock goes up, you are up a creek that looks like a horse stall that has not been mucked out for a while -- especially if the value of the stock skyrockets.

That is a simplified explanation and may not be an entirely accurate one, but at least it gives you an idea.

What has happened with GameStop, AMC, Nokia, Blackberry, etc., is that people have gone out and actually purchased those stocks, driving them way up. This left the hedge funds having to cover their transactions -- which they are in no position to do. I heard that one hedge fund actually went bankrupt.

Of all the nerve! We can't have the great unwashed do such a thing. To combat this, the Powers That Be have ruled that no one can buy those stocks -- they can only sell them. I don't know how you can sell a stock if nobody can buy it, but what do I know? The purpose of this is so the stock prices will plummet so the wise denizens of the Powers That Be can sleep easy in their mansions while many Americans get to sleep in because the small business they used to own or work for is no longer in operation because of the lockdowns that only seem to apply to the average Joe and Josephine. Well, it does apply to the members of the Powers That Be if they have reason to believe there is a camera around. Other than that, forget it.

It is as if they are able to change the rules of how things work because it suits them. I don't know where they got the idea that they could do that. It's not as if a Presidential election was stolen by changing the rules at the last minute in an ethically challenged manner.

I am certainly open for a better explanation of how short selling works, but the rancor the recent events have caused tends to indicate that my explanation may not be that far off.

UPDATE: This video explains the situation fairly well. The meat of the video is maybe ten minutes long but it is worth watching.