All Else Equal: Making Better Decisions

Rerun: Ep17 "Can the Free Market Discourage Fraud?" with Marc Cohodes

Aug 7, 2024

Marc Cohodes, a prominent figure in finance known for his bold short selling strategies, shares his insights on the often misunderstood role of short sellers in regulating the market. He discusses how short selling acts as a check on corporate fraud, citing his experiences exposing scandals like Wirecard and FDX. The conversation highlights the unintended consequences of financial regulations and how they can create new vulnerabilities. Cohodes argues that short sellers are essential for thorough research and transparency in the financial system.

27:01

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Episode guests

Marc Cohodes

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Quick takeaways

Short selling is portrayed as a crucial mechanism that helps uncover corporate fraud, promoting market transparency and accountability.

Regulatory measures often fail to adapt to the dynamic nature of financial markets, potentially leading to new risks and crises.

Deep dives

Challenges of Regulation in Finance

Regulatory measures often focus on preventing past mistakes, yet they frequently fail to address the evolving nature of financial markets. Historical trends reveal that after each major financial crisis, legislators rush to create new regulations without acknowledging the dynamic nature of the market. This approach creates an all else equal mistake because it assumes that current regulations will definitively prevent similar future crises. Ultimately, such regulations can inadvertently influence behavior in ways that lead to new types of risks and potential downturns.

Intro

2min

The Pitfalls of Reacting to Financial Crises

2min

The Mechanics of Short Selling

9min

Unmasking Fraud: The Challenge of Short Selling

12min

Season Wrap-Up and Future Topics

2min

This summer break, we'll be taking a pause from uploading new episodes. However, Jules and Jonathan have handpicked some favorite past episodes for new listeners to enjoy and subscribers to revisit!

There’s a negative connotation associated with short selling – the act of betting against a stock to perform well. But is this trading practice truly a bad thing?

In this episode of All Else Equal: Making Better Decisions, hosts and finance professors Jonathan Berk and Jules van Binsbergen build the case for short selling as a dynamic regulating force in the free market. And an incentive for individuals to investigate and expose fraud.

Later in the episode, Jonathan and Jules speak with Marc Cohodes, whose notable short-selling decisions have landed him in hot water with powerful figures all over the world. Cohodes has exposed a series of fraudulent practices – from mortgage lender Novastar to digital finance giant Wirecard, and most recently the cryptocurrency exchange FDX – and shares his view on the role of short sellers to step in where government regulation fails.

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