First up this week is


, who writes: "I am curious to know how shorting started and why it is allowed. The way I figure it, the stock market concept must have started out with the idea of allowing the general population to participate in the fortunes (and misfortunes) of any company they chose. How does shorting figure into this scenario? Isn't it actually bad, because you now have a set of players who benefit by trying to pull a company down, sometimes unwarrantedly?"

Thanks for writing in, Ananth. And welcome to capitalism.

Stock markets did not develop with the general populace in mind. In fact, when stock markets took form, the general populace was largely illiterate and often starving, a state that makes the inability of today's small investor to get in on the ground floor of an IPO seem a relatively mild plight in comparison.

Instead, stock markets were created by the most creative force in free-market capitalism: self interest. Corporations began issuing stock centuries ago out of self interest, to gain access to the capital they needed to fund their operations. At the same time, wealthy investors -- this was before the Internet democracy -- demanded out of self interest that their share of ownership in corporations be liquid (freely tradable); after all, capitalism was an extremely volatile business in its infancy, and investors didn't want to be indelibly tied to their status as partial owners of a startup textile factory. Formal exchanges also developed over time out of self interest, as the number of people interested in buying and selling stock hit critical mass.

Same thing with the shorting of stock, which began the same way all speculation began: because it could be done, and because there were people who wanted to do it.

Is shorting antithetical to the notion of fair and orderly markets? Like most things, it depends on whom you ask. Self-interested longs who think their stock is getting hammered by shorts say yes, while shorts will respond that the bet is legal. Some argue that shorting makes the market more efficient, by giving investors more ways to communicate their estimation of a stock's value. Others claim the opposite, pointing to the disruptive effect short squeezes can have on orderly markets.

Ultimately, shorting is just another bet, no more unscrupulous than playing blackjack in Vegas (


blackjack, of course, is totally unscrupulous). The main difference is that it's a lot easier to break a card-counter's legs than to prosecute shorts who try to influence stock prices. According to

Securities Exchange Commission


John Heine

, such fraudulent activity is technically covered in Section 9 of the

Securities Exchange Act of 1934

. But Heine notes that it's extremely difficult to prove such "influence" exists in the first place, especially in cases involving Internet chat boards, for which there's not a lot of case law yet.

Memo to an anonymous reader, who wonders where on the Web he or she can go to find the history of a given stock's splits: The best site I know for this is

BigCharts. Type in a stock symbol and click "Interactive Charts," and you'll get a split-adjusted one-year (you can adjust the period) chart. Click on "Indicators" on the left sidebar and set "Upper Indicators" to "Show Splits." Click on "Draw Chart" and --

Fa Presto!

You'll see all split dates right there on the graph.

Memo to

Darlene Liebrock

, who wonders where the expression "white shoe" comes from, given that anyone showing up to work wearing white shoes would be laughed right off Wall Street: You may be right, Darlene -- I'll bull rush the trading desk at

Goldman Sachs

in white loafers and see what happens. But you can bet that I'd be looking pretty swank with those same loafers at an Ivy League fraternity or club in the 1950s, where white shoes were practically uniform. Ah, the vagaries of language.

Memo to

Chris Kruse

in Germany, who wonders where on the Web he can find a searchable database of massively shorted stocks. There are a lot of sites that offer information on individual stocks' short interest, including

in its

Tools of the Trade section. But, unfortunately, I'm not aware of a searchable database. Anyone else out there

know of one?

Note: There's always the old standard, the "Short Interest Highlights" printed in

The Wall Street Journal

, which lists the stocks with the 20 largest short positions and short interest ratios on the major U.S. exchanges.

Memo: Have a dumb question relating to finance? Great. Have a problem with something I've written? Let me know at, and I'll do my best to answer every Saturday. Include your full name, and please, no questions seeking personal financial advice or regarding personal brokerage disputes. And this reminder: Because of the volume of mail, personal replies can't be guaranteed.