I'm not 100% up to speed on this particular topic, but I think that the damage is diffuse, i.e. it distorts the market but doesn't affect any particular involved party. Therefore, it doesn't make a good story, and doesn't show up in the news.
Basically, you're increasing the amount of good for sale, without the corresponding purchases that would normally balance that out. It's the converse situation of buying things even when you don't have the money (not even in the form of credit or loans), and distorts the market in corresponding ways. The market is robust to a certain amount of shenanigans like this, but when a player the size of GS is doing it willy-nilly, the distortions can become measurable.
According to econ 101, naked-shorting is observationally equivalent to a sudden inflation of supply, which should drive the price down. Lowering the price benefits those in a short position, at the cost of people who are taking a long position, like value investors, or the companies themselves. If you have weight to naked-short enough volume that it actually effects the market, you would in theory be pushing the stock market down and pocketing the difference.
Again, I'm not an expert and this is a pretty naive analysis. I am willing to be corrected. Eventually you have to cover your short, which in theory should un-do all the market effects you've done, but my gut says that in practice the sudden drop has lasting damage to intangibles like "investor confidence" and "market volatility."
Basically, you're increasing the amount of good for sale, without the corresponding purchases that would normally balance that out. It's the converse situation of buying things even when you don't have the money (not even in the form of credit or loans), and distorts the market in corresponding ways. The market is robust to a certain amount of shenanigans like this, but when a player the size of GS is doing it willy-nilly, the distortions can become measurable.
According to econ 101, naked-shorting is observationally equivalent to a sudden inflation of supply, which should drive the price down. Lowering the price benefits those in a short position, at the cost of people who are taking a long position, like value investors, or the companies themselves. If you have weight to naked-short enough volume that it actually effects the market, you would in theory be pushing the stock market down and pocketing the difference.
Again, I'm not an expert and this is a pretty naive analysis. I am willing to be corrected. Eventually you have to cover your short, which in theory should un-do all the market effects you've done, but my gut says that in practice the sudden drop has lasting damage to intangibles like "investor confidence" and "market volatility."