Economist GMAT Reading Comprehension Challenge #30
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Economist Article: "Wirecard's scandal shows the benefits of short-sellers"
Germans consumed by tech envy of America...
Wirecard is a German financial tech company, among one of the leading firms on the German stock exchange but now on the brink of collapse after alleged market manipulation.
Wirecard's rise and fall is a case study in the carnage...
Wirecard was arguably pumped up by government regulators and investors who were so distracted by the company's narrative that they did not do a proper accounting. Short-sellers, who bet against publicly traded firms, noticed something was off about Wirecard years ago.
Questions about the firm's accouting...
Over the past 18 months, Germany's market regulator ignored increasing clamor from short-sellers about Wirecard and instead doubled down on its propping up the firm, banning short selling against it.
Big banks and investors...
Banks acted in accordance with regulators to continue to prop up Wirecard, perhaps out of ignorance and a lack of proper due diligence.
When so many clever people can get it wrong...
Counterbalancing forces such as short-sellers can be a valuable check on major market forces such as regulators and banks, especially in places where company managers can strongarm shareholders.
Those who bet against companies have long been eyed...
Although throughout history short-sellers have occasionally acted in bad faith, they frequently are more objectively discovering firms that are overvalued and unsustainable.
Shorting does more than just root out...
Short-sellers have a lot on the line financially by taking a position against companies, and their activity can both uncover illegitimate practices as well as act as a corrective force for stock prices of legitimate but overvalued firms.
More's the pity, then...
Governments have motivating forces to align themselves with rising firms within their countries while many places are increasingly curbing the ability to short-sell, yet short-sellers will continue to be important agents for keeping markets honest even when unpopular.
To acknowledge the sometimes-overlooked significance of a specific group of individuals.
Although short-sellers may be unpopular as a group that bets on the failure of companies, they nonetheless play a crucial role in keeping publicly traded firms accountable.
Hope you found this Economist GMAT article interesting and helpful. Good luck on your GMAT!