[narkee]

>The sudden explosion in shorting caused by this drop in cost to borrow is probably seen as a negative signal and making some investors nervous, causing the stock to drop as they sell it off.

I'm still trying to learn how investing and markets work, but isn't this stock manipulation? I mean, if I get a bunch of people to agree to short this stock, and others observe this happening, then the short will come through by virtue of a fall in share price because people saw that I was shorting.

I'm still trying to wrap my head around how markets work, when making observations on the system necessarily changes the system, rendering your original observation invalid.

[pemulis]

That's just the inverse of going long on a stock: Other people observe you buying up many shares of a stock, causing the price to go up, which in turn causes your long bet to come through. The degree that this changes the market depends on how well-respected a trader you are.

For example, if Warren Buffett invests in a company, that company's stock generally rises. That's why Warren Buffett was able to get sweetheart deals when he made short-term loans to Goldman, Sachs and Bank of America recently. They were willing to pay him billions of dollars just for his imprimatur. Buffett received options to buy shares of their stock at the much lower, pre-bump price.

It's not really stock manipulation, though. If you're big enough, or respected enough, you have to expect your trades to move the market.