Submitted byQTR's Fringe Finance
There’s an obvious growing failure at the center of modern markets that, as a former short seller, has become beyond obvious to me over the years.
It isn’t just fraud or aggressive accounting. It’s the ecosystem that allows both to thrive: financial media that won’t press, and a sell side that won’t risk upsetting management teams they depend on for access.
We’ve seen this movie before. Enron did not implode because there were no warning signs. It imploded because the warning signs were inconvenient. There were whistleblowers. There were people inside the system who knew the numbers didn’t add up. But complexity was treated as brilliance, and skepticism was treated as cynicism. Analysts admired the innovation. Television hosts admired the executives.
And the stock went up—until it didn’t.
The same institutional shrug preceded the collapse of Bernard Madoff. And one line is enough about Harry Markopolos: he handed regulators a mathematical proof Madoff’s returns were impossible, and they filed it away until the financial crisis caused Madoff to collapse.
The common thread wasn’t ignorance. It was incuriosity. Or, more precisely, selective incuriosity.
Now consider Carvana. For years, short sellers have argued that Carvana’s reported outperformance relative to peers strains economic logic. Short seller reports have laid out, in detail, why investors should be extremely cautious with the subprime used car dealer whose numbers blow away its competitors somehow. All you have to do is take an hour andread the damn reports —something apparentlyno oneon the street is capable or doing, or cares to do.
Used car retailing is not software. It is capital intensive, cyclical, and brutally competitive. Yet the narrative presented has often been one of operational genius and dramatic margin recovery.
Skeptics have focused on the company’s web of related-party entities tied to the founding family, including DriveTime, Bridgecrest, and GoFi. The allegation is straightforward: reported earnings are materially influenced by transactions within that ecosystem—loan sales, internal transfers, and accounting treatments that allow gains to be recognized without corresponding arm’s-length economics.
Source: ZeroHedge News
