The Useless Ban On Short Selling
MEGAN MCARDLE on the self-serving ban on short selling:
“Every time there’s a financial crisis, demagogues start criticising the short-sellers. . . . Successful shorts, like George Soros’ spectacular attack on the British pound, usually work because there is a real underlying issue (in that case, the British pound’s unsustainable peg to other EU currencies). If there’s no problem there, the shorts take a big bath. . . . Perhaps most importantly, while short selling is a problem for Morgan Stanley, and his shareholders, it is not the primary problem in this crisis. The problem is in the debt markets, not the equity markets: financial firms are finding it very, very difficult to roll over their paper. (More on this later). The ban on short-selling does nothing to combat this problem, and indeed, by shaking public confidence in the stock price, might push investors into being more conservative on the debt than they otherwise would be.”
It’s a market. Money is bought and sold. Selling short is legit…
Posted: 20th, September 2008 | In: Money, Twitterings Comments (9) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink
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September 22nd, 2008 at 10:59 pm
Val
Some short selling is essential; market makers have to do it in order to be market makers, which is why they were excluded from the ban. And trust me on this, you really do not want to live in a world where there are no market makers.
There are the predictable squeals from from people who really don’t want to talk about the nitty gritty, but the ban on short selling did what it was meant to do; it kept Morgan Stanley and Goldman Sachs alive long enough to sort out an orderly exit.
If those two had filed for bankruptcy then it would have been a bloodbath…
September 22nd, 2008 at 4:20 pm
short selling is BETTING, not investing and should be stopped, because it distorts
the market so much.
The FSA were negligent in letting banks lend 100% Mortgages, thereby lowing the Banks liquidity.
The new head of the FSA says these huge bonuses paid to traders must be looked at
which is a step in the right direction. The Traders are not qualified to make the judgements they do, Barings Bank should have been the warning.
September 22nd, 2008 at 3:01 pm
I think it’s just the British public who have been sold short….?
September 20th, 2008 at 9:08 pm
Fortunately, for those of us still horrified by the extraordinary and untrammeled power to be vested in the US Treasury to shaft the citizenry, there is one less worry; the Large Hadron Collider won’t be doing any colliding in the next couple of months because of a helium leak.
I thought the spokesman sounded odd…
September 20th, 2008 at 8:47 pm
Rasputin,
The V word inded.
The US Treasury may not get many takers for the money needed to pour into a bottomless pit:
‘The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.’
I cannot see the foreign investors who have propped up the huge debt of the US being terribly keen on that one.
It is one thing to legally revise the amount of debt permitted. The SEC did that 4 years ago, enabling Lehman Brothers, and an awful lot of other institutions, to go from a 12-1 ratio to a 30-1 ratio, with the results we now see.
It is quite another to persuade the sovereign funds, which are about the only source of that much capital, that they should throw yet more good money after bad…
September 20th, 2008 at 8:15 pm
Debt only has a value (the V word again), if it can be collected.
September 20th, 2008 at 8:10 pm
Wowser!!!!!!
OK, she’s got George Bush nailed, but I detect a somewhat thin contact with what might be described as the nitty gritty.
This may be because Megan’s definition of paper is somewhat unusual, eccentric even.
Selling short doesn’t involve buying and selling money.
June has unerringly put her finger on it; a partial answer is to be found in the text of the US Treasury’s proposed legislation, and in particular,
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
As Rasputin noted, wanton greed, and it is the poor bloody infantry, otherwise known as the taxpayer, who will be paying the bill…
The full text of the proposed legislation can be found at:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aS7kIVsK77hs&refer=home
It’s not long…
September 20th, 2008 at 7:42 pm
The irony is that the much valued chosen means of commerce, money, has in fact no value, it is merely a sort of one upmanship a snobbish form of barter, where paper and stocks are bartered rather than actual commodities, I think the words are wanton greed.
September 20th, 2008 at 7:38 pm
Er what happened to the credit/mortgage disaster then?