What a MESS! These gurus were paid millions to mess up the economy and now the Fed wants to bail them out for their gamble. What a joke. This mess is affecting far flung corners of the globe with world wide loss. Fix the system so people can’t sell what they haven’t got. (This is pure theft from mums and dads and pensioners accounts)Limit lending for share market speculation. Make share buyers hold those shares for a specific time before reselling – say 7 days. What? They won’t like that? tough luck!!!! We are always being told that shares are a long term thing. So why are the “EXPERTS” constantly buying and selling if the Mums and Dads are told to hang in there? Hang those gurus that have caused these problems, or at least throw them into jail. Sorry. This mess has to be fixed properly, once and for all.
Rather than bail out companies that were too greedy to do business the right way, give the 700 billion back to the taxpayers so we can decide what to do with it. No more credit worries, no more foreclosures. Sounds like a win for the economy to me.
I’ve come to the conclusion that George Bush, Dick Cheney, and now Sarah Palin are all “cowardly conservatives” because they can’t stand to be questioned. They are public servants first, and should be answering to the public, but they behave as thought they are the boss of us.
Why hasn’t Sarah Palin or her husband answered to the legislature in Alaska? Is it because they are “cowardly conservatives” like Dick Cheney who claimed he did not have to answer to Congress? We have military personnel overseas who have to face a faceless enemy who constantly attacks, with lethal consequences, but these “cowardly conservatives” won’t face a room full of faces asking questions.
And now our biggest coward, George W Bush, wants to bail out his buddies in the Financial Sector because they are too cowardly to face failure.
Seems Phil Gramm did the Democratic Party a favor by switching parties several years ago, but the con artists will always migrate to the party in power. Watch and see.
New term for the Reupublican Party – cowardly conservatives.
Steve in LA – you are so right – I need to see multiple “perp walks” extended jail terms, and trials for treason before I believe anything this band of crooks has to say.
Traitors, the lot of them.
We, the American taxpayers are under attack once again, not from foreign terrorists, but from our own country. The big money companies, CEO’s who were given millions of dollars in bonuses, have 3 or four huge multibillion estates and this administration’s 2 wars are responsible. The real estate companies who jacked up the price of houses nationwide, Credit cards that charge way more interest, fees, and other tricks, to make the loan actually higher by several thousands of dollars make it almost impossible to pay it back. Now I think that the ones out there who profited the most by all those sleazy companies, Wall St. included, need to fork over their own money, sell all their properties, cut their paychecks and payback the this mess they created. Money is taken right out of our paychecks each payday, and it’s used however the Govt. wants. We should have a say in where our money goes!
No way can Paulson have full authority and not have to be accountable to anyone, including courts. I have never seen anything SO STUPID in my life. Thank you PULOSI for saying what you said and the SENATE better back that up!!! I don’t care how much Bush wants it quick and clean. Than sounds like terms used in a murder mystery. Shheeesshh they think we are stupid. I also think WE THE PEOPLE should know ALL THE DETAILS AND DIRE CIRCUMSTANCES!!! Is it that all the countries who have loaned us money, our first mistake, will call in the loans and we won’t be the USA anymore?
It might be a good idea to give it all to local banks and let them take over, a clean start and pay off only our loans from other countries and get back to being fully the USA!!! This whole idea of a World Economy is just plain nuts..NUTS. Didn’t we have enough problems without THIS ONE??? I really think there is absolutely no excuse for this.
A mistake as BIG as it can get. In practice short-selling is a tool to imply check and balance in wall-street world. It helps in keeping price of things what they are actually worth.
With SEC move we are forced in a world where future is bound to look lucrative and there will be more and more leveraging, again creating a similar world we are trying to get rid off.
No one can keep the market down if real world prices are more attractive. Market forces will balance out the stuff and those leveraging on negative side will be punished.
These shifts are going to be big, specially in the world where we had companies trading at 100x P/E. Speculation changes will result in BIG shifts and investors should realise that’s the risk when you come to market. We expected BIG organizations must have managed this risk but our expectations were false.
I’m an American, Don’t cry. Contact your Senator and demand to know the facts of any bailout that may happen.
Senator contact list = http://www.senate.gov/general/contact_information/senators_cfm.cfm
There were over 15,000 active investigations about wall street traders in #7 Building at the WTC that was not hit by planes, yet there where many fires in that building that lasted till it imploded at 4:30 PM that afternoon ! What is happening on Wall Street is nothing new. There is a method to their madness. Get rich off the American people and burn and bury the evidence.
Has anybody checked Paulson’s or Pelosi’s holdings to see if they covered short postions prior to changing the rules?
The sharemarket should operate with a total ban on all short selling. This major source of selling should be removed and trading rendered ‘clean’, with nothing but real owners of company securities doing business. There should be a return to the ‘good old days’ of 20 years ago, before long-short hedge funds and securities lending came to dominate affairs.
Lets see here, a free market is one that you only buy stocks and never sell, never take a profit, at least unless you are Goldman Sachs or someone with the last name of Paulson.
The ban is needed until the crooks driving the stocks down for their own profit by floating false rumors are apprehended and imprisoned.
A bail out will mean the top executives will give themselves raises and bonuses. Then the government will give the rest of America the shaft. That’s not speculation, that’s proven history.
Here’s the real news!
In 1999 the Clinton Administration relaxed the rules and caused this problem. The Democrats in congress ignored the warning signs and blocked the Republicans from correcting it before it got this far first in 2004 and again in 2006. John McCain himself warned about Fannie and Freddie and the High risk mortgages two years ago. The Democrats blocked passage of his bill that could have prevented this.
In other words, John McCain saw it coming and tried to convince congress to act. The Democrats blocked him while Barack collected the 2nd most in donations from Fannie and Freddie.
The media is not interested in this fact… Instead, they’re more interested in how many cars Joh McCain owns.
I challenge CNN to make that headline!
America, wake up. Our elected officials and their appointed heads changed the rules to the game last week while the game was being played by pumping billions of dollars into the market and not allowing the stock market to act freely.
The interesting thing about the government’s action last week, was how badly it punished anyone who was betting against the U.S. market. They implied the “shorts” were to blame for the fall in the financials was evident this week, and where was the discussion about who brought the U.S. market and economy to this bad place. It could not have been Greenspan, Wall Street, the regulators or a do nothing Congress that brought us here, right? It just had to be those short sellers, right?
Our government has failed to identify one case or person so far. It is starting to smell like all the hype before we went to war with Iraqi.
America, you need to ask Congress for answers right now before they spend TRILLIONS of dollars and ruin the trust of many investors in the stock market and maybe this country.
This action has never taken place before and hopefully will not be allowed again. This action did not allow a free market to be free. Is this America or Russia?
This is simply more welfare for the rich and powerful. They benefit from all the high salaries and unwarranted bonus based on fraud with absolutely no accountability. This bailout is not about helping the american people or small business owners secure loans; it’s about the rich getting richer with no accountability.
There are a lot of comments saying “the market” / “the banks” have failed. They havent. It’s all about redistributing wealth. And that’s what has been done, very successfully. And with another 700 billion going into the pot right now in the making … George Orwell’s “Animal farm” may have been about communists, but i guess he would see that in a wider range today: the fatter the pigs get, the greedier they get. Good news is, that they start to feed on each other, one day … poor animals, rejoice 
The details are to be released, but I’m thinking that the Fed is going to force some of the loss on to the books of these 799 companies right up front by buying these toxic mortgages at a discount, quite possibly a steep discount.
These 799 companies will have to stop playing the “mark to market” shell game they’ve been playing and take a real number hit to their balance sheets. That will not be good because I’m pretty sure when all is revealed their “mark to market” was exceedingly optimistic. The Fed will force these companies to put a realistic number on the home valuations then hit them further with a punitive discount to take on the extra burden to the taxpayer. That will trash their balance sheets. It will give them a fresh start on the long haul by getting these junk loans off their books and starting them way below current valuations.
I think future 20/20 hindsight will show that you will have seen the top price of these companies in this four to five day window. By Wednesday, it will be apparent that the Fed bailout is going to force huge losses on these companies to bring them back to reality. That will hammer their balance sheets and therefore, the stock price.
I think that’s why the ban on shorting these companies. The Fed didn’t want to see Wall Street making money on its own trashing. The Fed is going to force the consequences of Wall Street’s outrageous behavior and unreasonable risk taking upon Wall Street, not the tax payer. No way for Wall Street to worm out of it by shorting their own stock. I think the Fed is going to purposely punish these companies and their shareholders. The companies for their behavior and the shareholders for profiting from this behavior. The stock prices will plummet and nobody is going to make any money on it while it’s being done.
That’s just my read at this point. Things could change, but from this vantage point it’s the only thing I can see that would make sense.
All the puzzle pieces fit. It gets rid of this clog in the financial markets, it punishes those responsible (which makes this package an easier sale to the tax paying public), it protects the unsuspecting investors that bought this supposed AAA rated debt, prevents anyone from making any money on the public flogging of Wall Street and minimizes the damage the Fed will receive from taking on this whole mess. It also gives the Fed time to unwind all these exotic derivatives and separate the junk loans from those people that just got caught in the sell-off madness. The Fed will bankrupt those who need bankrupting and help those that just got in trouble by bad timing in a legitimate house purchase. Again, all the puzzle pieces fit.
The Fed, in the very long run, might even show a profit (I doubt it, but it’s a long shot possibility).
Nobody should sell OR BUY what they don’t have cash for. Banning short selling is good, but is only half the story; they need to also ban buying on margin, too. That, and not the “longs” who have the cash to buy the shares they hold, is the opposite of shorting. Ban both, and make the market more real.
Short selling, sounds like nothing more than stock manipulators trying to make money off other people. I suggest these people get a job and support themselves.
AS for banning short selling? I feel it should have never been legal in the first place. The claim it adds liquidity is very flawed. After all, how can the practice add liquidity, when these people are actually “borrowing” the stocks, thereby never risking their own money?
The only thing I see becoming “liquid”, is the American worker’s 401K accounts. In fact, they are actually disappearing.
Very interesting how the stop on Short selling occured after Paulson’s old company Goldman Sachs was getting hammered last week. He and his fellow GS buds must have lost several hundred million in a few days… Stupid rule, should have just brought the uptick rule back.
THE BAN ON SHORT SELLING IS A GOOD IDEA. IF PEOPLE WANT TO GAMBLE THEY SHOULD GO TO A CASINO. ALLOWING PEOPLE TO MANIPULATE THE STOCK MARKET THAT OTHERS DEPEND UPON FOR RELIABLE RETURNS ON INVESTMENTS IS INAPPROPRIATE TO SAY THE LEAST!
Why doesn’t the government of the USSA simply legislate prosperity directly?
Why not pass a law that the stock market can only go UP? That nobody’s allowed to be poor? That every pot is MANDATED to have a chicken in it?
Amerikans have become Communist filth.
It is bad for market and highly unfair for traiders. It will only postpone the collapse and make it more painful when it comes.
I am not a traider, just watching the history unfolding before me.
The days when we allow the capital markets to be run essentially like a big casino are OVER.
That model has obviously failed miserably. We (the public; the taxpayer; our government) are going to get control of this situation for the time being. And in the future, the capital markets are going to be TOLD what they can and can’t do.
Those that don’t like that, can pull their money out, and put it in their mattress for all we (the public) care. And I say good riddance.
I mean, get real. The public (government) just had to step in, and prevent another Great Depression. If ANYBODY thinks after the dust has settled on all this, that they are just going to be allowed to move forward, business as usual, then you are SADLY mistaken, my friend.
The firestorm of new regulations and enforcement vehicles coming down the road in the next few months is going to make Baghdad “shock and awe” look like a firecracker.
If you want to be allowed to buy or sell something, that you DON’T EVEN OWN, you can just put your money in some Podunk third world foreign market that will allow you to do anything you darn well please. The United States Taxpayer has had ENOUGH!!!
Again, good riddance.
The problem now is the Government telling us what we can and cannot do. It creates uncertainty, lack of confidence and will freeze the market.
“The practice ensures an orderly functioning of the stock market – “longs” bet on the upside, “shorts” bet on the downside, and the markets move along. ”
So what the writer of this article is saying is the stockmarket is no longer a forum for businesses seeking capital to raise it from people who have capital available (as well as providing a secondary market for capital providers to realise their investment when they wish or need to), but its a glorified casino.
Short selling has absolutely nothing to do with capitalism, it is pure greedism.
This is just another one of those “See we’re doing something knee jerk reactions” the government is famous for. While there is a psychological element to the ban it will do very little to stem the tide of what is paramount and that is poor management on financial institutions, regulatory oversight, and ratings organizations. Stock prices fluctuate on perceived value of investors period. That perceived value is extremely poor right now so stock prices fall. If there is no demand for bank stocks then demand will fall and prices follow. It has nothing to do with those shorting the stock. They just happen to be on the right side of the perception. This is what the stock market is about people. The banks stock prices are low because they are in a heap of trouble not because people are shorting the stock. If there is no demand to buy the stock then the price falls whether there are short sellers or not. Are we clear on that now? This rally is nothing and we will soon turn back down because everything is not okay. Normal market action will take care of low prices and when it is ready to do so. Stock prices are reflecting the terrible mess banks have gotten themselves into and put our economy in a financial crisis. Notice I said in and not on the brink of. We passed the brink a long time ago. I like the point about canceling being able to open long positions when stocks get too high. That would never happen. Eventually demand will pick up for the financial stocks and maybe it won’t be for another year or two but it will happen or thew price gets low enough to attract buyers. Short sales don’t in and by themselves reduce stock value. Irresponsible management and over investing in poor loans brought on this trouble. The damage is done and now its time to come out of the closet and admit the blunders and deal with the consequences. The government is worried about short sellers that’s got to be the most f****ed up thing I have heard lately. Notice how nobody was concerned when all the money was flying and billions of dollars were being made. Now who is going to foot this bill. The masses again are left holding the bag while old CEO”s and the like have made millions and have retirement packages that could make them care less what happens now.The story never changes but we keep on dancing.
The author of this article and the short sellers are missing the point. This is not the time to be idealogical right now. This is going to be a temporary ban on short selling to allow time to work out the details on how the problem asset backed mortgages will be moved off the bank balance sheets and shifted to the govt. entity that will buy them. The short sellers were taking the banks down so fast that banks have not had sufficient time to negotiate whether to merge, sell assets, or even how to value them given the mark to market accounting. Short selling is healthy for our markets and will resume again at some point in the near future. With that said, naked short selling is against the law and this law should be enforced like any other. Also, the uptick rule should be put back in place to maintain at least a reasonable level of stability in our markets.
The author was right about one thing. The SEC should crack down on the many short sellers that have been spreading false rumors about corporations that aren’t in danger, hoping to send the stock sliding so they can make a buck. I do have one more thing to add to that however. The FCC should also crack down on the media for advancing those false rumors through sensationalistic reporting. This year we have heard an ungodly amount of “news” from the media that have turned out to be nothing but rumors or just flat out wrong. Yet there is no accountability for that kind of irresponsible behavior and let’s not even get into the obvious journalistic integrity issues. Fear and panic is contagious and the media has had their hand in the cookie jar for the past few months in spreading that contagion. FCC needs to start slapping some hands.
If the Financial Companies hadn’t been leveraged up the wazoo wouldn’t they be able survive (or even profit if they bought back thier own shares) the short sellers? It seems to me the shorts are just taking advantage of bad management (to much debt) and those who are long didn’t understand the companies in which they own shares.
Let’s see a good starting point is working for an honest living. In “short” short sellers represent a new kind of parasite. But the fact of the matter is a true parasite don’t kill the host. So short sellers must be the lowest form of greedy parasite. There is no symbiotic relationship which means no concern for the common good and no cost to themselves because they rid themselves of the host before the host dies so they can survive to the next. The only treatment for this type of infection is theraputic to kill the parasite before it kills the host.
So much for the cute Obama rhetoric.
This has to be the lowest form of capitalistic corruption to date and it shows bad on America and globalism in particular. Make no mistake this is global and taking full advantage in an evil way of the American free enterprise way of life.
They should be jailed.
This has got to be some kind of joke. The entire financial system is falling apart and the fed is putting in an artifical floor. This is not capitalism my friends! This is the most hair brained idea I have ever heard of, The government buys up everyones toxic debt. WHAT!!! privitized profits and socialized losses. wow.
I have always been advised to “invest for the long term”. Ride out the current problems and you will be better for it. I think that the short sellers are bringing unnecessary turbulence to the market. They are giving the impression of “panic”. This then cascades down to the average person who then, through the online brokerages, react emotionally rather than through knowledge.
This is from the Wall Street Journal:
“It is, of course, delicious irony that the broker-dealers may be the victims of abusive short-selling. They founded the hedge-fund revolution by arming ex-traders of theirs to the teeth with capital, leverage and trading technology.
But when the children of the revolution turned on the founders, the founders ran to Washington for protection. The brokerage industry fought regulation at every turn, pleaded for regulators to leave the hedge funds alone and asked for the removal the uptick rule. Leave us free to trade, they demanded.”
We can now see what Bush is. A petty dictator who makes up rules to benefit “the markets” (his friends), and then totally reverses those rules to benefit “the markets” (his friends) when the first rules destroy the financial system. How can “the markets” ever be trusted if they destroy the country if left to themselves.
I’m sure John “Keating-5″ McCain will save the day, with Sarah “what does the vice president do” Palin at his side.
Ok, lets take a brief look back in time.
…The failure of our entire financial system in ten easy steps:
1). Originate a mortgage loan for somebody who has no ability to pay for it, based on fraudulent statements, and ignore the fact that good-quality loans are how banks make money. (I mean c’mon- a NINA loan? No Income, No Assets?? You’d have to be an idiot to lend like that. Oh! OOOPS!!)
2). Package those loans as default credit swaps, and take them to a rating agency like Moody’s or Morningstar and bribe said agency to give you a AAA+++ rating.
3). Make lots of money by selling the now AAA+++ rated loans to a major financial firm like AIG or Bear Stearns as an investment. Repeat several times.
4). Wait until the loan gets foreclosed, along with millions of similar others, so that housing prices will plummet, people go homeless, and these major financial institutions fail, because they FILLED their entire portfolio with your useless and fraudulent securities.
Then after that:
5). Get sickeningly drunk on even more cash as you naked short-sell the stock of the aforementioned big financial firm you sold the bogus investment to.
6). Have a small chuckle and a beer while you think about how cool it is that you don’t ever have to even own or borrow the financial firm’s stock to naked short sell it. (But strangely though, if I sold you a car I didn’t own or couldn’t at least borrow to sell later, that would be, um- illegal??)
7). Watch in bemused “oh-well-darn-somebody-looked” befuddlement as the Fed and the Treasury Secretary get suckered into setting policy that prevents speculators from reaping billions of dollars in profit from naked short selling the stock of failing financial institutions. Meanwhile, watch the SEC Chairman (who is supposed to be responsible for formulating the aforementioned policy) attend a birthday party, and spend several weekends in the Hamptons.
8). Collect $600 as our bumbling buffoon of a president steps in to ‘help-ify’ the problem by sending you your own money in the form of a “stimulus check”, which you will be taxed again on later.
9). Watch in amazement as the Fed does nothing to interest rates, since it has its hands tied: Raising rates will cause further collapse of the housing market and more large financial institutions to fail. Lowering rates will cause massive inflation, a weakening dollar, and skyrocketing commodity prices.
…And this situation renders the Fed absolutely ineffective in doing the ONE job it is supposed to do: regulate inflation.
So then what does the Fed do?? It acts in a different way, which is equally as stupid, not in their job description- and much more like what the failing financial firms are doing out of pure desperation to save themselves.
…It offers to put the whole mess on the Federal Credit Card. That is, it decides to bail out all of these failing PRIVATE financial firms with current taxpayer dollars, and then decides to create more available credit for itself by auctioning off more debt in the form of increasingly worthless U.S. Treasuries.
10). Now, Laugh, Laugh, Laugh as the bill comes due, and the comet nears the horizon…
Seriously- you couldn’t make up a better debacle.
But one question remains- Why, exactly is it that nobody is going to jail here??
This is a great, temporary move to help limit volatility in this sector, from which confidence can recover more quickly.
Make this permanent? No.
Naked short selling? Perhaps.
Options on futures of financial firms? Again, perhaps.
Unknown risks associated with derivatives of derivatives are what exacerbated this mess that was created by lax lending standards and led us to the brink that we stand at today.
Continuing the practice of permitting leveraged bets that have the ability to drive down valuations of the types and magnitudes that led to the current liquidity crisis may very well be only in the interest of hedge funds and other speculators, and not in the interest of real investors or the public in general.
i totally agree to the ban on short selling . you need to bring back the uptick rule also . Now we see who were the ones ruining great companies and destroying jobs .
A temporary ban on short-selling bank stocks is a good idea. A PERMANENT ban on short-selling any stocks is a GREAT idea.
Since October, we’ve been watching Wall Street committing slow suicide. At the last possible moment before death, Wall Street had remorse, begged the Fed/Treasury for 911, and got it. Now, Wall Street is still barely alive and about to receive a LOT of taxpayers’ money. In order to prevent Wall Street from also squandering this money (speculated to be $1 trillion) and attempting suicide again, the Fed/Treasury is putting Wall Street in a straightjacket for everyone’s safety.
We have laws against spreading rumors, naked shorting, front-running, etc. but the criminals have lawyers and the laws are too slow and hard to enforce.
If we can’t prevent Wall Street from squandering trillions and attempting suicide by legislation, then we must remove their weapons, even if only to protect ourselves from them. This is what the Fed/Treasury have done.
We know we’re headed towards socialism; hey, it works great in Japan and France. It’s too bad that capitalism is too unstable a way to run financial markets, especially large ones. It was exciting while it lasted, but not much fun when it ended.
The alternative was complete collapse of Wall Street with tremors felt around the world: just too painful. It had to end this way.
I’ll sleep a lot better tonight, and I hope that the rest of us battlers will, too.
THINGS YOUR FINANCIAL ADVISOR WON”T TELL YOU ABOUT SHORT SELLING
1) Short selling is not illegal, immoral, or even bad for the market. It provides discipline in the market provided it is done legally and “ethically.”
2) In an honest and ethical market, there is equilibrium between short and long holders of securities. Unfortunately, since July 2007, we have had neither an ethical nor an honest market. The SEC now works for the hedge funds, not for stable markets. John McCain was right to suggest firing Christopher Cox.
3) Last July, the SEC abandoned the “up tick rule” in place to protect markets since 1933. This was done without public comment and at the strong behest of lobbyists working on the behalf of hedge fund managers. The up tick rule prevented piling on to stocks under stress by waiting for the next short sale until the stock price at least ticked up a smidgen.
4) Since then we have seen huge increases in volatility; in fact, record volatility.
5) The shorts, no longer constrained by the up tick rule, are now able to pile on and crush the stock prices of select publicly-traded firms or industries. Today, financial firms; tomorrow, auto makers, airlines, everything else.
6) Short selling is only possible with securities lending. Securities lending is now the biggest profit-maker on Wall Street, often surpassing commissions or fee income, and the retail customers (who actually own the shares) get nothing in the deal. Without securities lending, short sellers are not supposed to be able to short a stock. These securities they are lending are primarily in the retail IRAs, 401(k)s, and pension funds of Americans. The biggest short sellers are hedge funds.
7) When they lend your securities, they enable firms to bet against your stocks, pushing them down in value. They get profits, most of America gets losses. In fact, we have had nothing less than a wholesale transfer of wealth from Americans’ retirement funds to hedge fund managers. This enables the hedge funds to hire more lobbyists to keep the gravy train going.
Short sellers evade the “naked short” rules by borrowing the stocks for less than three days, closing out their position, then borrowing them again. In fact, they don’t actually borrow them, they just have to identify that they are available to be borrowed. If two hedge funds identify the same shares as available, then you can actually short the same stock twice, further crushing the stock price.
9) Get out of mutual funds now until they stop allowing securities lending on your funds.
10) Contact your Representative and Senator to ban securities lending on retirement accounts. Have all retirement assets converted to Class R shares, and ban securities lending on Class R shares. It is a simple legal fix to the looting of America’s retirement accounts
Greetings from an expert short seller. Paul you need to do a little more research and get your facts straight….
“First off, this bet on declining stock prices is a healthy part of the financial markets. ”
Healthy, Orderly ….right…where have you been the past couple months.. tell that to 1000s of very good businesses that have been gutted/looted by this “healthy” action.
Here is how it really works. Take aim at a company that is solid, has a modest “float” this means the total amount of outstanding shares on the market. I short ALL of the stock, what does this do? People do not realize that you just diluted the stock by placing an equal amount of it on the market. The value of anything is determined by how much exists…The company never issued that stock! This is equivalent to the company suddenly re-issuing the same number shares that it has already issued all “at the market” there would be such a hew and cry and flood of shareholder suits when the company over-issues stock as this activity dilutes the existing holders. Happens every day with the shorts.
Several years ago I was limited to manipulating the stock and yes I do mean manipulating it by a maximum of what could be borrowed. The maximum effect I could have was to place an equal amount all borrowed on the market. Also I could only place that stock on the market during certain periods namely the “uptick” that is being bantered about…Then the SEC rules began to change no more uptick and then the holy grail no enforcement for “naked” short selling. Now I could affect the float in HUGE numbers. I no longer needed to “borrow” the shares. Just sell sell sell, it was my bankroll against the companies and other investors…Who do you think won when there were 2,3,5,10x “borrowed” shares for every legit one out there?
Fundamentally short selling at a minimum doubles the amount of the stock on the market and that is unfair and flawed. The new proposal, “lets go back to the old days and enforce the “borrowing” “. Sure there will be no insider activity possible…Broker A contacts Broker B, C and D “Hey I have a well monied client who wants to short stock V(victim).” Broker A and B C and D all arrange 1/2 of their inventories for borrowing by monied client reserving rest for favored clients in exchange for NICE advisory/commission/fees. SEC blessed pillage…
I have been feeling a bit guilty of late! I would like to “invest” my hard won spoils/pillage/ruinations. Would I buy stock for that reason? Public…No… especially with naked short selling it comes down to how big your bankroll is…There is always the chance that now that my loot/pillage is tied up in something useful like people/materials/building then I will get steamrolled and become the victim above! I would rather be the client of Broker A above… Where do you think all the high returns in funds have really come from over the years? What is easier 500% return by “investing” growing a stock from $30 to $150 or by shorting it to $6…Sure there are some who can defend themselves but if they can you have not done your homework and the financial companies are perfect targets right now…they definitely have no capital to fight back…
How do we fix it? Simple ban short selling altogether or if we must allow it…restrict it to a fraction of what is on the open market so that it is impossible to “drive” the overall market but allow an outlet for “investing”…The driving can surely be done by those that legitimately own the stock.
BAIL OUT. at whose expense. Politicians are just paying their dues yet again. Of course, those financial institutions were the biggest donors to W and now to our new candidates. What else can government do but bail them out. W is not paying the money we and our children are. Plus this mass did not happen over night. Where were the regulators while the frenzy was on? The morons caused all this mess were collecting huge bonuses last year. If Shakespeare was alive today would have said “killed all the bankers first and then move to the lawyers”. Big money always wins. Is it the reason why we are at Iraq today?
I agree that the precedent IS ominous. What’s happening is, we are moving closer and closer to a European Style Managed Market Economy. Not pure Socialism. But closer. Intervention by the Fed. Intervention by the Treasury Dept. Intervention by the SEC. Gov’t takeovers and Bailouts. And I suspect the new regulations that are coming down the road in the next few months, will be much more extreme and intrusive than this little temp ban in shorts.
But we must respond in some pro-active way to the bubble and burst, bubble and burst, bubble and burst cycles we’ve seen over the last few years. That just won’t do. It can’t continue like that indefinitely. The taxpayer will not stand for it.
Managing and Regulating the markets, in ways that make sense, and brings us closer in line with the realities of the Global Economy in the 21st century, is probably where we are headed. Especially after the events of the last few weeks.
To: Kevin from Atlanta
Are you a knucklehead or what? You think the short sellers were going to drive many companies over the brink??? The companies didn’t need any help, they themselves took the express train. As far as taking peoples life savings…I guess you think it’s OK then that the Government takes it instead? What the heck do you think these MASSIVE financial interventions are going to do? Put more money into our pockets..you must be goofy! These actions by the government have driven us over the brink..we are bankrupt as a nation. We print money like there is no tomorrow with absolutely nothing to back it up with (but faith).
We are doomed (financially) for years and years to come.
To not intervene when critical stocks are driven to bankruptcy is irresponsible. Short selling is a valid practice but not to the destruction of the American economy and all its peoples retirement and invested money. Don’t we, the small investor deserve some protection against the big, monied speculators and funds. Fleckstein is a jerk and he would love to get rich by helping in destruction of your investments.
At some point the “Greater Good” must be considered. That means we do what is best for the most people, not for those whose cancerous approach to out welfare is in motion. These people have nothing to bitch about. They were overzealous thus the consequences must be faced.
Other than the fundamentally flawed reasoning behind selling something you don’t own I think it’s hilarious that most of the people complaining about short selling (in any form) are individuals and companies that make big bucks from doing it.
The number one argument behind the value of short selling is that it can identify weak companies – if that works so well why was the fallout from Enron, WorldCom, Bear Sterns so bad? Why did so many people lose their jobs and retirement savings?
Because short selling only benefits the people participating – it does not benefit the market, it does not benefit shareholders, the public, or the country. It’s a silly thing.
They banned naked short selling on Wednesday. This was a stop on all short selling on these securities and it was an awful idea.
Reinstate the up-tick rule and ban naked short selling. That is it. Free markets are the way to go this is a mess.
I’ve always had mixed feelings about “shorts”. I recognize that they do add to market liquidity when a share is going down. However, it’s always seem to me to be one of the shadier sides of stock trading. I’ve personally never engaged in a short trades because I just don’t feel it’s a good, long term investment strategy.
The problem we’ve really seen over the past few weeks is a market negativity bubble. Some short traders are engaging in rumor mongering after shorting stocks. It’s very reminiscent of the way traders talked up dot-com stocks on the Internet newsgroups in the late 90’s.
Shorts, like them or not, are a fundamental part of stock trading. They provide liquidity on the down side. It’s too bad you can’t short trade a house; our mortgage problems would be over.
The practice that should be absolutely illegal is naked short trading. The laws regarding stock settlements are built around a circa 1930 stock market, not a modern, electronically traded one. If you don’t have the stock in your possession when you sell, you should go to jail.
I have a feeling the biggest rumor mongers are also the ones using naked short trades.
You have a couple of things to consider before you can make a choice for yourself concerning short selling:
1. First, you will note, all those who are in favor and not generally your run of the mill investors. They don’t seem to realize that the people who make a short really effective are the larger traders who have millions of share (potentially) and friends who they call up to help them initiate and attack a company. If it were left to the common investor, most of the volitility would not be seen but we as a group do not have enough shares any more make a difference. The big houses are the ones who do it.
2. It is also easy for them because they know who has the shares. The brokerage houses control the average investor on how much they can borrow, therefore short….pretty nice huh?
3. The large trading houses also engage extensively in naked shorting which is easy for them because they have no financial responsibility in the transactions. If shorters had to pay for the shares rather than borrow and then promise to return, there would be no such thing.
4. The main players and analysts will tell you that shorts help because they find problems and then force them to address the problems. This again is rubbish. They are not altruistic…they are doing it to make money and whether it is true or not, they don’t care.
You have to have lived through a massive short attack on stocks that you have know to know how truly awful it is. There is no ryhme or reason most of the time, and you have not way to protect yourself, if you are a small guy like me.
Go up to the SEC REG SHO board and read the letters from companies and small investors who have been pleading with Chris Cox to at least enforce the rules of shorting and you will begin to understand how bad this is. The only mistake is that most people don’t understand how little help comes of this…..ask Jim Cramer….he used to say the same things but even his tune has changed.
The proposal is NOT to ban short selling, but to ban ‘naked short selling’, which has always been against regulations for private investors (account holders at brakerage houses)–BW
Paul, I usually agree with you, but I think you are WAY off mark on this one. We were/are on the verge of a total meltdown. While pure free-market principles loathe this kind of intervention, it was absolutely necessary given the realities we face.
Short-sellers could have pushed many companies over the brink, taking with them millions of people’s life savings– that is simply not how markets should work.
I hate that the government had to do this, but I’m glad they did.
It’s an AWFUL idea to ban short selling. It shows a stunning lack of understanding about economics from the very people who are supposed to be (or at least should be)the best at it. It will mislead people by painting the market in a more rosy light than is appropriate, this will lead to a bubble of over-confidence which will eventually burst. Don’t these guys ever learn?
First, as I understand it, the banks and AIG etc. did not run into problems because their share prices were driven low, so it shouldn’t matter how or why their shares fell so low. They ran into problems because their assets shrank rapidly, which caused a whole bunch of unraveling of various positions, etc., which caused them to become truly insolvent. So this whole thing is a red herring.
Second, it seems to me that most of the “rumors” have turned out to be true, so all the short sellers did was inject a dose of reality into the share prices, and I just don’t see how one can argue there is anything wrong with that.
Third, even if the rumors were unduly negative, that is more than offset by the unduly positive info coming from the companies, the rating agencies, and our cheerleader govt. I think all misinformation needs to be rooted out, but it seems like undue optimism is more of a problem than the occasional undue pessimism.
Paul,
I agree that SEC action is hypocritical. Also, legal short selling provides liquidity the market.
We need to look in our own hearts — if we want the Government to intervene to make one more bubble or cause one more uptick then our own greed is part of the problem.
We have many more system “stopping” issues coming in the near future. Do we want to allow our government to manipulate our emotions and push through policies when we are vulnerable? Without debate? Hasn’t this happened enough times in the last few years?
The government has just tipped its hand on where it is going. I don’t believe you’ll ever get anymore clearer signal than this. The FED, Treasury and SEC actions smell like corporate capitalism.
Keep up the good reporting Paul. Real information is the start of solution. Generally people don’t know what is real or what to do because the majority of financial news is bullish propaganda.
I really believe we have fallen back to our last remaining line of defense – an independent media.
We should make it illegal to sell stocks for less than what you bought them for. That way they can only go up…kind of like housing. Better buy them now or be priced out forever.
Seriously, I can already see new bubbles forming, each crisis gets progressively larger than the last one. From .com to housing, the next one will take us down for sure. Borrow as much as you can from the future to shore up the present. This scheme can’t and won’t continue indefinitely.
p/e CONTROLS stocks. now these artificially inflated stocks will create another problem all their own. get ready for bigger crashes…no jobs no money. no money in peoples hands. no recovery. no recovery….depression. its coming and they can’t put the brakes on reality.
So you don’t think banning something that was one of the major reason of the Crash of the 1930s is a good idea? Gee I wonder why the uptick rule that was put in place to regulate shorts was eliminated in 2007. Oh I know…greed! Because when the market is at 14,000 no one can imagine not making money! Something needs to be done about shorts again!!!
Short selling is in and itself not a terrible thing, but what is a terrible thing is the ferocity that the short sellers bring with them and bring a company to its knees with continuous assaults on the stock of the company, such as AIG and Bear Sterns. Some people in the market will do ANYTHING to make an almighty dollar no matter who it may hurt. I equate short selling with guns; Guns don’t kill, people do. The same is true for short selling. Short selling may bring balance, but it could also topple the building. But hey, what do I know? I don’t have an MBA or PhD in economics, I just read and combine information and come to a conclusion. You should have seen my “financial advisor’s” face when I told him in September 2005 exactly when the mortgage crises would unfold – he made me feel like I had 2 heads. It took several months to realize that Summer 2006 was the Nadir of the Real Estate frenzy and the beginning of the decline, but that is the timing I predicted for the downfall. Oh, and the same was true for energy prices which I also told him about. So hey, what do I know?
I think it’s a great idea to ban shorting on financial stocks. It’s causing the share prices to shoot up to ridiculous levels. This will allow me to get out of the few financials I hold before they go back down again.
The ban on short selling is just another naked power grab by the State or the State’s proxies. Paulson, Bernanke, Bush and the Congress are stepping all over the Constitution to get these things done “for the common good”. This is Corporatism at it’s basest and just another nail in the coffin of the free man. We are on the road to a more fascist country. Welcome to USA, inc.
Those of you guessing a steep sell off to come are probably right; Cox’s foolish move will only delay the inevitable. As far as the ban bringing stability to the markets…guess again. The ban may be extended to mid-October and possibly again to the end of October. The hedge funds are irate and are already lining up the shooting gallery. Long term the RTC will help stabilize the financial world, but short term this short selling ban is going to raise havoc. Look out below and good luck.
does this also ban buying PUTS on those stocks? an october put on the shakiest might not be a bad idea.
I want my bail out from the government, i held SKF and they froze the short for hours they cost ME $6,000 dollars and i want my money…oh i am not a rich banker…too bad I LOOSE. HANG THESE TRAITORS. ITS THE ONLY WAY TO BRING ABOUT CHANGE. END THE FACISM. GOVERNMENT OF THE PEOPLE NOT THE COMPANIES.
Why have shorts or longs at all? Why shouldn’t the market solely be based on buying, selling, and demand? Wasn’t this crisis created by wall street creating things too complicated for outsiders to understand?
Excuse me, it wasn’t shorts that caused the price of financials to go down. Did short sellers force Wachovia to buy Golden West? Did short sellers tell Washington Mutual to aggresively give out Option-Arm loans in a specualtive bubble? Did short sellers tell Lehman to buy securites backed up by junk mortgages? The short (no pun intended) sightedness of politicians is amazing. They are making this problem way worse.
Ben from Richmond above had it right. Shorts were being abused and in these circumstances needed to be curtailed.
The shorters will BENEFIT from the ban as they have to buy to cover their shorts, driving the price up. If they truely believe its going down, they can sell.
Options are just more leverage. If you think the price is going up, buy the stock. If you think its going down, don’t buy it. All other bets can be handled in LAS VEGAS.
Short selling, by itself is not a bad thing, but it needs some constraints. I tend to believe the elimination of the uptick rule led to many of the problems we’ve seen recently.
Bring the uptick rule back permanently for all short sales.
The next time we have a stock bubble lets halt all long purchases if this logic makes since. Didn’t a bubble create the mess we are in now?
As an addendum to Jonathan from Lexington, KY. It doesn’t take a true monopoly to cause the rich to have everything and the poor to live in abject poverty. the problem is that capitalism in the US is looked at relative to the conditions other countries are in. In that sense, who we consider to be poor here are the unlucky ones (in US context only) since they are part of a system that is widely believed to be the best. that is a myth created by those who control it; and although one may argue that it is those little people who help sustain it, the recent actions by the government show otherwise…the gov’t hates to get this involved because it brings to the surface in a highly publicized way the faults of capitalism and the motives of those who want more.
in regards to the question, free market biz is all about coersion, they are not inseparate. without regulation on practices based on coersion, you truly have a laissez-faire economy and that is a dangerous situation—do we need any other proof than those CEO’s who made off like a bandit.
I think they should also ban buying stocks. Most of the financial institutions, which fell in the last months, were proclaiming their financial were ok and healthy and they were not going under. I guess that was also a rumour which hurted the stockholders.
It is disgusting to see the same financial institutions which were shorting the builders to complain about shorts. It is just another personal favor from Paulson to GS and to save his shares and options from the same investment bank.
Prohibiting short selling is just a method of keeping stocks artificially high.
What happens when prices are artificially high ?
A bubble with an eventual steep sell off
Yes it is a BIG mistake. The reason people are shorting financials is because they are going belly up! To imply that shorts are responsible for the near collapse of our financial system is ridiculous. If we allow institutions to leverage themselves to such extremes, and then declare them too big to fail, then we get what we deserve.
I think we are all in big trouble. For the life of me I can’t figure why stocks are rebounding. Even our “leaders” are freaking out. All they can do is throw money at the problem over and over again and change the game rules to their benefit. I’m beginning to believe they have no clue and for that I’m extremely scared. What happens when the US goes bankrupt? Do we end up like Russia in the early 90’s?
I agree with the article. Its not short sellers that are the problem.
It is the tactics and recent checks that have been removed that are the problem.
Yes, AIG had problems but 20 to 3 in a week?
You want to fix the short selling abuses, stop the piling on, by bringing back the uptick rule. Cannot short without first a buy coming to market. It prevents the dealth spiral of one short after another after another and was imposed exactly to prevent the rapid unwinding of what we have seen
Short selling caused the 29 collapse of the market. There was a reason for enacting a ban on short selling that lasted until the ban was lifted in recent times. It is just this kind of deregulation that has killed the financial market here recently and caused the savings and loan collapse in the 80’s. As soon as the short selling ban is lifted, there will be another round of stock failures.
Short selling is bad. Why? it is profit oriented made from nothing. It is like gambling really. If you are gambling, statistically you will loose money in a long run. temporary gains won’t sustain and permanent loses add up that leads collapse. If stocks are going up and down that is not a problem. If businesses are collapsing that is a disaster. Fed’s bail out on failed businesses does not work. It is a temporary fix that will not hold for long. Paul and Ben do not know how to deal with financial problems. I bet million dollars that it will lead to more collapse structurally. Wait and see.
La Monica seems to usually have his head on straight, but on this note he is dead wrong. “Free market” capitalism is NOT nor has it EVER BEEN the American system. For a few years we were on the verge of meeting with that end, but it was squashed by the turn of the century monopoly busters.
The markets should be closely regulated to ensure their health. China and Russia MANIPULATE their economies, that is the difference between communism and capitalism. One manipulates, the other regulates.
Regulating short-selling is a good thing for the markets. We understand that not all shorters are bad, but enough of them are that we need to find a way to handle it. And I agree, the SEC and others need to more closely regulate this practice to catch the predatory actors. But we cannot allow unfettered capitalism in this country. The current administration has tried to do so, and it has had disasterous results. The rich get more, the poor get less, and suddenly America (AMERICA!!!) has one of the world’s greatest income-inequities. Unfettered capitalism leads to enormous bubbles and cataclysmic bursts. The Dow would swing from 20,000 to 0 on the whims of the market. Thomas Friedman is a decent writer, but he doesn’t know a thing about economics. Unfortunately, La Monica seems to think like Friedman does. Regulation is a good thing. It makes sports, education, transportation, etc., all possible. Imagine if there were no standards for how much a free-throw was worth, or a touchdown, or what qualifications you needed to drive a car, or get a PhD, or become a surgeon!
Wall Street has turned into one big CASINO. It is no longer an investment place where logical, thought minded investors, with long term strategies, play. Not only should they stop short selling they should stop online trading without at least a hour delay. There are too many institutional, individual day (seconds trading) causing large swings in the market. They do not think of Wall Street as an investment (longer term) but as a CASINO to get rich by making a fast buck on the market moves. They keep pulling the slot machine lever as fast as they can in hopes for the big score. Good for the Fed they are starting to see the light. Stop the gambling
The SEC’s moves had nothing to do with inflating or propping up the value of financials. They are simply trying to slow things down. When the market drops 500 then 450 points in one day only to rise 420 likely from short covers, there is way too much volatility.
There will not be a ban on short selling, but there is too much boarder-line and down right illegal practices going on to be ignored or even fixed in real time. The banks have tons of bad debt, and legislation will come out of that, but at this point there’s no money to lend so there’s little worry that they are still writing bad loans.
Short selling also has to be more tightly regulated. You have a serious problem where there’s more short positions than available shares to short. It was a good move to impose a short term ban on the practice to stop the panic.
This isn’t capitalism, this is Socialism no matter how you slice it. The ban should be lifted immediately! This is going to inflate stock prices for financial services which will only worsen the problem. Trying to make short sellers the scapegoats for terrible financial practices is not going to solve the problem, it will only make the banks less accountable than they already are for their actions. I say a little economic Darwinism is need for all these greedy banks.
I find it ironic that similar bans are not put in place on the long side. I’ve never seen the SEC try to stop a stock market (or stock price) upswing. Allowing rumor to inflate the stock market, and disallowing practices that bring it back down again seems the perfect recipe for creating a bubble. When are we going to learn?
Paul,
You are a fool to think that this was a bad move. First off is the fact that there unscrupulous greedy people out there that are spreading false information for the sole purpose of shorting the stock. They are intentionally hurting companies and the market as a whole with this tactic.
You stop the shorts and let the market recover from these folks that revel in their almost creating another day of record sell-offs.
Some shorts broke the rules: they made up lies and they manipulated the markets through naked trades. But the SEC understands that a more fundamental issue is at work: stock prices no longer REFLECT a company’s performance — they drive it. When a solid, profitable company sinks to the point of bankruptcy BECAUSE its stock has been artifically beaten down, regulatory reform is needed. Allowing shorts to actually CREATE a crisis is anethma to the financial markets. Cox did the right thing.
A ban on abusive short selling is not only a good idea, it is vital to the health of the financial industry. Unlike brick and mortar businesses, finance companies rely on the confidence of clients and counterparties to survive. Unremitting short-selling attacks destroy that confidence, and can definitely impact the market’s perception of the company. This creates a self-fulfilling prophesy, and makes it much more likely a company will be unable to continue as a going concern. Short selling was once regulated via the uptick rule. the BIG! mistake was made by Chris Cox in removing that rule. Capitalism, whether people like it or not cannot exist without restraint – unless you enjoy existing in a monopolistic world, where the rich have everything, and the poor have abject poverty. For centuries, the policy of the United States has been capitalism with restraints – and that should not change now. Short selling must be regulated. If it cannot be effectively regulated, it must be banned outright.
This whole idea is stupid. Short sellers aren’t sinking bank stocks, BANKS are sinking bank stocks. Short sellers are not the ones driving down the stock values, they are just capitalizing on the awful fundamentals of the banks that already exist. This to me just looks like finger pointing and posturing by politicians that want to look like they are solving our problems.
It’s a complicated situation. While naked short selling is technically illegal (you can’t sell something you don’t have), banning all shorts of financial companies is a temporary a bad idea. I agree that the culprit is the rumor mongers that drive some stocks down beyond for pure profit. I’ll just look at this ban as an opportunity to search for short-worthy companies to short once the ban is over.
Welcome to Communist America. You are free to make a choice as long as it is the choice offered by the government.
And that choice concerning financial stocks would be to only buy them, go long, and not short them.
I was taught that America operated under a “free market system.” Apparently the professors at Penn State were wrong.
The only thing “free” in this market is the profits that the Wall Street corporate pigs get to keep at the American taxpayers expense.
It is just another example of a moronic Bush administration making more moronic policy.
We all might as well move to Russia or China. There the government also tells you what you can buy and sell and when you can do so.
I am a big fan of Jim Rogers and he wasn’t kidding when he said that America is becoming more communist than China. Banning short selling?! Are you nuts!? Great so now Uncle Sam is creating another bubble and that is the stock market or banking stock bubble again. Good job, Uncle Sam or should I say Uncle Boris.
Implicit in your assumption is market rationality, or market efficency. However there are periods of time, such as in the last few weeks, where markets are driven on behavorial or momentum factors rather than sound fundemental assessments of company stregth. Did GS and MS warrant being painted with the same brush as MER or LEH? No, but shorts launched bear raids on these stocks anyhow. This is a necessary measure for an extrodinary time where rationality has given way to momentum.
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The ban on short-selling is not only a good idea, it is necessary to stop profiteering during this crisis. But, it could all be undone in the long-term unless the rules regarding short-selling are completely revised and strengthened.