Friday, September 19, 2008

Ban On Short Selling Is A Terrible Idea: Short Sellers Keep The Market Honest

The decision by SEC Chairman Chris Cox to ban short selling is a terrible idea. It is an encroachment on free-market principles. In extreme, the absence of short sellers would inflate stock market upturns, probably into bubbles. Short sellers keep the market honest. I know many in the short-selling community and most of them really do their homework. They are skeptical about puff pieces on companies and they are properly cynical about corporate press releases.

~Larry Kudlow

11 Comments:

At 9/19/2008 12:24 PM, Anonymous Anonymous said...

There is no goldilocks economy without the short-selling "799" ban, is there?

You laissez-faire libertarians need lotsa deodorant, dontcha!

McSame says, fire the SEC honcho, Cox!

Welcome to the USSA (United Soviet States of America) Carpe Diem, or as another anon poster would put it:

FU frat boy punk!

I say, go hide back in your cave with your fellow Friedmanites and wait out the destruction. You destroyed America.

 
At 9/19/2008 12:47 PM, Blogger Walt G. said...

But, the only thing I have left to sell is my shorts :)

 
At 9/19/2008 1:00 PM, Blogger Dave Narby said...

You can still effectively short via puts and the ETF short funds appear to be working again after a fashion, after a short trading hold this morning.

However, the ETF short funds don't seem to be having the same effect.

This means only the big boys and very sophisticated individual investors can effectively short via puts (although I think the short funds effects will kick in if/when they allow actual shorting of the financials to resume).

As usual, the gov't is working with the big boys to lock Joe SixPack out of any chance of recouping his RE losses by shorting these pigs down to fair value. Many of which is zero - Or negative.

So far this administration has been shameless in it's actions during this crisis. Bail out Bear, but let Lehman go toes up? Someone should go to jail over this.

I'd love to be able to follow the money trail right to some big fat arrests. I'm sure it covers both parties, too.

Mike Shedlock has had the best take on this mess IMO http://globaleconomicanalysis.blogspot.com/



Note I am NOT talking about the counterfieting of shares via naked shorting - That should have been enforced a long time ago.

Turns out Patrick Byrne was right.

What a frigging swamp. I hope they get 'et by their own 'gators.

 
At 9/19/2008 3:16 PM, Anonymous sam said...

did you know most short selling was coming from dubai and london? ?finincial terrorism?the following is from: by Barry Ritholtz on Friday, September 19, 2008 | 05:54 AM
in Bailouts | Markets | Psychology/Sentiment | Short Selling | Trading
Last night, we discussed the absurdity of banning all short sales. The details of the SEC action have been released (see below). The specifics are a "temporary halt in short selling in 799 financial institutions" until October 2nd.

I have been trying to contextualize this, and I keep coming back to what seemed like a wild theory yesterday that seems a whole lot less wild today. During the day, I had an interesting phone conversation with Joe Besecker of Emerald Asset Management.

But Joe is a good money manager, a great stock picker, and a thoughtful guy. He raised an intriguing issue: None of the many hedgies he knew were pressing their bets recently. The bear raids on the banks and brokers were NOT a case of piling on by US based hedge funds. And from what he was seeing and hearing about in terms of order flow, the vast majority of the financial short selling the past week or so were being done overseas. It appears that the lion's share of shorting was coming out of overseas bourses such as London and Dubai.It may not be a coincidence that the financial short selling ban is both here and in London.

Then there is another coincidence: The huge increase in shorting of the financials occurred on the anniversary of 9/11. And on top of that, the same institutions attacked on 9/11/01 were the ones suffering in recent days.

Joe asked the question: Is anyone investigating whether this is a case of financial terrorism? He wanted to know if someone was at least looking into this question

Anyway, its an interesting theory, one that seemed kinda out there -- until last night's emergency action. Nothing else really explains the insanity of banning short sales -- except for Joe Besecker's questions.

~~~

The grand irony of all this is that Naked Shorting has been very profitable for the big broker dealers, like Morgan And Goldman and Merrill and Lehman. They have looked the other way for years, and the SEC has been AWOL on this issue.

Short sales require a locate (shares to borrow) and then a subsequent delivery. It should take less than 3 days to deliver the borrowed shares, but instead, delivery is often delayed indefinitely. Failure to deliver leads to a margin charge, which can be as high as 9-15%.



Posted by Barry Ritholtz | Friday, September 19, 2008 | 05:54 AM | Pe

 
At 9/19/2008 4:56 PM, Anonymous Anonymous said...

Its called a "bank holiday".

 
At 9/19/2008 5:03 PM, Blogger PeakTrader said...

Most economists don't really understand what caused the recent financial panic (it was caused by the global imbalances created by export-led governments, and the U.S. government response is appropriate, to take advantage of poor foreign economic policies, which facilitated financial innovation to clear the U.S. market of "excess" capital), and Kudlow doesn't even have any economics degrees. Most economists state the same shallow and narrow reasons of the media and the politically motivated, although a few economists, e.g. in the Bernanke Fed and the Bush Administration, understand.

 
At 9/20/2008 4:54 AM, Blogger juandos said...

Typical of libtards and the rest of the prou ignorati to whine about more government intervention...

For instance: "You laissez-faire libertarians need lotsa deodorant, dontcha!"...

Note from the same magazine anon @ 12:24 PM apparently couldn't find time to read or maybe understand: It's Not the Shorts

But the Securities and Exchange’s Commission move to bank all short selling in some 900 financial stocks for the next 10 business day smacks of overill. That’s because the short interest—shares sold short in anticipation of a stock decline—in big financial stocks is really rather paltry compared to the number of outstanding shares in those securities. At the close of trading on Sept. 17, short interest as a percentage of shares outstanding was 2.5% in Goldman Sachs; 2.6% in Morgan Stanley and 1.3% in Citigroup, according to Bloomberg.

Its basically the same people who whined about speculators are now casting about for someone else to blame for something the whiners know nothing about...

From IBT: Dispelling The 'Deregulation' Myth

OK, we'll say it if no one else will: Thank heaven for Gramm-Leach-Bliley. If you've been listening to the fulminations from Congress and the campaign trail, you know that we're talking about the 1999 law that dismantled the Depression-era barriers between commercial and investment banking.

Try a dose of basic economics...

 
At 9/20/2008 8:56 AM, Blogger Jack McHugh said...

I can't really get excited about a temporary ban in a moment of extreme instability. I do understand the principles, but try to be principled without being overly rigid, either.

 
At 9/20/2008 11:39 AM, Anonymous Anonymous said...

Anyone thats against the measures taken by the govt , in order to stop the meltdown of the financial system (thays your system, moron) should be HANGED as a traitor.

Im deadly serious

 
At 9/20/2008 2:42 PM, Blogger bobble said...

Walt G: "But, the only thing I have left to sell is my shorts :)"

ROTFLMAO! good one walt. that's a classic.

to see the folly of a short sale ban, check out this cool chart from 'dealbreaker' on what happened when the Pakisan stock market banned short sales: pakistan stock market chart/

 
At 9/22/2008 4:20 AM, Blogger OBloodyHell said...

> ...should be HANGED as a traitor. I'm deadly serious

...which is why we don't take you or your opinions seriously.

Contemplate that for a while. I doubt if anything useful will come from it, but who knows... maybe the horse will learn to sing!

 

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