Posted on 09/29/2008 1:14:35 AM PDT by library user
** EXCERPT **
The Securities and Exchange Commission has a list, and it's checking it twice. It's a compendium of nearly 1,000 companies the so-called watchdog has now pronounced off-limits to short-selling.
If this do-not-short list weren't such a travesty, it would be hilarious. Among the companies the SEC wants to "protect" are the ones -- Moody's and McGraw-Hill, to name just two -- that did such a horrendous job rating the mortgage paper that helped cause this debacle in the first place.
In the end, SEC Chairman Chris Cox and friends will discover that this will turn out to be an epic example of the law of unintended consequences. They've probably just succeeded in blowing up a tremendous number of quantitative-oriented money managers and hedge funds. In essence, this targets anyone who runs a long-short fund or arbitrage fund of any kind, and anyone who manages any sort of stock basket.
To distill those gory details down to their essence, what the SEC has done is guarantee that less liquidity will be available for markets.
I suppose that if this doesn't work, the next step will be to just outlaw selling altogether. After all, that does seem to be the government's response to prices it doesn't like. There was a witch hunt for speculators in commodities on the long side when oil (and various food items) went higher over the summer. Obviously, we've seen that lower stock prices have also precipitated a government response.
(Excerpt) Read more at articles.moneycentral.msn.com ...
ping.
I was watching the futures. They were up untill the bailout was announced. Now down. Maybe they could ban selling. I would not be surprised at anything now.
Bingo! Outlawing a market mechanism (and signal) to try to force good results is a great way to screw things up and a poor way to help anything.
It’s just like Germany and France trying to make it impossible to hire incompetents (”if you can’t fire people everyone will have jobs!”) and then wondering why they consistently hover at 10% unemployment.
I don’t engage in short selling, but preventing it screams “the bottom is getting ready to fall out”.
When low wages are illegal, only illegals will have low wages.
Sounds about right for next week.
The unintended consequence that I see in all this is people simply forgoing future investments in the domestic stock market. Given the incredible level of manipulation, it is just plain impossible to use quantitative financial models to invest. Whether you win or lose is now determined more by the political status of the companies in question than anything. So you’ll need a political analyst to tell you which companies are looking bullish or bearish.
I think folks will simply take a pass on that arrangement. At least at a casino they serve you drinks.
possibly but I think they are trying to do surgery with a chain saw.
The problem mainly is the "naked" short selling but I don't think they have any mechanism to stop it right now so they just stop all short selling.
Maybe there needs to be an actual "double entry method" for a short sale to go thru. In other words if you can't balance the books on short sales prior to the sale and guarantee actual shares against the sale then the sale does not go through.
I don't think there is a method in place where such can be achieved right now.
Does that mean "prevent naked short selling"?
I'm still trying to learn this stuff.
LOL.
Yes here is the difference between short selling and naked short selling:
For simplicity sake let us say there is a company with 100 shares and 50 are on the market or someone has said he wants to sell 50 at 100 bucks a share.
That puts 50 shares in play.
Someone decides this stock is going down in price and decides to Sell shares he does not own otherwise known as short-selling. The broker takes his order of short 50 shares at x dollars and then "borrows" those share from someone.
Naked short selling is the same thing with out the borrowing.
In the case of the regular short sale it balance out because 50 are shorted, 50 are up for sale and the shorted are borrowed. so we have 100 shares total.
In the naked short sale we have 50 shares held (not in play) 50 shares shorted and 50 shares up for sale for a total of 150 shares.
Understand this is a very simplistic representation of how it works but it get the idea across.
The bottom line is that naked-short selling in essence prints up phantom stocks and allows them to be traded. If one were to physically do such if caught you would go to jail.
Of course if I naked short sell like that, and the price goes up, I get double-burned.
No, short selling by definition is selling shares you don't currently own.
It is kosher and an effective market mechanism.
Naked-short selling causes the problem. IIRC correctly there was one trading day where something like 30% more stock traded on Overstock.com(online company sorta-like Amazon)than the company actually has issued.
This is as wrong as it can get.
Naked-short selling can literally give a "corner" on a stock to people who never have bought a single share. (A large group can collude via the Internet and drive a stock down and make money doing it.)
It worked for silver (eyes roll). Commodities contracts aren’t the same as stocks, because each transaction is a for/against bet on price, rather than the pricing of an existing asset share. That said, one of the biggest things the CFTC did to collapse the Hunt brothers silver bubble in 1981 (when they tried to corner the market) was to decree that contracts could only be sold to reduce positions or take delivery.
Mad Dawgg, thanks for this simple explanation for those of us with simple minds re naked short sales. I must have a DNA code that screams with that unheard voice except by me re naked short selling, “This is illegal, a crime and I should not do this.”
‘In the naked short sale we have 50 shares held (not in play) 50 shares shorted and 50 shares up for sale for a total of 150 shares.
Understand this is a very simplistic representation of how it works but it get the idea across.
The bottom line is that naked-short selling in essence prints up phantom stocks and allows them to be traded. If one were to physically do such if caught you would go to jail.’
I may be wrong here, but I get a gut feeling that the administration is in the process of gutting the Hedge Funds which have tried to gut our economy and the rest of the free world. At this time, I have zero problems with that.
That sure takes a lot of "guts," Grampa!!!
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