And it’s not the markets; it’s the state. NYT: “Hedge fund managers who made vast profits betting against the nation’s financial titans called the ban unfair, and said the move would only prolong the financial crisis. Some traders said they were no longer betting on the intrinsic health of companies, but rather on what the government might do next. Others simply withdrew from the market.”
I was trying to remember that last time I had heard about a ban on short selling. Then I recalled: it was a scene Garrett’s book Satan’s Bushel. It was World War I. It wasn’t shorting; it was going long on wheat. The government prohibited it. When the leading character in the book protested, he was arrested.
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A cornered, injured, and delirious animal acts fearfully.
One difference, the unConstitutional coup deserves no sympathy!
While the administration deserves no sympathy, they won’t be footing the bill.
Does the country have the will to suffer the consequences a sudden return to a truly free market will bring, after the economy has become so distorted? I don’t see that. Certainly not this year.
Our grandchildren will be left a very different world.
The short ban is already causing problems and might be amended before Monday. Spreads of market makers have increased to cover risk and the liquidity provided by short sellers has disappeared into thin air. The options market has also seized up because you can’t trade puts and market makers can’t hedge against calls.
This is going to cause wild gyrating moves in equities. Just look at the huge and erratic moves in gold and FX markets. The Euro/Dollar spread is on average 2 pips. Now you see 4, 5, 6 pip spreads.
All this boils down to is the fact that the powerful are trying to cover up the farce of the fractional reserve system which is busy imploding.
They freely admit that banking is all about confidence so they are pulling every rabbit out of the hat to pacify the masses. The next rabbit might not have ears.
When you try to block the flow of a river, it will seek and alternative route. Thus, trying to block the collapse will fail. The market will find a way to make it collapse.
The route the market could take could be a collapse in Treasuries leading to a meltdown in the dollar.
Who knows, but the market will somehow succeed.
A meltdown in treasuries would be Armageddon. But it doesn’t appear that will happen anytime soon. Investors seem to be rushing to treasuries (along with gold) every time the financial system starts panicking.
Now short-selling has also been banned in Germany…at least for the “important financial institutions”. What’s next?
“May you live in interesting times”. That’s a classic Chinese curse.
For more examples of government restrictions on speculation, see chapter 15 of Reminiscences of a Stock Operator.
My original comment posted yesterday never appeared here, so this is the shortened version. Will provide more info and link if this comment actually goes through…
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