Short Selling of Banks Stopped

Sir_Humphrey

Generali wrote: »

In reality short selling doesn't do anything more than provide liquidity as there are more sellers at any price. This idea that humble banks are being driven to the wall by the shodowy hedge fund managers makes a nice story but the reality is if you short a perfectly decent company like HBOS and the price drops a long way, someone else will step in and snap them up at a bargain price.

Agreed, as I made clear, IMO the idea that short sellers stuffed HBOS is balls. HBOS would have gone down anyway (and the evidence suggests that short sellers weren't to blame anyway).

The point I am making is that short sellers speed up the process, and the short selling ban should buy some time. I am not claiming it is a solution, but it does buy some time until something like a solution can be formulated.

I personally agree that letting Lehman go bust was the right decision as it has no public depositors, but it is pretty obvious that if major retail banks started going t*ts up then that would be Great Depression Mk2.

Debt_Free_Chick

Sir_Humphrey wrote: »

The point I am making is that short sellers speed up the process, and the short selling ban should buy some time.

And for me, that is very bad news. If there are others that need to sold, merged or simply have their precarious position outed, then the markets should be allowed to do just that.

Pretending that "all is well" by hiding the problems simply saves them up for the future. If the ban is lifted in January with no improvement in the credit problems, then we're just going to see this all over again.

Deeply worrying to have this kind of meddling, IMHO.

Today's market rally tells you all you need to know. Nothing has changed. There is still a credit crunch. There are still banks that are technically insolvent. But all of a sudden, those banks are "worth" much more today .... why?

I guess this is the plan then .... manipulate the market to inflate the financial worth of financial companies. Then what?

Generali

!!!!!!? wrote: »

Still think we're going to have deflation, in the near term at least?

I still think it's highly plausable although far from a nailed on certainty.

There are loads of reasons I think high inflation is unlikely and deflation a likely outcome. Here is one.

The UK runs a trade defecit, that is it imports more in goods and services than it exports. That trade defecit for 2007 was about £47,781,000,000 (see the 2007 Pink Book for details). That can only be financed in one way, by the sale of GBP assets of some sort to foreigners. It has to be done like that as we can't just magic up the dollars, yen, renimbi and dong to pay for all this stuff. If we say to them, "Screw you buddy, we're inflating our way out of trouble" they'll say, "No screw you pal, we're not taking any more of your assets to support your trade defecit. You want to buy from us? You need to sell something to us first to get the cash".

If they do that then every man, woman and child in the country has to cut their spending on foreign goods by £791/year. That'd be £3200 for my family of 4. Well I guess I could drink British beer instead of French wine, that's a start. And I could spend a bit less on petrol. And no mobile phone. No cheap clothes from China. No new PC. It'd be tough for me to cut my spending on imports by that much and I think it might have an impact on my voting decisions.

Of course (and as I'm sure you're aware as you seem pretty switched on to this stuff) the UK also has a massive fiscal deficit (likely to be around £65,000,000,000 this year according to the IFS). We can leave that for another time but it's another good reason why we won't have massive inflation.

Sir_Humphrey

Debt_Free_Chick wrote: »

And for me, that is very bad news. If there are others that need to sold, merged or simply have their precarious position outed, then the markets should be allowed to do just that.

The trouble with that approach is time. The merging will still happen IMO, but without the same level of panic. The free market was left to do it's work in the 1930s, with disastrous results. This is the new world we are entering. As I said in previous posts: laissez-faire is dead.

The City boys need to read all of Shumpeter's "Capitalism, Socialism and Democracy". Do they all really just read section 1?

Debt_Free_Chick wrote: »

Pretending that "all is well" by hiding the problems simply saves them up for the future. If the ban is lifted in January with no improvement in the credit problems, then we're just going to see this all over again.

If they really think that, then it would be bad. But I don't think they do think that - even if some City thickoes do. It has bought a few months to work out a proper solution and to take charge of the situation. I am not arguing this is a solution, but gives time to work out some sort of solution.

fimonkey

Thanks again all for your patience.. I have another question re: short selling..

If its the ownership that's transfered, but no funds (that bit I find confusing), then going back to the beetle scenario.. The dealer has passed on the beetle to the new owner, the original owner has not been paid for it, but is being paid a yearly interest value instead... meanwhile all vw beetles break down into rust (i.e. the bank crashes and its stocks are worth nothing) so therefore the original owner looses out, as he no longer has a beetle and wasn't even paid for it, and the new owner also looses out cos he no longer has a beetle either.....

So selling short, to the extent it forces a company to collapse.... who wins there??

Debt_Free_Chick

Sir Humph

You may well be right. And I hope you are. But I also hope that doesn't give the Government the confidence to increase interference in future!

Sir_Humphrey

Debt_Free_Chick wrote: »

Sir Humph

You may well be right. And I hope you are. But I also hope that doesn't give the Government the confidence to increase interference in future!

I think you will find it will. Anglo-Saxon Market Capitalism has been found to be intellectually and morally bankrupt.

What I would expect is less government interference in personal affairs (eg I think we can safety kiss goodbye to ID cards) and more interference in areas that benefit the populations (eg more government involvement in building proper infrastructure). A lot of the busy-body stuff on individuals IMO has been a result of the loss of government function in economic affairs. Once government starts to re-focus on these areas, you should see less bin-fineing bulls**t, but more proper recycling schemes like in Germany.

If the City boys don't like it, then tough. They can kneeeeel before Humph.

Generali

Sir_Humphrey wrote: »

Agreed, as I made clear, IMO the idea that short sellers stuffed HBOS is balls. HBOS would have gone down anyway (and the evidence suggests that short sellers weren't to blame anyway).

The point I am making is that short sellers speed up the process, and the short selling ban should buy some time. I am not claiming it is a solution, but it does buy some time until something like a solution can be formulated.

I personally agree that letting Lehman go bust was the right decision as it has no public depositors, but it is pretty obvious that if major retail banks started going t*ts up then that would be Great Depression Mk2.

TBH, I don't think there's much evidence that short sellers speed up stock declines by that much anyway. You still need a willing buyer as well as a willing seller. It's tough to prove either way but I've not seen any research that has shown short sellers managing to trash stocks.

The retail banks is a toughie. Clearly it's not a good thing for them to be going bust. However, the Government can't afford to take another several hundred billion or even trillion in liabilities on to their books either. Looks like it's fingers crossed time.

mewbie_2

It seems to me that a large amount of the banks business was lending the same bit of money over and over again, in ever more creative ways. Given that this method of business is now discredited and a global recession is on the cards it would seem that less banks are now required.

Therefore, arguably, the market is doing exactly what it should be, in order to flush out the weakest members to aid the survival of the fittest.

I am no money man expert, but it is surprising to hear those, bulls especially, who are now arguing for nationalisation and legislative inteference in their treasured free market. Where the hell were you when the IMF free marketeers plundered the worlds resources and turned countries, even continents, into basket cases?

Paul_N_4

I can see how naked shorting and rumours can bring down a share price, but basic shorting of shares doesn't. If someone goes short, they simply expect the share to fall in price, the shorting process itself can not effect the price of a share. Its the holders of shares selling them into a market of fewer buyers that brings down the share price. Only then can someone going short profit from their decision.

I think this ban was simply intended to put an end to rumour mongering. Without the ability to short, who will bother asking "who's next", without the ability to profit from the answer? So it will slow the share price decline I expect.