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Originally posted by shavixmirShort selling is when I give you €2 for borrowing your new shirt for 2 days, sell it for €30 the same day and 2 days later buy another new shirt exactly like it for €20 and give it back to you.
They call it a ban on short selling.
(Spoken much like a CIA agent saying: "They call me Mr. Tibbs."😉
What does it all mean?
If it still costs more than €28, I lose money. You always make €2.
Originally posted by PalynkaWhy have they banned that?
Short selling is when I give you €2 for borrowing your new shirt for 2 days, sell it for €30 the same day and 2 days later buy another new shirt exactly like it for €20 and give it back to you.
If it still costs more than €28, I lose money. You always make €2.
It sounds perfectly okay to me. Surely that's just win-win for everyone?
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Originally posted by shavixmirThe problem that is being raised is that short-sellers have an interest that the value of the firm tanks. The more the firm tanks, the more they gain (i.e. the less I pay for the shirt I'll give you back).
Why have they banned that?
It sounds perfectly okay to me. Surely that's just win-win for everyone?
Some people are claiming that there could be players on the market spreading rumours just to bring firms down, even if they're not that unhealthy. If a fire sale starts, then the short-seller is in heaven.
Originally posted by PalynkaAlso, Jim Cramer thinks that short sellers may have taken out Lehman Brothers and AIG. (I don't think he has proof - just a feeling.) The US used to have something called the uptick rule, which made it harder for bear raids (concerted short selling) to occur. A number of years ago, the SEC inexplicably did away with this uptick rule, and many believe ths has caused bear raids to be more frequent in recent years.
The problem that is being raised is that short-sellers have an interest that the value of the firm tanks. The more the firm tanks, the more they gain (i.e. the less I pay for the shirt I'll give you back).
Some people are claiming that there could be players on the market spreading rumours just to bring firms down, even if they're not that unhealthy. If a fire sale starts, then the short-seller is in heaven.
It's interesting to note that the British are completely banning all short sales for a period of time. The US is only starting to enforce the existing rules against naked short selling - The US also needs to reinstate the uptick rule.
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Originally posted by Mad RookJim Cramer is an idiot, I wouldn't give him much credit.
Also, Jim Cramer thinks that short sellers may have taken out Lehman Brothers and AIG. (I don't think he has proof - just a feeling.) The US used to have something called the uptick rule, which made it harder for bear raids (concerted short selling) to occur. A number of years ago, the SEC inexplicably did away with this uptick rule, and many believe ths ha e existing rules against naked short selling - The US also needs to reinstate the uptick rule.
I'm not saying it didn't happen. I don't know at this moment. All I'm saying is that I'll wait a bit before making my mind up on that. Jim Cramer changes his opinion everytime he changes his shirt, yet he'll keep telling you he told you so.
Edit - BTW, nice comments on the uptick rule.
Originally posted by PalynkaI agree, Cramer is a lot of bluster, and I don't really care for his short-term trading attitude. And yeah, he's not always real consistent in his views. But I think he still knows a lot of traders on Wall Street, and I think he has a decent pulse on the market. So I at least tend to listen to him when he talks about events related to trading. (I hope I haven't misread him on that aspect.)
Jim Cramer is an idiot, I wouldn't give him much credit.
I'm not saying it didn't happen. I don't know at this moment. All I'm saying is that I'll wait a bit before making my mind up on that. Jim Cramer changes his opinion everytime he changes his shirt, yet he'll keep telling you he told you so.
Originally posted by PalynkaSounds like capitalism to me.
The problem that is being raised is that short-sellers have an interest that the value of the firm tanks. The more the firm tanks, the more they gain (i.e. the less I pay for the shirt I'll give you back).
Some people are claiming that there could be players on the market spreading rumours just to bring firms down, even if they're not that unhealthy. If a fire sale starts, then the short-seller is in heaven.
Surely you can't create a system which makes people rich over other people's backs and then whine about it when people make good profits out of it.
Originally posted by PalynkaCentral banks had taken large positions in Fannie and Freddie by buying the mortgage securities...for a long time these securities were seen as safe as US treasury bonds. But when fannie and freddie were going down, the central banks were exposed. You'll notice if you google "Fannie" and "Asian Central Banks" that there are a tonne of articles explaining this connection.
There must have been something lost in translation.
Central banks are not leveraged into equity markets like investment banks. The only way central banks could potentially be in trouble is if they extend vast amounts of short-term loans to private banks that ultimately collapse.
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Originally posted by no1marauderYou are an idiot. Do us all a favour a stop posting.
Dubious Appeals to Authority aren't an argument.
The stock market is down 18% for the year. This sounds bad, but considering the market reached a record high in October 2007, some fallback could be expected esp. considering the near recession in the US. Anyone who panics at short term changes in the stock market should just buy govern stocks' are historically the best investment. The sky isn't really falling, Chicken Little.
U.S. markets wipe out 10 years of gains
Globe and Mail Update
September 18, 2008 at 6:00 AM EDT
Ten years, wasted.
That's the bottom line on the U.S. stock market, which took another kick in the teeth yesterday. As stunning as it is to believe, you would have been better off keeping your money in cash for the past 10 years than keeping it invested in the S&P 500 index, which is now no higher than it was in the summer of 1998.
With investors finding little solace in the U.S. Federal Reserve Board's $85-billion (U.S.) bailout of massive insurer American International Group Inc., the Dow Jones industrial average tumbled 447 points to 10,612, while the S&P 500 fell 57 points to 1,156
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Originally posted by shavixmirHere's a great article from Steven Levitt. It explains things nicely.
Sounds like capitalism to me.
Surely you can't create a system which makes people rich over other people's backs and then whine about it when people make good profits out of it.
http://freakonomics.blogs.nytimes.com/2008/09/18/diamond-and-kashyap-on-the-recent-financial-upheavals/?scp=1&sq=levitt&st=cse
Originally posted by shavixmirThe Americans have banned short selling now too.
Why have they banned that?
It sounds perfectly okay to me. Surely that's just win-win for everyone?
September 20, 2008
S.E.C. Issues Temporary Ban on Short-Selling
By VIKAS BAJAJ and JONATHAN D. GLATER
Traders who have sought to profit from the financial crisis by betting against bank stocks were attacked on two continents on Thursday and Friday.
The Securities and Exchange Commission issued a temporary ban Friday morning on short sales of 799 financial stocks, following a similar action by Britain the day before. Short selling — a bet that a stock price will decline — is the practice of selling stock without owning it, hoping to buy it later at a lower price, and thus make a profit. It has often been blamed for forcing prices down in times of market stress, but the level of anger has intensified as the American government has been forced to bail out major financial institutions and the leaders of some investment banks have asked for action to protect their shares.
Both the S.E.C. and the New York State attorney general promised to intensify investigations into short selling abuses. “They are like looters after a hurricane,” said Andrew M. Cuomo, the attorney general. “If you pass a rumor in a normal marketplace, people are calm, they check it out, they do their due diligence. When you get the market in this frenzied state and they are on pins and needles, any false information is much more impactful.”
Short sellers say that the criticism directed at them, and any restrictions on their activity, are wrong-headed, because they were among the first to raise the alarm about the risky mortgage lending practices that led to the current financial crisis.
Senator John McCain, the Republican presidential candidate, said the S.E.C. had “kept in place trading rules that let speculators and hedge funds turn our markets into a casino” and said that the S.E.C.’s chairman, Christopher Cox, had “betrayed the public’s trust.”
Speaking at a rally in Cedar Rapids, Iowa, Mr. McCain said, “If I were president today, I would fire him.”
The White House immediately said it supported Mr. Cox, who has said he will resign at the end of the Bush administration. Mr. Cox said he had moved against short sellers and was doing all he could to stem the financial crisis.
“Now is not the time for those of us in the trenches to be distracted by the ebb and flow of the current election campaign,” Mr. Cox said in a statement released by the commission. “It is precisely the wrong moment for a change in leadership that inevitably would disrupt the work of the S.E.C. at just the wrong time.”
Mr. Cox is a former White House aide to President Ronald Reagan and a former Republican congressman from California. Some conservative columnists and commentators, including Robert Novak, supported him as a running mate for Mr. McCain. Writing in the American Spectator earlier this year, Quin Hillyer said that conservatives would rally to a Cox selection and called him “the best choice, bar none.”
In recent weeks, Mr. Cox has also stepped up his criticism of short sellers, particularly those who engage in “naked” short selling. While short sellers are supposed to borrow shares before selling them, naked shorts do not borrow. That saves the cost of borrowing, though the trader is still vulnerable to losses if the share price rises.
Opponents of short selling believe that it can force share prices down and destroy confidence in a company that might otherwise survive. Regulators have long thought that the practice was crucial for efficient markets to function, but earlier this year the S.E.C. imposed temporary limits on short selling of some financial stocks. Financial share prices rallied when those limits were announced but fell during the period in which the rule was in effect.
Share prices for many financial companies shot up Thursday afternoon after plunging the day before in the wake of the government decision to take control of the American International Group, a large insurance company, to prevent it from collapsing. Financial shares were especially hard hit Wednesday, with Morgan Stanley plunging 24 percent, to $21.75, and its chief executive, John J. Mack, blaming false rumors spread by short sellers. On Thursday, Morgan Stanley regained part of that loss, rising 3.7 percent to close at $22.55.
The latest moves against short sellers began Wednesday. In the morning, Mr. Cox announced new rules to prevent brokerage firms from selling a stock short if they previously had sold the stock short without having borrowed it. That night, he said that he would propose more rules, to force large short sellers to disclose their positions.
The rules were needed, he said, “to ensure that hidden manipulation, illegal naked short selling or illegitimate trading tactics do not drive market behavior and undermine confidence.”
Details of the possible new disclosure rule were not released, and it is not clear how much authority the S.E.C. has over hedge funds, which have successfully sued to prevent the commission from forcing them to even register with it. Institutional investors, including some hedge funds, provide details of stocks they own every three months but do not disclose short positions. Mr. Cox said he wanted daily disclosure of short positions, which he said would be made public, though he did not say how quickly.
By late Thursday, the S.E.C. was considering a temporary ban of some or all short selling. Mr. Cox told reporters in Washington late Thursday that he had discussed the ban with other senior administration officials but no decision had been made yet.
Richard Baker, the president of the Managed Funds Association, a hedge fund trade group, said the funds would comply with any rules but said that disclosure of their trading positions should not be made so quickly that it would harm them in the market.
Mr. Cox also said the S.E.C. would intensify its investigations of short selling by hedge funds and would demand their records on trading in certain securities.
In Britain, the Financial Services Authority said that beginning Friday it would bar traders from taking new short positions in listed stocks of financial companies, and that starting next week, investors would have to disclose their short positions if they were at least 0.25 percent of a company’s outstanding shares.
This week, the British bank Lloyds TSB took over HBOS, a mortgage lender, after HBOS’s stock tumbled. That fall was widely blamed on short sellers, and Prime Minister Gordon Brown vowed to clean up the financial system.
Originally posted by uzlessLook at their balance sheets.
Central banks had taken large positions in Fannie and Freddie by buying the mortgage securities...for a long time these securities were seen as safe as US treasury bonds. But when fannie and freddie were going down, the central banks were exposed. You'll notice if you google "Fannie" and "Asian Central Banks" that there are a tonne of articles explaining this connection.
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Originally posted by uzlessYes, that's good. But it only applies to financial stocks. (Although I realize that financial stocks are the main problem.) But I still think the US should reinstitute the uptick rule.
The Americans have banned short selling now too.
Edit - Also, I think the US government will have to address needed regulation of the derivatives markets.