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Full Scale Govt Market Manipulation In Action

Discussion in 'BBS Hangout: Debate & Discussion' started by robbie380, Sep 18, 2008.

  1. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    I love it...A complete overreaction from the govt might occur now that it is rumored they may ban short selling for a few weeks. This will completely destroy hedge funds. By their name hedge funds obviously imply that they HEDGE aka go short to HEDGE their long plays. I could care less for myself since it will cause volatility to go off the freaking charts. Well let me rephrase that...I care a hell of a lot for myself since it will make me a ton of freaking money. Today it was insane...you saw stocks like Metlife which traded like 30 million shares today print SIX DOLLARS higher on their closing print. Hell another REIT stock ESS printed like 15 dollars higher on it's closing print due to it's relative lack of liquidity. Without the ability to short these final prints of the day could be much much higher. The forced buy-ins by firms on the stocks that are too heavily shorted could completely bury some hedge funds. GOOD WORK GEORGE BUSH! I guarantee you that this has his fingerprints all over it. I can't imagine Paulson doing something this reactionary and stupid. If I am wrong I will be completely shocked.

    http://www.ft.com/cms/s/0/1b5c813e-85eb-11dd-a1ac-0000779fd18c.html?nclick_check=1

    SEC weighs ban on short selling

    By Joanna Chung in New York

    Published: September 19 2008 02:36 | Last updated: September 19 2008 02:36

    US securities regulators were on Thursday night considering a ban on short selling as part of a group of new initiatives to restore calm to the stricken financial markets, people familiar with the situation said.

    The US Securities and Exchange Commission was discussing a short-selling ban on some or all stocks and an announcement could come as early as Friday, these people said.

    The SEC, which had already announced several actions to curb abusive short-selling on Wednesday, came under growing pressure to take more dramatic steps. Earlier on Thursday, short-selling in the UK was banned by the Financial Services Authority.

    Christopher Cox, the chairman of the SEC, attended a meeting with US lawmakers, the head of the US Federal Reserve and the Treasury Secretary on Thursday night to discuss various solutions to the financial crisis.

    Short-sellers, who profit from falling prices, particularly hedge funds, have been blamed for plunging shares of financial firms.

    Shares in Morgan Stanley and Goldman Sachs – the two last independent banks on Wall Street – have fallen precipitously in the past week.

    Many blame short-sellers for pushing down the share price of Lehman Brothers, which filed for bankruptcy, and of AIG, the insurance giant that was rescued by the government this week.

    While the move is likely to be welcomed by many firms who claim they are the target of short-sellers, hedge funds have already warned that bans make it impossible to hedge investment risk during a rights issue or placing.

    The rule would also push up the cost to banks of raising new capital and share could also become more expensive to trade, as hedge funds provide less liquidity to the market.
     
  2. SamFisher

    SamFisher Contributing Member

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    A total ban on shorts, what the hell?

    Dude how the **** is this going to work? Do all my ultrashort ETFs now turn into shares of AIG stock or something like that?
     
  3. Major

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    I'm not sure I agree with Jim Cramer, but he brought up the idea of financial terrorism behind a lot of this. He said that the normal short-sellers weren't the ones bringing down these firms. The only thing that makes me think there might be some validity is that the firms were being taken down one by one. If all of them are fundamentally unsound, they should have all gone down together - but the fact that LEH was brought down, then AIG, then GS/MS, etc seems kind of odd, especially given that the latter two are relatively healthy and profitable companies.

    Ordinarily, I'd agree that this is an overreaction, but it was becoming clear that the financial markets simply aren't functioning properly right now, whatever the reason. Instead of dealing with it on a firm by firm, bailout by bailout basis, I think the general principal of blowing the whole thing up and creating an artificial period of time to stop the problems might make the most sense. With the way GS/MS were heading today, this had disaster written all over it.
     
  4. Major

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    Good question - not sure how those ultrashort ETFs work. The UK ban was on new short positions through January or so. I would hope if the US is going to do this, it's done tonight. If they wait a few days or until next week with people knowing that the ban is coming, that opens the door to a mess tomorrow.
     
  5. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    not trying to be rude but spoken like someone who doesn't actually understand how the market works and only sees it from the outside. this new policy is extremely dangerous if enacted. i mean you did noticed that MS and GS were still hammered at points in the day even though it was very hard to get the stock short. lol why doesn't the govt just ban selling? the financial markets aren't functioning due to the unregulated swap market but are we taking actions there....nah.............
     
  6. Major

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    The shorts market is a bit messed up as-is. Funds apparently have to disclose all significant long positions, but not short positions. Why one and not the other? There are some problems with transparency in the short-selling markets with no one knowing who's doing what. The markets rallied quite a bit when the UK banned shorts. Why would it do so if it was not going to have an impact? Remember - the point of this is simply to buy time so firms aren't taken down in a single day.

    It wasn't very hard to get the stock short today. It did become more difficult as the day progressed as various pension funds and the like stopped loaning the stock, but you also saw those stocks recover some at that point as well.

    Because if you own something and sell it, that's very different than borrowing something to sell it and then re-purchase it. If the firms aren't financially sound, people can simply sell them and drive the price down that way.

    We have no idea what the bailout system is going to look at there and how that's going to be addressed, so we have no idea if we are taking actions there or what new regulations will be put in place for the long-term. These measures are purely short-term measures to buy time to implement long-term measures.
     
  7. DaDakota

    DaDakota If you want to know, just ask!
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    Good news.

    The problem is the way the short selling works.....it is now instantaneous whereas the laws were writtin for a 3 day waiting period.

    Naked short selling is bad, especially with the web and day traders....it is a no holds barred deal.

    Ban it.

    DD
     
  8. SamFisher

    SamFisher Contributing Member

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    Naked shorting has been banned since a few days ago. This is talking about a ban on ALL shorting
     
  9. KingCheetah

    KingCheetah Contributing Member

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    Too many yahoo day traders out there thinking they are playing Party Poker -- good riddance.
     
  10. DaDakota

    DaDakota If you want to know, just ask!
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    I have no problem with it as the markets sort themselves out.

    DD
     
  11. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    the logic here is like the salem witch trials. I am in awe. like I said earlier this decision if it does ban shorting on the whole entire market only serves to make me a **** ton of money. this will completely wreck some funds. who knows how it will effect some etfs and the options market and any other unintended effects it may have. and no one is even addressing the real issue which is the derivative/credit swap market. nah....let's just create a manipulated run up in the stock market that the public will cheer on like the internet bubble. **** this makes me even less confident in washington than ever. who cares about regulations let's just bs our way back up.

    paulson and bernanke you better knock it out of the park on the rtc plan. please save us from congress and bush.

    oh well at least me and sam know what's up.
     
  12. SamFisher

    SamFisher Contributing Member

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    Here's an interesting paper on the economics of shorting v. naked shorting

    http://faculty.chicagogsb.edu/christopher.culp/research/pubs/NakedShorting.pdf

    The last two paras:

    ON BALANCE Setting aside its illegality, we are left with the positive
    possibility that naked short selling is socially valuable in
    facilitating competition in the market for security lending — i.e.,
    allowing new buyers to compete with current owners for the
    price of future delivery — and thus facilitating short selling that
    may be socially valuable but otherwise might not occur. But we
    also have the negative possibility that naked short selling may
    introduce excess volatility into stock prices. The comparative
    impact of naked short selling in this context can then only be settled
    empirically. But the theoretical possibility that naked short
    selling is beneficial on net does give us reasons to be skeptical of
    a priori assertions that naked short selling is detrimental.

    CONCLUSION

    Despite a recent spate of lawsuits and media attention, the
    existing literature on naked short selling consists almost
    entirely of self-confessed advocacy pieces by lawyers and consultants
    involved in naked short selling cases or parties who are
    defendants in such lawsuits. We take a more balanced look at
    naked short selling. We have shown that, from an economic
    perspective, naked short selling is not fundamentally different
    from traditional short selling, is unlikely to have serious detrimental
    effects on capital markets, and might even present
    some benefits on balance.

    Nevertheless, some naked short selling remains illegal. As
    with other matters of financial economics and policy, the
    debate on naked short selling would benefit from additional
    empirical research.
     
  13. Air Langhi

    Air Langhi Contributing Member

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    Even if they ban shorting you can still buy puts to short a stock.
     
  14. Air Langhi

    Air Langhi Contributing Member

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    BTW a lot if short etf don't necessarily just straight up short stocks, there are other ways to bet against the price of a security without shorting it.
     
  15. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    this is a challenge that I will put to the people who believe short selling drove down goldman and morgan...can you explain to me the fundamental reasons why those stocks actually went down?
     

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