NPR: SEC Bans Short-Selling Stocks
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I did a nice interview with NPR on short selling earlier today, which should be live at 3pm.
NPR:
Friday, September 19, 2008 | 03:15 PM | Permalink
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I was shocked to see your face on CNN just now, Mr. Ritholtz... I'm no fan of the dunderheads on that network, but happy (i guess) to see an intrusion of intelligence into that vapid wasteland.
Do you really think this crisis is equivalent to over-regulation in the 60s and 70s? I think they're not on the same scale in terms of devastation. I also think deregulation threatens to destroy the entire economy, whereas the 60s, while not great for Wall St., worked out pretty well for Main st. (Forgive me for using such political buzzwords...)
Posted by: LorenzoStDuBois | Sep 19, 2008 3:23:11 PM
Barry, I am one of these guys who is even tempered, rarely get angry and go with the flow. For the first time in my life I am outraged! I don't know what to do but I have never felt this angry in all my life.
WHY IS THIS HAPPENING????? What can we do about it? Please provide something for us to do, sign a petition, links to government, march on D.C., how can we tell them to FUCK OFF, we won't stand for this shit! That is of course, unless they are willing to write down my mortgage to 35 cents on the dollar and re-do my payments.
I chose to be risk averse and hold my money in treasuries. For that I agreed to accept lower interest. You mean to tell me i could have bought riskier assets and been guaranteed a higher rate of return? Fuck you Paulsen, Bush, Pelosi, Bernanke, and any other cocksucker out there supporting this bullshit.
Posted by: joshua Kaner | Sep 19, 2008 3:23:56 PM
nice work, you nailed it. now, can you educate some politicians?
Posted by: chrtxmnr | Sep 19, 2008 3:28:35 PM
Rosabarba,
In answer to your question:
In the short-run, markets are governed by morons. In the long-run, we are all dead. Somewhere between the two… in the U.S., there will be decades of worse-than-Japanese markets.
There’s an old saying… “fat, dumb, and happy”. Let’s deconstuct that saying: 60% of Americans are overweight and 30% are obese. So, we are definitely fat. The average IQ is 100, so half of Americans are dumb. As far as “happy”? Well, they have certainly been seduced and sedated within the consumerist-capitalist matrix. So, I guess it’s a quasi-Prozac sort of happiness. Or daze.
Somewhere between the short-run and the long-run, there will be decades of a slow spiral as Americans realize their time of empire is over. People will get thinner because they can’t afford McDonald’s anymore. Eventually, revolutionary fervor will take hold. Capitalism is a short-run construct. It will be replaced. We don’t know yet whether Marx was wrong because Marxism is more of a long-run construct.
However, the Bush-ites are trying to do a Marxism for the RICH ONLY kind of thing right now. The minimum tab for this bail-out is $10,000 for a family of three migrant workers to pay for executive bonuses at AIG, Citibank and the others.
So, tell me… when do they start arming themselves with machetes?
Posted by: TG Randini | Sep 19, 2008 3:36:09 PM
barry, obviously i agree with your views on short selling.
i feel betrayed and sad this morning: first, because our elected officials are so blatantly ignorant, second because they are corrupt (so sad that it's ok for Lehman to fail, but not Paulson's Goldman Sachs Mafia)
my question to you is this: I was QUITE confident in my SDS and SKF positions, based on the fact that the broker dealers and big banks were insolvent. Now that the Treasury will take all the illiquid stuff off their books, this thesis is essentially DEAD, and I closed my positions this morning, sadly.
Now, what will make the market go lower? instead of a short, reasonable cleansing when the financials got what they had coming, we'll now have a long, drawn out multi-year recession with rapidly increasing inflation, and potentially a bankrupt USA when foreigners stop funding us?
and Mark Haines mentioned that he thinks foreigners own a lot of the stuff that the Treasury will be taking on here - are we really bailing out China, Switzerland, England et all?
The government took my tax dollars and banged me right in the ass with them. ouch.
Posted by: Kid Dynamite | Sep 19, 2008 3:41:32 PM
What bothers me even more than the ban itself is the fact that this ban was imposed without any advanced notice (and just before “triple-witching”, to boot). This amounts to nothing less than the confiscation of the fruits of risk-taking by the shorts.
What I haven’t heard from any of the proponents of the ban is why the absence of advance notice (even just 48 hours) might be justified.
Posted by: D.L. | Sep 19, 2008 3:43:09 PM
OUTRAGED ? Have Karl Denninger send a fax financial petition template on his dime to congress.
http://financialpetition.org/petition-nobail.shtml
Posted by: Mike G | Sep 19, 2008 3:43:22 PM
Great interview. Thanks Barry.
I definitely think there should be more publicity in the mainstream media about how complicit the investment banks are about the short selling that they have been part of and making profits on for years. Its a disgrace for them to now be crying wolf about "short sellers".
Posted by: Mike | Sep 19, 2008 3:43:59 PM
Surrealy, I'm sitting watching Joseph Stiglitz eviscerate the Bush administration's war spending and the Wall Street crisis. Argentina has been mentioned in comparison, noting that it took the Bush administration 8 years to create what Argentina took 50 yeras to accomplish. Wow.
Posted by: Doug | Sep 19, 2008 3:48:34 PM
Barry - I think some of your readers are angry and irrational. Please explain what the alternative was? Please explain what would have happened to Mr. and Mrs. Joe Average had the Gov't failed to take action? Common sense people...we live in a democracy. This "let them eat cake" attitude towards middle class USA is going to get you all beheaded.
Relax - buy a long term put - wait 30 days and reinitate your short positions.
Posted by: mike e. | Sep 19, 2008 3:52:06 PM
Nice work, Barry, though Madeleine clearly was having a hard time getting her head around it. You're a charismatic guy.
Posted by: Youngtrader | Sep 19, 2008 3:53:33 PM
My mind is literally spinning. We could trade all our lives and never see anything like this.
I wonder what foreign holders of Treasuries think of this? No wonder Barry calls this The Big Picture, you have to think of all market instruments all at once.
In Gold We Trust.
Posted by: leftback | Sep 19, 2008 3:53:50 PM
Hey, Mike E, here is an alternative: instead of bailing out the banks to the likely tune of 2 trillion, fuck them and give the money directly to the citizens. They have saved the financial system at the cost of the economy. what possible sense does thaat make?
Posted by: rww | Sep 19, 2008 4:00:26 PM
Does anyone know what is happening with LIBOR? This is all about getting the banks through the Sept 30 rollover, so if this is going to work, LIBOR would have to come in.
The ramifications of this are complex: as yields rise, mortgage rates will rise with them, and make it more difficult for people to buy homes, thereby exacerbating the problem of housing inventory.
I was looking at the congressional leaders, and wondering how many of them have big mortgages, lots of debt, and stocks? Any number of conflicts of interest. I also think that very few of them understand what is going on beyond the superficial level. They are mostly lawyers by trade, and not deep thinkers. They should know a liar when they see one, though.
Posted by: leftback | Sep 19, 2008 4:03:06 PM
Doug,
Funny you mention Argentina. Despite all the justifiable pity for "the taxpayer", it's really our foreign creditors who will have to bail us out (since the poor taxpayer's funds were overrun long ago). So I wonder how many people have even considered that they may well impose the same sort of austerity demands on America that the IMF did on those other banana republics.
Posted by: Al Czervic | Sep 19, 2008 4:08:37 PM
rww - they had to save the financial system to save the economy.
this was a no brainer...an ugly situation but it had to be done to save the US economy. The housing market needs to hit equilibrium, then we can sort everything out.
Everyone can benefit from a little pause in the action.
Posted by: mike e. | Sep 19, 2008 4:19:24 PM
Deep breath, everyone.
An ancient parable -- to help the masses via outrageous intervention, or not -- may here to our modern-day predicament:
"...and God saw their works, that they turned back from their way of evil, and God repented of the evil that he had said he would do unto them...and he did it not.
"But it displeased Jonah exceedingy, and he was very angry.
"...Then said the LORD, 'Doest thou well to be angry...?'
"...and (Jonah) said: 'I do well to be angry, unto death.'
"Then said the LORD, 'Thou hast had pity on the gourd, for which thou hast not labored, neither made it grow; which came up in the night, and perished in the night.'
"'And should I not spare Nineveh, that great city, wherein are more than sixscore thousand persons that cannot discern between their right hand and their left hand...?'
Posted by: Jonah | Sep 19, 2008 4:20:26 PM
mike e.,
I'm not clear on how borrowing $500 Billion-2 Trillion dollars to buy bad assets at above-market rates is the best possible path to solvency for the country and the economy. If a government were looking to contract big debts, seems like investing in, say, infrastructure or alternative energy, paying solid salaries to workers who'd then spend it might be another way to use a trillion or so. Why is it better to buy the junkyard than the BMW in this case?
I can see how this benefits the banks; to the degree that a bank's management made poor decisions and took on bad assets, their issues are forgiven. solving the average person's problems by forgiving bad managers doesn't ring true to me though. Perhaps you could elaborate.
Posted by: pmorrisonfl | Sep 19, 2008 4:26:35 PM
Barry, Why don't you explain to me why there is no open market price setting mechanism to "borrow" a stock to short?
On the long side, if there is greater demand for the stock then supply the price goes up.
On the short side, if there is a greater demand to "borrow" a stock then supply... who cares! The cost is 105% of the market value of that stock. So,, as people short, the price of the stock goes down, more people short (higher demand) the cost to "borrow" the shares goes down because the stock price has decreased. Please educate me.
Posted by: steve | Sep 19, 2008 4:28:40 PM
> The housing market needs to hit equilibrium, then we can sort everything out.
Housing will stabilize when people can afford to buy houses and keep the mortgage they buy. History suggests that this is when the income-price ratio is ~3. The current move attempts to put an artificial bottom above that level, while doing nothing to boost income. It only looks like it solves the problem.
Posted by: pmorrisonfl | Sep 19, 2008 4:30:27 PM
The NPR interview was very well done.
Posted by: Greg | Sep 19, 2008 4:37:44 PM
"rww - they had to save the financial system to save the economy.
this was a no brainer"
No . . . what you really mean is that they had to do this to save the system by which they can plunder the US citizens without them knowing it.
Look, taxpayers aren't going to pay for squat out of this. Why? B/c the taxpayers currently don't pay for squat. When you run $500 billion deficits that means you spent 500 billion MORE than the taxpayers gave you. So we have just spent $1 trillion MORE than the taxpayers give.
EVERYONE will pay for this by higher prices overall. Stealth tax.
It's all funny money anyways, so they had to do this to save the FRN/Fed Reserve System, so that those who are in power can stay in power.
This isn't to save the economy . . .it's to save the privileged who run the economy.
Posted by: Shane | Sep 19, 2008 4:51:37 PM
Seeing what America has become...one can understand how the Nazis managed to get to power: the german middle class was brought to its knees during the great inflation of the 1920s, just as the american middle class is being brought to its knees now by the financial elites of Wall Street. You live in an Orwellian nightmare. I used to admire the USA...now I despise it...and I am scared of it.
Posted by: ItIsTooLateToWakeUpAmerica | Sep 19, 2008 4:51:58 PM
pmorrisonf,
Good point . . . it's about as stupid as what happened in the 30s. Gov. buys up excess food to support food prices and farmers while US citizens starve-not b/c of we didn't have food but b/c the gov. wouldn't all prices to fall.
Maintaining artificially high prices will ALWAYS lead to shortages. Geez . . . didn't anyone ever study basic economic principles of supply/demand charts . . . my gosh.
Posted by: Shane | Sep 19, 2008 4:58:28 PM
Is it just me or are others simply shocked that while Barry, Schiff, Faber and Jim Rogers are proof that this country has some very intelligent people, we Americans ALWAYS seem to have complete idiots running our government and business news networks?
Really amazing
Posted by: dkane | Sep 19, 2008 5:00:07 PM
