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SEC: Ban All Short Selling

Here is tonite's theater of the absurd SEC headline: 

SEC intends to temporarily ban short selling, but it's not clear if the commission has approved the move. Cox is briefing congressional leaders. Separately, the government is seeking congressional authority to buy distressed assets.

This is nothing short of a total panic by people who have no clue what they are doing. And to think, I mocked Russia for being a nation run by market commies.

This is the ultimate bailout attempt, which will have repercussions far far beyond our imaginations:

1) We suffer a loss of Market Integrity; The US is now a Banana Republic

2) Blatant market manipulation: this is nothing more than an attempt to force markets higher;

3) 60 days prior to a presidential election? This is a none-too-subtle attempt to influence the elections -- especially coming on top of the Fannie/Freddie bailout;

4) The coming pop will create a huge air pocket, ultimately leading to us crashing much lower;

5) Expect a huge increase in volatility -- upwards first, then down;

We Are A Nation of Morons, led by complete Idiots, making us complicit in our own self destruction.

Bloomberg:

Financial regulators in the U.S. and U.K., attorneys general in New York, Texas and Connecticut, and the three largest U.S. pension funds are cracking down on short sellers in the wake of the collapse of Lehman Brothers Holdings Inc. and American International Group Inc.

Hedge funds and investors who profit from share declines are being scrutinized after a crisis of confidence in the financial industry erased more than $3 trillion from stocks globally this week. Goldman Sachs Group Inc. and Morgan Stanley, the only remaining independent securities firms on Wall Street, suffered the worst-ever declines yesterday. Morgan Stanley's chief executive officer, John Mack, said short sellers may be spreading false information and using abusive tactics to attack companies.

"You have to enforce the rules with regards to short selling,'' said Mario Gabelli, who oversees about $28 billion as chairman and chief executive officer of Gamco Investors Inc. in Rye, New York.  "Shorts were running amok.''

The U.S. Securities and Exchange Commission said it may require hedge funds to disclose short-sale positions and plans to subpoena their communications, while the Financial Services Authority in the U.K. banned short selling financial shares for the rest of the year.

New York Attorney General Andrew Cuomo began an investigation into whether bears illegally drove down stock prices of financial firms. The California Public Employees' Retirement System and the New York State Common Retirement Fund decided to stop lending shares for short sales, after a similar move by the California State Teachers' Retirement"

Marketwatch:

"Gathering anger over short selling of vulnerable financial stocks exploded into the open Thursday as top market regulators and industry giants took steps to limit the practice and begin investigation into possible abuses.

Britain's stock market regulator on Thursday banned short selling in financial companies and said it might extend the ban to other sectors. The move followed the Securities and Exchange Commission's curbs on the practice that went into effect Thursday morning.

In other steps aimed squarely at the bearish practice, the country's largest pension fund, the California Public Employees' Retirement System, said it was taking steps to limit the practice on three financial stocks and the New York attorney general called for a wide-ranging investigation of the short selling of some prominent financial companies, including Goldman Sachs (GS) and Morgan Stanley (MS) . The concerted reaction followed two days of sharp declines in global stock markets, triggered by mounting fears that the credit crunch would spin out of control and deepen the financial crisis. As stock declines have deepened, the role of short sellers has come under fire."

And then there is this from Tom Brown, long and wrong all the way down:

"The moves should help restrain the abusive short-selling practices lately rampant in the stock market," said analyst Thomas Brown of Bankstocks.com. "Short sellers can no longer deceive their brokers about their intention or ability to deliver shares."

Sources:
Short-Selling Crackdown Extends to New York, London
Michael Tsang
Bloomberg, Sept. 18 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQeq1yaXSHzQ&

Regulators, industry giants seek to curb short selling
Matt Andrejczak,
MarketWatch,  5:48 p.m. EDT Sept. 18, 2008
http://tinyurl.com/banshorts-upyours

Thursday, September 18, 2008 | 07:50 PM | Permalink | Comments (257) | TrackBack (4)
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Comments

and they will ban long selling too

this is freaking funny like how the marx bros would do it

Posted by: jujutrader | Sep 18, 2008 7:56:49 PM

100% agree. This is not solving the root of the problem. Just a short term band-aid which is what our govt is good at.

Posted by: manhattanguy | Sep 18, 2008 7:56:53 PM

nothing more needed to be added to that.

People may care to reread what BR said.

Hey, How 'bout them Cowboys!?

Posted by: Mark E Hoffer | Sep 18, 2008 7:58:46 PM

So if they ban short selling how can we get around that rule?

Posted by: Owner Earnings | Sep 18, 2008 7:59:12 PM

there once was a commissioner named Cox
who was chastised by Mccain and his fox
He did retort
they shall not short
Now i must put against the box

Posted by: jujutrader | Sep 18, 2008 8:01:42 PM

Maybe they figure the British know what they're doing and since the British have decided to ban short selling we should do that too or maybe ...

Oh jeez.

Posted by: RW | Sep 18, 2008 8:01:47 PM

My first comment would be no sh*t and second would be duh.... So blaming the poor peolple didn't work.

Posted by: JPL | Sep 18, 2008 8:04:50 PM

What world am I living in? This is crazy.

Posted by: The Stock Speculator | Sep 18, 2008 8:05:27 PM

Barry's comments are an understatement. Only those more stupid in my opinion are the longs that fell for this dead..er USA bounce!

Posted by: Mike G | Sep 18, 2008 8:05:54 PM

Can't you "syntheically" short via Put buying? Removal of short sellers removes a vital part of price liquidity resulting in more violent price swings. This will be good for option buyers and bad for sellers won't it?

Posted by: Brett | Sep 18, 2008 8:05:54 PM

Why don't they just quit the middle man and assign the share prices that they want. God bless Amerika

Posted by: jujutrader | Sep 18, 2008 8:06:21 PM

What will they think of next?

(Study German History circa 1929...)

Posted by: Paul Jones | Sep 18, 2008 8:06:46 PM

When shorts are outlawed, only outlaws will have shorts

Posted by: Pool Shark | Sep 18, 2008 8:08:39 PM

This market will easily pass 2300 mark again... When it will come crashing down again, we'll wait, watch and see

let's enjoy the ride up

Posted by: Mich(^IXIC1881) | Sep 18, 2008 8:09:20 PM

No problem. I'll take my hit but won't go long anything but gold. The bastards need to start flipping burgers.

Posted by: notsofastfriend | Sep 18, 2008 8:09:22 PM

When "they" came for and trapped Goldman Sachs, and were moving in for the kill, Paulson takes out the nuclear bazooka to save the "masters-of-the-universe".

Posted by: godot10 | Sep 18, 2008 8:12:24 PM

If I can't short borrowed shares that means I am not around to buy them back when a poorly run company heads down... that much faster cause I am not around to buy the shares back slowing the the plunge. What morons!! So now I just buy Puts, short calls, and exercise my options as the price falls. I will say it again MORONS our stukid gubermint.

Posted by: ScaredShort | Sep 18, 2008 8:12:54 PM

anybody want to start a secondary market for existing short positions. just bot rentmyshort.com

Posted by: jujutrader | Sep 18, 2008 8:12:59 PM

And tomorrow is options expiration. I'm sure it is just coincidence.

Of course it was calculated specifically to occur on expiration day.

It's all about personal gain for Hank and Ben.

Posted by: Shawn H | Sep 18, 2008 8:13:19 PM

what will they think of next? well, how about banning any, repeat, any trade lower than the one preceding it. In other words, no transaction could happen unless it was either the same price or above the previous transaction. damn I'm smart. I should be running the show.......

Posted by: cloudy | Sep 18, 2008 8:15:26 PM

Complete insanity. Complete lack of understanding of how markets work. Why isn't Bernanke putting the kabosh on this? Isn't he supposed to be some sort of expert on the depression? Scapegoating short sellers (they were often referred to as "plungers" back then) didn't change anything then and it won't change anything now.

Posted by: fred | Sep 18, 2008 8:15:49 PM

So I was just re-reading Jesse Livermore's book for the umpteenth time and just last night I came to the part about one of his classic stock operations. It was really the last great stock corner on wall street. In this case, he was trying to help a business acquiantance unload a lagging stock (Grocer called Piggly Wiggly) at a really great price (Piggly was a recent $50 IPO and had fallen to $35). So he started buying up the stock until it reached $70. Many other professional traders became aware that something was going on and knew a distribution was taking place. So they started shorting the stock. The grocer then said "okay, let's show no mercy and lay it to 'em, I'm going to take delivery of the stock and squeeze them all out!" But a lot of those other traders were friends of Livermore's and he refused to deliver the shares. The grocer, very upset, broke off the deal with Livermore and then called for delivery of the stock. It jumped from $70 to $124. Later, a mysterious rumor started circulating that the grocer had cornered the stock and trading was suspended. When it reopened, Piggly fell like a stone. In the end, the stock was exposed for what it was and the grocer went bust.

The manipulation of our market has been egregious enough but today was totally outrageous! Having the pensons take delivery and banning short-sales....What are the reprecusions of serving up the shorts on a platter for wall street. This is so insane, I never thought it would come to this!

I bet Paulson was on the phone to Goldman today to tell them to all the insider tips they needed for quadruple witching day. A large piece of the $1 trillion in wealth probably went straight to their balance sheet. Not a bad way to raise capital! Anyway, what I love about the rest of this story is the ending. Jeff Macke probably said it best....this isn't even a market folks, all this manipulation can make a market jump, but not fly.

If the market doesn't follow through hard with this news, you'd better get out of stocks!!!

BP2

Posted by: Boy Plunger 2 | Sep 18, 2008 8:16:08 PM

If a ban goes into effect, what about inverse ETFs such as QID and put options? Will they be affected?

Posted by: rational | Sep 18, 2008 8:16:27 PM

"Morgan Stanley's chief executive officer, John Mack, said short sellers CEO's may be spreading false information and using abusive tactics to attack support [insolvent] companies."

Fixed that for ya there jack...

Posted by: Pool Shark | Sep 18, 2008 8:18:12 PM

Barry, I have to take exception to what you wrote: "We Are A Nation of Morons, led by complete Idiots, making us complicit in our own self destruction". This is bullshit; McCain and Palin have not been elected yet.

Whoever overly politicized this blog by saying "VOTE FOR OBAMA! VOTE FOR OBAMA! VOTE FOR OBAMA!", I would like to kick his ass.

Posted by: CNBC Sucks | Sep 18, 2008 8:19:06 PM

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