Friday, September 19, 2008

World's New Banana Republic?


Late this evening, the SEC is thinking of following the FSA's move and temporarily ban short-selling:

Amid the spiraling market crisis and mounting pressure from lawmakers, the Securities and Exchange Commission is considering taking the dramatic step of temporarily banning the routine practice of betting against company stocks.

The move, if taken by the SEC, may well be unprecedented and a reflection of regulators' concern about the widening scope of the financial crisis as entreaties come from all quarters to stem a swarm of short-selling. A recent wave of the market maneuvers _ profiting by selling unowned shares of companies in the anticipation their prices will drop _ has been blamed in part for the demise of venerable investment firm Lehman Brothers and other big companies.

SEC Chairman Christopher Cox, Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke held a closed-door meeting Thursday night with members of Congress. Cox told the lawmakers the SEC may put in a temporary emergency ban on all short-selling _ not just the aggressive forms it already has targeted, according to a person familiar with the matter. The ban might apply to stocks of selected financial companies, to all financial companies or even possibly to all public companies.

The person spoke on condition of anonymity because the possible action by the SEC hasn't been publicly announced. Cox and the other four SEC commissioners were meeting Thursday night to consider the plan and it wasn't immediately clear if and when it might be approved.

After the meeting at the Capitol, Cox told reporters "a great deal of regulatory change is in the works to address these problems." He declined to discuss specific possible steps on short-selling.

Operation "AIG" (see below) will kill the hedge fund industry, reward stupidity and pathological greed on Wall Street and ultimately ensure more chaos down the road.

Is this the world's greatest market economy? It looks more like another Banana Republic to me!

***

Morning update: World stock markets are soaring as it's now official: the SEC temporarily bans short-selling. Moreover, Treasury Secretary Paulson and Fed Chairman Bernanke said they're putting together plans to halt the credit-market seizure.

I quote the following from James Chanos, president at Kynikos Associates Ltd., the $7 billion hedge fund based in New York that specializes in short selling and opposes the regulations:

"We seem to have capitalism on the upside and socialism on the downside,'' Chanos, one of the first to raise questions about Enron Corp.'s accounting, said on Bloomberg Television. "That's a pretty heady brew for country that holds itself out as a free market paragon.''

Chanos said his firm isn't shorting any of Wall Street's largest investment banks and is the "least short the financial sector as we have been in three years.''

And this comment from a trader on Yahoo:

"...this bailout is a joke. There is no free market. They are just propping up the bubble, extending the time we will need to start anew. They have completely thrown away the idea of moral hazard and they reward those most responsible for the countries woes. It is truly a country for and by the corporations."

Finally, make sure you read the Financial Ninja's post, Disgusting Super Spike:

After this, the markets will absolutely crash… and for the first time in a long time, you’ll see ‘NO BID’ in even the most liquid stocks after this squeeze sorts itself out.

And via Slope of Hope: Sorry About All That:

“As I woke up this morning, I realized I owe American an apology.

I'm sorry I put Lehman Brothers out of business. And Fannie Mae. And Freddie Mac. As well as Bear Stearns. Come to think of it, since I've been trading a while, I also want to apologize for the destruction of HealthSouth, WorldCom, and Enron.

I used to think their failure was due to their own wreckless mismanagement by people paid hundreds of millions of dollars. But, assuming we live in a rational world, the cold fact of the matter is that by selling the stock of these companies, and then buying it back at a lower price, I put them out of business.

I hope that Dick from Lehman, Mr. Cox from the SEC, and all the other gentlemen (including the late, great Mr. Lay from Enron) can find it within their little black souls to forgive me. Thank you for your consideration.”

Ridiculous. Just ridiculous.

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