Short Sellers not to blame

Discussion in 'Finance, Property, Law' started by SixBadges, Sep 19, 2008.

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  1. "Speculators and hedge funds turn our markets into a casino" - Sen. John McCain
    "Basically a bunch of short-selling spivs and speculators" - Alex Salmond
    "Hedge fund wolf packs shorting British banks" - (arr.) Vince Cable/Lord Oakeshott

    Populist politicians have wasted no time in jumping onto the tabloid bandwagon, started by the Daily Express and the Daily Mail, in denouncing short selling as the reason behind our financial woes. Politicians should look closer to home if they wish to apportion blame......

    Short selling is a financial instrument used by derivatives traders (the most skilled traders in any company). Derivatives are used to "hedge" the large risks taken by banks and fund managers in order to increase efficiency. These profits can now be passed on to the consumer in the form of cheaper mortgages and 0% balance transfers on credit cards - making for a big, happy business which contributes to the national economy.

    Unfortunately, the economy in Britain has been propped up over the last decade by an over-inflated property market, and damaged by a government which has borrowed more than it can afford to repay. Gordon Brown's artificial manipulation of the economy in order to maintain the illusion that he conquered "boom and bust" has led to a larger than expected exposure to the credit crunch - the British economy is now paying the price for years of mis-management.

    Every report that I have read blaming "short selling" comes from someone who clearly has little idea of what short selling is. When you point the figer, there are three pointing back at you. :x
  2. Short selling is an effect, not a cause. Something is already happening before the shorting begins. The traders who short come in when the signs are that a company shares look as though they are going to go down sharply for one reason or another, usually bad management or market conditions. However, they can actually help to even the market out, because they have to buy back in again later to meet their contracts. In an uncertain market that is gumming up they can actually put liquidity and money in to keep things going. What the politicians are doing is like blaming the lifeboat men for ships sinking. Most of the recent selling is from regular investment companies unloading dodgy bank shares.
  3. Not to forget the shenanigans at Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC):


    The average American doesn't have a clue as to what these organizations are or how they have contributed to the Wall Street global meltdown of late.

    And the organizations' problems have been known for years ... yet "Washington" did nothing. Both parties are guilty.

  4. The new boogie man in the room the short sellers.

    Politicians are so fast at pointing fingers everywhere but at themselves. This melt down, at least in the US, is because the same clowns blaming everyone but themselves enacted legislation to allow those that couldn't get a mortgage to qualify (Community Reinvestment Act), they also set up Fannie and Freddie as quasi govt. agencies and put them under congressional oversight, and staffed it with the likes of Raines.

    Am ready to load up the gun rack sharpen the pitch fork and light the torch and make a trip to DC...those same clowns that caused this mess have fled DC like rats from a sinking ship.
  5. Financial commentators seem to agree, which makes the FSA position confusing. They have imposed a four month ban on the shorting of financial stock and require investors to disclose their net positions (over 0.25% of share cap) - this is akin to asking poker players to reveal their hand.

    I can only imagine that the FSA is playing for time, by giving a sweetener to the (opinion poll obsessed) government before the review on January 16.

    As a long view, decreased gearing will lead to greater stability; but will the emphasis away from leverage include index trackers - surely equally to blame?
  6. If someone sells you a crap deal who is to blame?

    The person selling you it, or the person buying it?

    Bearing in mind that short sellers sell to others who are in the market, who should know why these shares are being sold, or at least an inkling in to the reasons.
  7. Exactly. The whole mess has been caused by governments and banks. Intervention by the government now is only delaying the inevitable meltdown. We aint seen nothing yet :D

    Edited to add:

    Here's the full thread link on the short selling ban on GEI

    I particularly like this quote:

    The last time short selling was banned was 1929 - just before the Great Depression.
    This move has the potential of doing the same thing.
  8. It's all bollocks. Banning short selling is a side show

    Short sellers target a fundamental weakness in a company. They do not create the weakness. Short selling is important in that it punishes management in a way that long only shareholders do not. It also provides liquidity to the market.

    The fact is that we have a financial crisis which is in danger of becoming an economic one.

    This financial crisis was created by too much cheap money in the system post 9/11 (thanks benanke!) and investment bankers making highly levered property and loan investments off balance sheet, which allowed them to make sh1t investments and still get paid to structure them because somebody else would be left holding the baby. lehman went down because the were so crap that the only thing they could be a market leader at was property, where others werent doing it for a reason, and because Dick the Gorilla Fuld didnt understand the issue of 'price'......
  9. Biped

    Biped LE Book Reviewer

  10. My Bold

    Secretary Paulson on Bloomberg yesterday had all look of 'shark bait' to me... Still he cannot turn round nor can the federal Government and say the truth that the markets have done this to themselves, and the markets must fix themselves.

    Personally i don't believe a band aid bail out will work, as the big players are just smelling the blood in the water ready to make another big killing. And we go round in a big ole circle.
  11. And now even the Church of England are blaming the Short Sellers - Are all of these people completely ignorant or are they settling like vultures on a non-existent bogeyman?
  12. I have a degree of sympathy with the view that short-selling is not an honourable way of doing business because, in the normal world, if you sell something you don't own, that is theft.

    However, in the financial markets, everyone understands (or should...) that is what happens, and the ability to short a share allows someone to take a view that a share is overvalued.

    If I think a share is overvalued, I can buy a traded option "put" that allows me to profit if I am right! My money helps the liquidity in the market which helps oil the wheels.

    What happens when liquidity drains out of the system?

    Look around you; disaster and job losses!

  13. Short selling is and always has been part of the market... the problem as always is when you market becomes the only game in town and not one of the games in town! IMHO we 'the west' for want of a better generation have become too over reliant on the markets, and i class housing as a commodity primarily rather than housing for a place to live as the main source of wealth generation rather than industry etc!
  14. Very true.....the British economy has been propped up by the housing market for far too long. This is not a recession; it's a reality check.