Terror Attack on US Financials? Details of SEC Short Ban
Last night, we discussed the absurdity of banning all short sales. The details of the SEC action have been released (see below). The specifics are a "temporary halt in short selling in 799 financial institutions" until October 2nd.
I have been trying to contextualize this, and I keep coming back to what seemed like a wild theory yesterday that seems a whole lot less wild today. During the day, I had an interesting phone conversation with Joe Besecker of Emerald Asset Management. (We used to do schtick together on Power Lunch, and made for an amusing financial comedy team).
But Joe is a good money manager, a great stock picker, and a thoughtful guy. He raised an intriguing issue: None of the many hedgies he knew were pressing their bets recently. The bear raids on the banks and brokers were NOT a case of piling on by US based hedge funds. And from what he was seeing and hearing about in terms of order flow, the vast majority of the financial short selling the past week or so were being done overseas. It appears that the lion’s share of shorting was coming out of overseas bourses such as London and Dubai.It may not be a coincidence that the financial short selling ban is both here and in London.
Then there is another coincidence: The huge increase in shorting of the financials occurred on the anniversary of 9/11. And on top of that, the same institutions attacked on 9/11/01 were the ones suffering in recent days.
Joe asked the question: Is anyone investigating whether this is a case of financial terrorism? He wanted to know if someone was at least looking into this question (Joe is buds with Jim Cramer, and mentioned it to him, who then omitted to cite in his column that this was Joe’s theory, not his own).
Anyway, its an interesting theory, one that seemed kinda out there — until last night’s emergency action. Nothing else really explains the insanity of banning short sales — except for Joe Besecker’s questions. I can think of only 3 other possibilities that explain this insane action:
1) Extreme idiocy and incompetence — not unthinkable ftom the gang that couldn’t shoot straight in DC these days;
2) Following the impetuous Fannie/Freddie rescue, the timing of this certainly has political overtones. We will see if it gets extended a month from October 2nd to November 5th.
3) Some other factor, possibly financial terrorism.
I can think of no other explanations for the dismantling of the free operations of trading markets.
~~~
The grand irony of all this is that Naked Shorting has been very profitable for the big broker dealers, like Morgan And Goldman and Merrill and Lehman. They have looked the other way for years, and the SEC has been AWOL on this issue.
Short sales require a locate (shares to borrow) and then a subsequent delivery. It should take less than 3 days to deliver the borrowed shares, but instead, delivery is often delayed indefinitely. Failure to deliver leads to a margin charge, which can be as high as 9-15%.
If you want to know who to blame for the past 5 years of naked shorting, you only have two places to look: The Financial brokers themselves, and the nonfeasance of a feckless SEC.
Previously:
SEC: Ban All Short Selling (September 18, 2008)
http://bigpicture.typepad.com/comments/2008/09/sec-ban-all-sho.html
Sources:
SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets
SEC Chairman Christopher Cox
FOR IMMEDIATE RELEASE 2008-211
http://www.sec.gov/news/press/2008/2008-211.htm
SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets
FOR IMMEDIATE RELEASE 2008-211
Commission Also Takes Steps to Increase Market Transparency and Liquidity
Washington, D.C., Sept. 19, 2008 — The Securities and Exchange Commission, acting in concert with the U.K. Financial Services Authority, today took temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market and strengthen investor confidence. The U.K. FSA took similar action yesterday.
Additional Materials
- Emergency Order, Release No. 34-58592.pdf
- Emergency Order, Release No. 34-58591.pdf
- Emergency Order, Release No. 34-58588.pdf
- Form SH
- Form SH Instructions
The Commission’s action will apply to the securities of 799 financial companies. The action is immediately effective.
SEC Chairman Christopher Cox said, “The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets. The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets. This action, which would not be necessary in a well-functioning market, is temporary in nature and part of the comprehensive set of steps being taken by the Federal Reserve, the Treasury, and the Congress.”
Today’s decisive SEC action calls a time-out to aggressive short selling in financial institution stocks, because of the essential link between their stock price and confidence in the institution. The Commission will continue to consider measures to address short selling concerns in other publicly traded companies.
Under normal market conditions, short selling contributes to price efficiency and adds liquidity to the markets. At present, it appears that unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation. Financial institutions are particularly vulnerable to this crisis of confidence and panic selling because they depend on the confidence of their trading counterparties in the conduct of their core business.
Given the importance of confidence in financial markets, today’s action halts short selling in 799 financial institutions. The SEC’s emergency order, pursuant to its authority in Section 12(k)(2) of the Securities Exchange Act of 1934, will be immediately effective and will terminate at 11:59 p.m. ET on October 2, 2008. The Commission may extend the order beyond 10 days if it deems an extension necessary in the public interest and for the protection of investors, but will not extend the order for more than 30 calendar days in total duration.
The Commission notes today’s similar announcement by the U.K. FSA. The SEC and FSA are consulting on an ongoing basis with regard to short selling matters and will continue to cooperate in carrying out regulatory actions.
The Commission also has taken the following steps to address the recent market conditions:
- Temporarily requiring that institutional money managers report their new short sales of certain publicly traded securities. These money managers are already required to report their long positions in these securities.
- Temporarily easing restrictions on the ability of securities issuers to re-purchase their securities. This change will give issuers more flexibility to buy back their securities, and help restore liquidity during this period of unusual and extraordinary market volatility.
http://www.sec.gov/news/press/2008/2008-211.htm
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September 19th, 2008 at 6:34 am
The ‘financial terrorism’ theory most likely is nothing more than an invention of the powers that be (Wall Street and their servants: the USA government) to justify the robbery of the century, that is, forcing the taxpayer to pay for the sins of the financial elites thru a RTC kind of ‘solution’. Never thought the USA could fall so low.
September 19th, 2008 at 6:46 am
The most insane and idiotic thing that the SEC has EVER done. This will come back and its going to come back with a vengeance and fury that we have never witnessed. Take your gains and get the hell out of this market.
September 19th, 2008 at 6:54 am
Terrorism? That is just an excuse to change rules when they government feels like and take away rights from citizens.
People will leave Banana Capitalism and take their money elsewhere. I vote for possibility one. .-)
September 19th, 2008 at 6:58 am
The SEC action may be maddening but the suspicion of terrorist activity is not the least bit crazy. Wall Street has been the primary target of bin Laden from the start. The garage bombing at the WTC didn’t work so the bastards tried another method that succeeded.
Remember too that bin Laden comes from money. He may live in a cave (or pretend to) but he can easily move among the elite because he grew up in that world. There’s limitless wealth in the Middle East and their ability to manipulate financial markets cannot be discounted.
“No one ever imagined” has been proven wrong again and again.
September 19th, 2008 at 7:02 am
Good morning fellow Pakistanis…
I think I will go out and beat my rented mule this morning….
September 19th, 2008 at 7:04 am
provocative idea, though, if ‘officialdom’ is going to run with it, I’d think we’d be best served by having the SEC port, the data from, the trading runs directly to the web for multi-”3rd-party-verification”.
(as if they really had such a handle, on things, as they claim)
though, I tend with the “convenient” postulate..
http://www.thefreedictionary.com/convenient
September 19th, 2008 at 7:09 am
Funny, I had lunch with my financial adviser today. We live in Tokyo and all of his clients are non-Japanese (mainly Americans and Brits). He was telling me about the hectic couple weeks he’s had–mainly about how his usually aloof and docile clients were acting like raving lunatics telling him to either buy Lehman or short it because they had “inside information.”
Financial terrorism??? Please, BR, you can’t be serious!?!? Stop hanging with “friends of Cramer’s,” that’s bound to bring some unwanted, unneeded stress and downright ickyness….
September 19th, 2008 at 7:12 am
Hi Barry,
this “financial terrorist theory” is just nonsense. I thought you had more common sense than that.Its always nice to blame “external forces” when someone is losing money,that way no-one can prove or dissprove it. Just look at the other markets like Brazil,Russia, China, India, Hong Kong,these markets are way down but we don’t hear anybody over there complaining about “financial terrorism”!Pls..this “financial terrorism” excuse is so lame.
~~~
BR: 1) Its not my theory, I am passing it aloing.
2) I posited 2 of my own possible theories
3) What is your explanation? I am at a loss . . .
On a related note, “insights” such as this about my credibility, when musing on current issues, from 1st time posters aren’t even worth a bucket of warm spit . . .
September 19th, 2008 at 7:18 am
The Government is going to nationalize all the bad debt.Problem solved!
September 19th, 2008 at 7:18 am
Totally plausible, yet it’s amazing that those brilliant, sophisticated terrorists would not want the alleged Muslim elected President of the US!
September 19th, 2008 at 7:19 am
ho ho ho. This is a master stroke, and its funny to see some people actually falling for this theory. maybe we can even get some people to buy stocks. ‘buy stocks coz’ its patriotic’ :)
September 19th, 2008 at 7:26 am
I think it’s totally plausible and probable and I have been short selling since last fall. I was trading through LTC, Asian Contaigon, after 9-11, dotcom crash, bear market of 2000-2003 and I have never seen anything like what has gone on in the past week. Nothing even close. Northern Trust down 27% instraday? Goldman practically liquidated in front of our eyes? Come on! That does nothing but damage to US traders and the market.
And someone please figure this one out for me. Why is the ultrashort financial (SKF) under the 200 dma despite this carnage in financial stocks? Why at a time when the S&P made a signficantly lower low than in July did SKF make a 58 point lower high?
September 19th, 2008 at 7:26 am
WOW, I though we here in Dubai was bad. Socializing losses, nationalizing bad companies, banning short seliing/ phorbidding capitalism&free markets…… wait til the inflation consequences hit….. the FED is printing money like no tomorrow to bail out the financial institutions…this is very inflationary….
The Republicans have the GALL to claim Obama is a socialist…. the GREATEST Socialist is BUSH 43….. What would Jesus Do?
$$$ Sheik
September 19th, 2008 at 7:31 am
Barry, Barry are you going as nuts as Cramer. It’s no wonder your buddy hangs out with that weasel. I’ve no doubt this bit of insanity will be all over talk radio during the next 24 hours, they go for this sort of nonsense you shouldn’t. The ban is a measure of desperation of course but since it’s done wonders for some of my long positions in Euro banks I’m not going to look a gift horse in the mouth. We’re clearly going to see another big rally but it’s going to fizzle over the next week but a combo of the ban and the pending huge bailout which is going to cost hundreds of billions have effectively ended the danger of a complete market implosion which I never thought was going to happen because it was obvious the govt was going to do whatever it needed to do to prevent it. That said it doesn’t change the essentials of deleveraging by financial institutions and Joe Sixpack and this is going to keep the economy in the doldrums for the next 18 months. I’m going to interested to see what Roubini has to say about all this.
September 19th, 2008 at 7:31 am
Just wondering. Do Kudlow and the other Republican oddballs still want to privatize social security? Are they working for the terrorists, or are they just easy to use as dupes?
September 19th, 2008 at 7:33 am
After the first attack on 9-11 we were all suposed to go shopping. Now we must go long!
September 19th, 2008 at 7:36 am
What a load of crap. So did Obama,..a I mean did Osama master mind the flipping houses pyramid scheme,…then packaging all this toxic crap into CDO’s, then….leveraging to the hilt on the garbage??? Too funny!
No doubt these financial geniuses have brought thi country too it’s knees and it’ not the Middle East I worry about.
September 19th, 2008 at 7:37 am
The other day you called idiot someone for blaming short sellers of what was happening.
There goes your headline for today
Clueless Fund Manager of the Day: Blaming Middle East Financial Terrorist
September 19th, 2008 at 7:43 am
I’d be more worried why Congress seems to have no say in economic matters anymore. You may laugh but they are supposed to be the representatives of the people and not just the bankers. Of couse, Congress has it’s share of incompetents and buffoons. And Congress is a tool of lobbyists. However, have the bankers representatives proven to be any less buffoonish and incompetent? And note that the lobbying that the members of Congress undergo is nothing compared to that of Paulson and the Fed. Plus, the members of Congress do have to get elected so there’s a more direct responsiveness to the general public in congress then in the Banker’s Club.
What we have are economic decisions made for the bankers and by the bankers. Economic decisions made completely out of the public eye. The decisions are made not by wise philosopher-kings with the interests of the people of the nation in mind but by greedy swindlers. The same greedy swindlers that have proven time and time again they are not to be trusted with too much economic power.
September 19th, 2008 at 7:44 am
Hey, John if you want to go shopping, SKF is currently in the bargain bin at $93 ask.
Last time it was that low, the S&P was over 1400. I said a few weeks ago I wouldn’t be surprised to see 1400 again before the election and I still think that. Didn’t expect a trip to 1140 first but it is what it is.
Buy the SKF if you think this is bogus. It’s on sale!
September 19th, 2008 at 7:45 am
Yeah, that’s it. ‘it was those non christians that did it’. Jeez what a croc. But to move on: I hear that the USSA will be buying mortgages. Do they mean MBS’s? and how will they be priced, now that uncle sugar is in the deal?
September 19th, 2008 at 7:48 am
I know Joe Besecker and he is one of the biggest idiots Ive ever met and Emerald is one of the worst money managers i know of. Barry…you have got to be kidding…..
September 19th, 2008 at 7:54 am
The financial terrorists are Greenspan, Moodys, S&P, Ambac, Morgan Stanley, etc. Round them up and send them to GitMo.
September 19th, 2008 at 7:57 am
Operation Wall Street Freedom has begun.
September 19th, 2008 at 8:00 am
Things are all right…I go to the US Economic High School, and things don’t seem to have changed much. Did notice this morning that they sent the short bus, and we had a bunch of new kids and a new driver.
I liked him though. Driver’s name is Mr. Cox, and he says just call him Midas. All his friends do.
Sat by a kinds goofy looking kid in the back, little Paulie. Kept playing with a big plastic gun of some kind. Nice guy though. Taught me a new song, “I love you, you love me, we’re just one big family…” at least I think that is the way it went.
Did feel sorry for one of the kids though. Ben. Kids teased him unmercifully. Seems his big brother Al used to ride the short bus, and this kid used to give out free candy to everyone on the bus. Ben gave out candy for awhile, they tell me, but now he only gets to bring one or two pieces each day, and the kids who don’t get any get really mad. They seem to be the dumbest ones, and they make the loudest racket.
Gotta go, we have arrived at school…maybe I will tell you how my day went tonight.
September 19th, 2008 at 8:00 am
Meanwhile, the USG is actively investigating all of those feckless tax evaders in Switzerland and elsewhere. So while the gov’t has a ‘kung-fu grip’ on all of those bad guys, they still can’t get a hold on all those short sellers….? Hmm….did the US REALLY land on the moon…and what IS in Hangar 19…??
Thank goodness the MICEX is up 22. 5% today. The center shift to the East has begun (pipe in evil laugh ‘muhawawawaw’)…
September 19th, 2008 at 8:05 am
To Ponziq:
Congress will have no disagreement on the short selling ban and the US Government becoming a real estate development company through the new RTC construct. The reason is that – just like on offshore drilling – the Republicans are going ALL-OUT in leveraging its mastery of an uninformed and uneducated American electorate. The Republicans have gone so far to make short selling an issue of patriotism, so what can the Democratic Congress do but nod its head?
As a former Republican, I have never appreciated how stacked things are against a Democratic President running for Congress. Why did I ever sweat out those past elections when my Repugs were preordained to win? It is so easy to manipulate Joe Sixpack into voting against his economic interests. You can run the US economy into the ground at will and still just blame the Democrats with shallow words and simple concepts to get re-elected.
I will stop since I don’t want to overly politicize this blog like that idiot who kept ending his comments with “VOTE FOR BARACK OBAMA”.
September 19th, 2008 at 8:06 am
The terrorism is what we’ve done to ourselves, ala AIG, et. al.
If the national security agency can detect financial terrorism, why can’t they find out who is doing it and through which firms? Iran? Saudi Arabia? Can a prime broker in China naked short US stocks?
I saw Cramer make the terrorism claim on TV yesterday and I turned him off. Cramer is the terrorist, really.
No,this is more like our military trying to fight a war on 10 fronts. Impossible for the military; impossible for Fed/Treasury without devastating/bankrupting USA.
This smacks of how we went to war in Iraq. Show me some proof.
Or is it the SWFs just trying to make back all the money they’ve lost recently.
If stocks were being sold to unreal levels, doesn’t that mean they were screaming buys?
If you go to FDIC website, they describe the difference between money market funds and money market deposit accounts. There are alternatives to money market funds if people want. We don’t need to insure them. If we do insure them, are we going to insure for a worst case scenario?
Instead it sounds like we are going to buy the worthless, worthless CDSs and RMBS, etc. Marked down to 20 cents on the dollar, it will still be worthless=zero-in the end. Cost of trillions.
Next year will we set up an RTC for credit card debt?
The groupthink on this stuff is incredible. Everyone thinks this is the way to go. If it makes the stock market go up, it must be good.
September 19th, 2008 at 8:09 am
How about synthectic shorts i financials, through ETFs or futures? Is that also banned.
And how if the ADR is banned but the ETF holds the ordinary, does anyone know it if applies to ordinary shares of ADRs that are banned?
thanks
September 19th, 2008 at 8:10 am
>>>Short sales require a locate (shares to borrow) and then a subsequent delivery. It should take less than 3 days to deliver the borrowed shares, but instead, delivery is often delayed indefinitely.
Why isn’t there a open market for this? i.e. a “short right” that is bundled with a long. You can then have a open market for the “short right” hence during a period of market turmoil the cost to short increases & there is no such thing as “naked”. Plus you know who is possibly shorting a stock, right now it’s all the province of the druids of wall street.
September 19th, 2008 at 8:11 am
I put some orders in to see…
I can’t short any of the 799 companies..
I can short financial ETF’s.
I can short alot of quasi financials like GE.
There are hedge funds that are going to go out of business in an hour and a half.
It’s going to be interesting to see what happens to option prices today.
This order puts a lot of small option traders on the sidelines.
September 19th, 2008 at 8:14 am
Childish theory that can be easily documented as brokers know the legal entities borrowing stocks.
As childish as the weapon of mass destruction fable.
As childish as erasing from wikepedia all dissertation around the K Arrow theory.
I will assume that tax payers are grown up
When are financial rumors be documented and backed by evidence?
September 19th, 2008 at 8:17 am
I’m sure Mr. Besecker is a nice guy,but performance is reality in this business…..nothing more,nothing less. In this case Emerald Asset Management is woeful. Perhaps, he’s looking for an excuse to give clients for that perfromance….who knows.
September 19th, 2008 at 8:18 am
Yeah, sure. Thanks for nothing for giving credence to crap like this.
The real financial terrorism was arrogangly perpetrated by the very companies and people who were just beginning to get their comeuppance.
September 19th, 2008 at 8:22 am
Bruce in Tennessee, I really like the school bus, keep up the good work.
txchck57. I too have traded through a lot of things and the action in financials this week was the most amazing thing I’ve seen. Except for one day: October 19, 1987. I would bet that the selling was forced liquidation of someone on a major scale; dynamic hedging gone completely wild in someone’s shop; Lehman giving the finger back to Hank and his boys at GS; criminal activity, perhaps out of eastern Europe; and maybe a lot of other things before I would get on board with this BS terrorism thing that Barry has brought up.
tomd
September 19th, 2008 at 8:22 am
This IS the EOWAWKI (end of the world as we know it), now that Barry has started spouting this nonsense. The fact that Kramer was spouting it would normally have given Barry pause – but the fact that it didn’t. Well, great reading you Barry – I guess you are turning into one of those idiots yourself – adios. Will look in from time to time.
I was short put options and hedged with partial short positions on stocks (financials no less). So, its not as if I am complaining or anything .. sheesh this makes a mockery of the free market capitalism (not that I needed this event to know it).
Adios Barry….
September 19th, 2008 at 8:24 am
@Vermont Trader – I bought some SKF 93-92. Maybe the “bad guys” will try to use that. Crazy crazy times.
September 19th, 2008 at 8:27 am
Who actually thinks the ones who got us in this mess will get us out of it?
September 19th, 2008 at 8:27 am
This “terrorism” nonsense aside, there seems to me only one sane explanation for the dual efforts of creating a Super RTC to buy MBS and the short-selling rule: the financial system must be at the verge of total collapse.
Now there is some real terror to consider.
September 19th, 2008 at 8:31 am
Think about Geo Orwell’s 1984…
… and go peruse The Cunning Realist blog. The guy writing that blog works on wall street and has been warning about the crazy stuff we’ll see ahead of the election (to goose asset prices and scare people).
It seemed a bit of a stretch a few short weeks ago… now it appears he was a bit naive, as the administration (Karl Rove?) has figured out a way to kill two birds with one stone.
September 19th, 2008 at 8:32 am
From my Washington contacts:
The terrorist were exploiting dysfunctional credit markets trying to bankrupt our financial system.
Attack a financial company with heavy artillery of naked shorting and create a selling panic => credit spreads widen => boneheads from the rating agencies issue immediate credit downgrades => these rating downgrades force a company to immediately (no time to sell assets) increase collateral => a company cannot borrow because the credit markets are frozen => more short selling and forcing a company into bankruptcy => Paulson comes out and makes sure that the shorts are rewarded and the shareholders are wiped-out
Cox (by allowing naked short selling and removing an uptick rule) and Paulson (by making sure that the shareholders do not get anything at the end) were only helping the terrorists.
September 19th, 2008 at 8:39 am
No terrorism here, just smart people seeing a gaping hole in the US financial system and driving a truck through it. Bin Laden’s evil genius appears to be his recognition of our unique ability to shoot ourselves in the collective foot. It was easy, in hindsight. Adversary has loosely regulated financial system manned by idealogues who don’t enforce the existing rules and populated with players having no internalized constraints. Add a central banker with goofball notions gleaned from a writer of bad novels. Add a population with dreams of glory and pride in its own ignorance, headed by a president that is a perfect reflection of the population. Apply one tactical blow that sets off a chain reaction of idiotic responses. Sit back and count on vultures doing what vultures do.
September 19th, 2008 at 8:40 am
You guys are looney… you don’t need to fabricate some big bad wolf out of thin air.
All you have is some very very wealthy, Harvard educated people who have had all the advantages that the United States can offer wanting to be very very very very wealthy, hence they are working diligently towards their own self-interest.
September 19th, 2008 at 8:41 am
Ok just yesterday I was praising your opinion article against ban on short selling. Now you went kaputz with this article. I think you are insane to believe this nonsense. Our govt lost control of the situation. Period.
September 19th, 2008 at 8:43 am
I think the financail teerrorism aspect is for the short sellng ban is a reach. Since our fine friends in the Middle East have been investing in our banks (Citi, Keycorp) wouldn’t it be just old fashion panic to hedge thier investments.If someone wants to look for financial terrorism why don’t they look at the SEC and the Wall Street geniuses who brought us this garbage
September 19th, 2008 at 8:43 am
BR – Please tell us you don’t actually believe this terrorism malarkey.
History shows that the financial authorities of the day have always done stupid things at times like these.
One always wants to believe that we live in an age where “we” are smart and “they” were naive and unsophisticated.
The fact is that in real time each move made always has a justification and in retrospect the stupidity of these justifications is almost always obvious.
September 19th, 2008 at 8:46 am
Remember Area 51 in the Nevada desert?
Well, that is where the shorts are coming from. Just using Dubai and London as cutouts. It’s space aliens.
Just put Cheney and Bush on a waterboard and they will tell all. Just trickle the water down their nose.
They are actually reptilian lizards who have shape shifted to appear human. McCain’s one too. Hahaha.
This is actually just another case of domestic terrorism. We let it happen.
September 19th, 2008 at 8:49 am
We interrupt this bitchfest to make a special announcement”
the SKF is making a double bottom with the prior lows in March or April (can’t remember when exactly). It’s a classic setup if you all really believe what you’re saying. I do buy the terrorism theory but I’m also buying SKF for a trade.
Just sayin`
September 19th, 2008 at 8:50 am
barry, surprised you mentioned Dubai as being a global financial centre. from my experienced, capital markets there are considerably underdeveloped, far less developed than a place such as India. really doubt that there is much shorting going on in Dubai.
September 19th, 2008 at 8:51 am
The thought that comes to mind for me is:
“Martial Law for Markets.”
–
Next, Barringo, they’ll install a curfew and you’ll have to ride the rails a little earlier to be off the streets by dark.
–
Listen, let’s be practical… Regardless of what any reader of my words has for a personal opinion of short-selling financial services stocks, the real observation is that the public is frightened and has begun to build in its own expectations that Fin-stock short-selling threatens them.
I had several people yesterday express great concerns about the security of their FDIC deposits, even those that are clearly not in excess of the FDIC coverage available on their accounts. Strangly, these people have gotten the notion that short-sellers might bring down their bank, or banks in general.
I don’t blame short-sellers, but now that the topic of short-selling has risen to the level of political commentary, when political pundits and politicians are almost nightly ranting against short-sellers, it’s having an emotional effect on the public and raising its f-e-a-r level.
That fear can be far more damaging to the economy that just this spirited debate about the relative merits of short-selling.
Thus, indeed, the government is imposing a sort of “Martial Law in Markets.”
Ladies and Gentlemen, you’re witnessing the construction of a hybrid market holiday for money market mutual funds as well. The government has overnight finally realized mm mutual funds would break the buck.
Some of these extraordinary actions being taken are designed to allow the commercial paper market to clear without locking up what have really become depository accounts – the mm mf deposits that are not FDIC insured.
And so… the currency exchange mechanism that allows our real underlying economy to function still lives another day; as I’ve termed it here before, our “Walking Around Economy” has little to do with stocks and bonds, but quite a lot with all depository accounts, including mm mf deposits which have widely supplanted (disintermediated) bank deposits during the last 35 years, approximate.
BTW, Both Chanos and Heebner are likely correct in their perspectives this morning on CNBC. I tend to agree with Heebner in spirit, but just not quite to the same magnitude.
The jury is out as to how long this process will take to reach the equilibrium that the emergency order was designed for.
September 19th, 2008 at 8:53 am
errr… would an operation that sophisticated be stupidly obvious enough to begin it on the anniversary of 9/11 and attack the same institutions, etc.? seriously?
September 19th, 2008 at 8:55 am
Can we just spend a few seconds being quantitative here?
The quantities of money being traded daily are measured in the hundreds of billions or trillions of dollars. The summed market cap of the financials is in the neighborhood of a trillion dollars.
There’s no terrorist group in the world with access to any more than a billion dollars, and even that is probably wildly more than they can actually put their hands on. I bet OBL runs his operation on something in the neighborhood of a few million a year.
There’s a reason they use homemade shoes as a weapon.
A billion dollars–which is gigantically more than any terrorist group could put their hands on–would make you about the 200th largest hedge fund on the street. So do you really believe even a one billion-dollar short seller can bring down the market? Do you even believe they could bring down just Lehman?
September 19th, 2008 at 8:56 am
first, it is plausible.
second, it would not be possible, for long , for anybody to short attack a company that was financially sound.
third: the banks created short selling-now when they are being shorted its not a fun game.
fourth: the underlying problems with the economy (are we going to blame shorting on housing and autos)are still with us.
fifth: the crappy asset and balance sheet problems of banks are stil there.
sixth: the 700 trillion of derivatives and counter party risk is still there–except the govt (us) are buying it up.
seventh: they have to do something to prevent the end game.
many were wondering if or how the “inflate or die” scenario would unfold.
now we are finding out
September 19th, 2008 at 8:59 am
Barry:
Do you even read what you write? Financial terrorism?
If you think they are driving prices below their fundamental values, then why aren’t you buying like crazy? That’s right.
Don’t post this crap–it only deflects the blame from the idiot regulators.
September 19th, 2008 at 9:00 am
I love how Barry bashes the administration on their ‘incompetance’….You have to love the irony! ROFL
September 19th, 2008 at 9:04 am
Apparently, the SEC is also banning “being mean to people” while the Fed and Treasury will jointly be guaranteeing the happiness of each and every American.
Thank God we have such fine individuals to do our thinking for us.
September 19th, 2008 at 9:08 am
When the barbarians sacked Rome was it terrorism or a mercy killing?
September 19th, 2008 at 9:10 am
That’s a really bizarre theory but its one easily verified or disproved by the SEC. Simply demand to see the AML docs on each account that placed large short orders.
September 19th, 2008 at 9:12 am
There is nothing in the SEC on terrorists.
Trading desks short stocks when CDS spreads blow out. CDS traders buy CDS when stocks drop.
It’s a negative feedback loop and this is just an attempt to break the cicuit.
In the end it means less liquidity, more volatility and the shorts won’t be around to squeeze the next time the market drops.
September 19th, 2008 at 9:13 am
Thank you, Dr. Foland (literally, I looked it up).
To the comment about “Harvard educated people”, sir, you are gravely mistaken. The problem was not with the Harvard educated people. The problem was with the Iowa State PhDs and BSers in Finance from St. John’s that are now positioned as “financial experts” on CNBC. Wall Street used to be an old boys’ network that was extremely exclusive. Then, our FIRE industry became so big that any bozo could become a trader, just like any bimbo can become Vice President.
I will close with that, for now.
Unapologetically, unequivocably 98/99 percentile and an elitist
September 19th, 2008 at 9:17 am
Wins-
“financial system must be at the verge of total collapse.”
it was merely the growing recognition of such, that led to the price delines..
yon’ System had the Fatal Heart Attack all the back in ’07..
if you want a good idea of how badly peep have been screwed look at the MMF scene and the garbage that was stuffed in those fundz..
September 19th, 2008 at 9:18 am
It is the mark of an educated mind to be able to entertain a thought without accepting it. Aristotle
September 19th, 2008 at 9:18 am
Andrew Foland has the issue right – it would take massive amounts of capital to get this to work – and they could lose it all if the businesses were fundamentally sound.
I suppose it was financial terrorists who forced the banks to lever up 30/40/50 to 1, then bear to deny redemptions to their two funds in June 07, then the beginning of the credit crunch in Aug 08, then a run UP in the stock market in October 08, then …
Fuck it. I’ll just start using this excuse. Terrorists caused my bus to be late this morning. They caused me to not pay my phone bill. Or my taxes. See, several terrorists live under my bed and they cause these things. I can’t control my actions, and everything bad that happens to me or I do was caused by terrorists (conversely, everything good that happens to me and that I do is directly related to how hard I work and how smart I am).
September 19th, 2008 at 9:21 am
The massive US financial ponzi scheme needed to keep the fake bullshit US economy going and big $$$ in Wall St. pockets wins again.
The new gilded age is still very much alive and well in America !
September 19th, 2008 at 9:25 am
Those dirty Arabs are at it again! Probably the Chinese and Russians too. Terrorists everywhere! Panic, batten down the hatches. The 9/11 theory sounds like fear-mongering. Sounds like Cheney-speak to me.
Maybe all the countries on the ‘outside’ who are getting killed in the manpulated US market, or killed literally by the US Army are fed up.
As you say, in an almost co-ordinated effort the SEC let the IB’s loose to ILLEGALLY manipulate prices and short the hell out of anything.
Others say, hey we are sick of this and we are going to do to the perpetrators what they have done to us. But the powers that be say no way and change the rules. It isn’t a pleasant thing getting your ass handed to you, is it JPM and GS.
Expect MASSIVE capitral outflows from the US. People are sick of the tyranny and will vote with their pocketbooks. Sad to say this EMPIRIALIST EMPIRE is long in the tooth. It won’t happen overnight, but the decline is upon us.
These immoral profiteers at JPM and GS have also systematically eliminated some of the competition as well. Hell these ‘capitalists’ love a monopoly anyway. I have sold down my positions b/c this is the most rigged game in the world.
I
September 19th, 2008 at 9:25 am
I dont actually think barry believes its terrorism. I just think he’s that flabbergasted.
I know for one, that my 401k is looking a heck of alot healthier today, and am thrilled, THRILLED! to get out of my company stock at what might well end up being break even versus my cost basis.
Why such a reader of this site would even be in financials is a different story, one that could be discussed offline.
September 19th, 2008 at 9:32 am
Barry, I’m all for free markets but could you please explain how it’s OK for the neighborhood pyro to burn the entire neighborhood down? Would it be OK if the shorts crashed our markets and ignited a depression? I’m as angry as the next guy but if there is a CRASH the Wall Street “bulge bracket” will still be sitting pretty on their yachts and in their villas somehwere in the south Pacific. Please elaborate.
September 19th, 2008 at 9:37 am
“Terrorism” has become the new boogeyman….I saw this coming soon after 9/11….everything is now classified as some sort of terrorism, justifying massive government intervention on a number of levels.
As others have noted, a terrorist group would need billions of dollars to pull this off. More importantly, they would not be able to pull this off if these companies did not have ridiculous amounts of leverage and toxic waste on their balance sheets.
George Orwell was only off by about 25 years, apparently.
September 19th, 2008 at 9:37 am
” the suspicion of terrorist activity is not the least bit crazy”
Terrorism from the crowd that uses some private network to transfer a couple hundred dollars because Bush is illegally wiretapping everything. What are they using? Phones? E-mail?
It is crony capitalism, big money protecting big money. That’s how it works here and that’s how it is. Ben, Paulie, Harry, Johny, Chris,and Nancy, shoulder to shoulder.
I know the Saudis are shorting Citi.
September 19th, 2008 at 9:39 am
“striaght in DC thse days”
Barry, it’s 3 typos in a row!
September 19th, 2008 at 9:41 am
I shorted $MS recently so I must be financial terrorist. Thanks for letting me know.
Barry, I am quitting your blog.
Bye!
September 19th, 2008 at 9:48 am
Those 3 theories are weak.
None of them does tell us who just unwound such huge positions that petrol comes back to 90$.
Here is a different theory :
The US Gov is willing to nationalise all investment banking. It trapped hedgies and IBs in a fake oil rally. It will bail out Bank Of America in the end and impose a change of constitution in the U.S.
Check it out here :
http://lacrisepourlesnuls.blogspot.com/2008/09/lincendie-du-reichstag-amricain.html
September 19th, 2008 at 9:50 am
Oh, there’s terrorists out there all right, and their stated goal* is the destruction of the government of the United States of America. They are extremely well organized, with massive support in the military, media, finance, and business communities. They have agents w/ offices in the government bldgs. and hold weekly meetings with important members of the government.
They are called the Republican Party.
Fear Them.
* Ya’ll remember little Grover Norquist don’t you? Maybe you thought the plebes were too stupid, and too addicted to the WaPo to know about him.
September 19th, 2008 at 9:52 am
The reason the ban happened? Goldman was in danger of losing its independence. If this BS ban had been put in place last week, LEH would still be around; and LEH going under was certainly more of a shock to the system than GS and MS merging.
September 19th, 2008 at 9:53 am
Guys, quit bitching and build yourself a SKF position! Why rail against things you have no control over? Take what’s there and make money on it!
September 19th, 2008 at 9:55 am
I dont think I can believe that it’s financial terrorism, but given the craziness of the rule change I almost hope that it’s true.
You would think that it would be fairly easy to determine exactly where the bulk of the supposedly crushing shorts were coming from, and therefor easy to determine if it the shorts were initiated by people with ties to Anti-American entities.
September 19th, 2008 at 10:07 am
ritzholtz, you’re nuts spreading this shit around. i’m a foreigner and already worried about capital controls coming. now i might be in the low 6 figures but think about the big guys in asia starting to pull their money out.
cramer and you might be the true terrorists in the end for propagating this shit to the ‘unsofisticated’ umreekans
September 19th, 2008 at 10:10 am
If so, wouldn’t this have to be done by some entity with extremely deep pockets? Like a government? Just wondering.
Not sure I see how the no short rule could hurt Obama. WaMu and others will be going down before the election and the economy stinks.
Also, central banks worldwide are intervening massively, not just here I think they’re terrified.
PS I’m a hardcore Leftie politically too.
September 19th, 2008 at 10:18 am
Does anyone know – does the ban apply only to new short sales, or must existing shorts be wound down/bought out?
September 19th, 2008 at 10:20 am
Bloomberg TV is reporting that FNM & FRE are to expand their mortgage buying.
Um, wasn’t this the sort of thing that got them into trouble in the first place?
And the FT is reporting that FRE had >$1B in unsecured exposure to Lehman. Oops. And FRE had a negative equity position before that little oops. How do measure leverage on a negative equity base??
Good thing Hanky P has banned all those naughty short sellers. It was all their fault. Naughty, naughty shorts.
September 19th, 2008 at 10:28 am
I can hear Karl Rove at the WSJ staff meeting saying: OK now Obama is a Muslim and we need to get terrorism back in the news so write that John McCain can fight financial terrorism better that Obama, who is behind this October surprise, I mean mess.
September 19th, 2008 at 10:34 am
@me, might want to read this
http://corner.nationalreview.com/post/?q=M2ZkYmRiZGVlMDcxYzdhZGEzNDcxN2JlZTdlNGFhZDE=
I’d pay any amount of money to be able to talk to Karl Rove off the record.
September 19th, 2008 at 10:39 am
Excuse me but, the real financial terrorism was done my alan greenspan with his easy money policies, which completely distorted the markets! The real financial terrorism were the toxic option ARMS, the no doc loans, the easy money inducing a credit binge of epic proportions.
The real financial terrorism is when the big banks refuse to be fully transparent and disclose what’s on their books.
September 19th, 2008 at 11:33 am
The investigation of the short-selling around 9/11 did not turn up any evidence that people were trading because they knew the attacks were coming, and it didn’t find any links between terrorists and the people who did the short selling.
Mounting an organized campaign between to short sell would carry a lot of risk, not to mention it might demand more money than al-Qaida or the like can command nowadays. At the height of their finances, they spent $30 million/year, but most of that was spent on infrastructure in Afghanistan. 9/11 itself cost somewhere between $400k-$500k, and it took them some time to get that money together.
I don’t think the theory that terrorists were behind short-selling of companies that richly deserved to be shorted has much to back it up.
September 19th, 2008 at 12:11 pm
hi Barry – great coverage of late. the conspriacy theory we came up with on the desk at work today was the coincidental timing of market madness and the turning on the Large Hadron Collidor!
September 19th, 2008 at 12:40 pm
I’m not an investor, and don’t know much about finance, so please accept my apology for what might be a very stupid question, but is the Fed and Treasury authorized to allocate all this money without congressional approval?
September 19th, 2008 at 12:55 pm
“I’m not an investor, and don’t know much about finance, so please accept my apology for what might be a very stupid question, but is the Fed and Treasury authorized to allocate all this money without congressional approval?”
Imposter alert. That was not posted by “me”
September 19th, 2008 at 1:08 pm
This can be the corollary to Godwin’s rule on internet arguments. The longer an event/condition that appears to have widespread impact on world(ly?) welfare persists, the closer the probability of it being blamed on terrorism/AQ approaches 1.
September 19th, 2008 at 1:26 pm
“We must act now to protect our nation’s economic health from serious risk,” Bush said at a White House press conference. “There will be ample opportunity to discuss the origins of this problems. Now is the time to solve it.”
Isn’t this the same kind of bullshit we heard around 9/11 in regards to the Patriot Act and how legislation must get passed and how the Constitution must be subverted in order to protect us from the “Evil-doers”. Basically “ask no questions” I put NOTHING past the Bush Administration. Please, please Democrats, for once have a spine and don’t just pass this legislation without knowing what you are signing off on. And please, who-ever is the next President “Investigate Bush” particularly in relation to 9/11.
Viv, above re: short selling, you are naive, brother, naive.
September 19th, 2008 at 1:30 pm
> BR: I’m not saying that is the explanation
> I believe in
You are however saying that the explanation is plausible, and even worthy of claiming praise for having though of it.
It clearly is not as i) the identity of any short selling “terrorist” would not be difficult to discover, and ii) the shorting would be indistinguishable from normal trading unless done against a viable institution; but then it would not work.
I am disappointed to see you reason “I don’t know why, but cannot absolutely rule out X, so it may be X”. It is exactly this sort of reasoning that supposedly proves the existence of UFOs and pretty much all “good” conspiracy theories.
I think you have lost a lot of credibility today.
September 19th, 2008 at 1:39 pm
The only “financial terrorists” are in the Board rooms of your Prime Brokers and Banks.
Your own financial “elites” are the terrorists. They have done more damage to America and the allegedly “free” markets than those who they label “terrorist”.
America is a criminally run organization now, that is clear. No point searching for the criminals and terrorists, they are all in NY or Washington.
And you, Barry, are a prime enabler of this terrorism, by continually appearing on CNBC and acting like this is a “free” market. Where is this mythical “free” market, I don’t see any such.
I have lost all respect for you, you are just a pathetic excuse maker. Don’t try to hide behind “it’s not my theory”. Please. I will never read this Blog again.
Goodbye, and good riddance.
September 19th, 2008 at 1:39 pm
The timing is interesting. I was already thinking of the financial mess in terms of terrorism and the attacks on the Twin Towers. There are similarities in appearance and potential results. I imagine the world looking at the still-standing, burning buildings, thinking what a horrible thing had just happened…never dreaming there was so much more to come. The unseen destruction within brought everything down…just as the US economic system may well be mortally wounded at the core.
September 19th, 2008 at 2:10 pm
“The timing is interesting.”
It would seem to me the timing has been ongoing for the last 13 months.
September 19th, 2008 at 2:16 pm
IMHO
FT
Barclays strikes deal for Lehman spoils
Telegraph
Barclays nets £700m in surprise move
Bloomberg
Barclays Buys Lehman U.S. Units for $1.75 Billion – It looks a steal
Forbes on Barclays/Qatar Sovereign fund relationship – Qatar’s sovereign wealth fund buys Lehman’s thru the backdoor???
Qatar yet to discuss raising Barclays stake-source
Seems that Barclay’s could not have made the acquisition of Lehman without the funding from Qatar.
September 19th, 2008 at 2:22 pm
To me, terrorism should be reserved for killing civilians. Also this is not a binary concept such as “either nobody is shorting us or al queda is” Rather I think that the top player (US) in the game (Global economics) was injured by mostly our own foolishness and at that time many who dislike/hate/compete with us chose to pile on the shorts. I sat here with an eye open on 911 in case a real event happened ready to adjust my positions if anything happened. In the same way probably all over the world in the back of financial peoples heads, they were watching and waiting for something. Then “oh look Americas great companies that shorted our companies are weak, might as well short them.
I think that capitalism is an extension/replacement for actual war. Instead of fighting with Japan and Germany after WWII we helped them to build their economies so they could compete in peaceful ways. Countries that do great trade are less likely to go to war, but this individuals in the countries are difficult to control. This was probably not governments overt policy but rather opportunistic people in countries that dislike us.
In football which I think is very close to capitalism, people are often taught in whispers to attack enemies injuries. If a opposing player has a bad shoulder, hit him there.
Just to put a political jab in here, many people around the world HATE bush’s foreign policy and feel unable to do anything about their opinion. Well, here was an opportunity to walk the walk. So in addition to Bush policies helping this to occur, they have also made our enemies want to attack us when we are weak.
We should not call this terrorism, do not fall in the trap of calling everything that is against us terrorism. this is economic fightin’ and we should adjust the markets to make it more difficult to allow it to happen. In football there are rules to protect players and camera replays to shame some people even if they miss getting a penalty.
America should harden our economic defenses to not allow our enemies to so easily bust our chops. With economics going global and lots of petrodollars in the hands of people who dislike us it is in our best interest to have free and ROBUST markets.
Often in our zeal to dregulate and optimize for one thing we make things not robust. Our idealogy is akin to making super fast trading ships that win every race but get capsized in big storms. A truly healthy market can withstand lots of stress from unexpected sources including black swans.
September 19th, 2008 at 2:23 pm
So, does this mean that the United States of America is now a Nationalist Socialist country?
September 19th, 2008 at 2:45 pm
Barry, I know you were just passing this along, but I have to say:
I am pretty certain that terrorists have been using real estate companies as fronts to buy up all the apartments in my neighborhood, so as to drive up my rent and in effect TERRORIZE ME OMG EVERYBODY PANIC.
September 19th, 2008 at 3:29 pm
This looks like a strange theory at first sight but when I think about it, it can make sense.
You know somewhere last year I emailed some US military base in Bagdad that military attacks would be over and that from now I would only stage financial attacks.
Due to cyber attacks (I always have often of them I cannot proof this, I cannot show you the email because it is destroyed.)
And lately I have repeated a few times that it is one of the goals in my life to destroy the US military…
So the theory might be more then theory; only the ‘terror attack’ part is not right: Nobody dies from this, especcially no civilians so by definition it cannot be a terror attack.
But just some folks who like to help me and in the meantime can do their own agenda’s… My estimation is that this is far from impossible; I have triggered stranger things!
September 19th, 2008 at 3:56 pm
When I saw the title of this post I was thinking that it was a bit of an exaggeration. Banning shorts is a good way to destroy confidence in the market, but it doesn’t really qualify as terrorism. Then I read what you had written and was surprised that it was about something completely different.
I don’t understand why anyone would invest in a market regulated by the SEC anymore. Banning short sales fundamentally breaks the structure of the market. Suddenly implementing the ban in the middle of the night, with no time for people to prepare will cause huge losses to many people that were playing by the rules. After this, all bets are off. You never know what kind of crazy thing the SEC might do next. They can’t be trusted. Which means you would have to be stupid to invest in any US market now.
September 19th, 2008 at 4:08 pm
A year ago, I would have thought this “couldn’t possibly happen…that’s lunacy…we have too many safeguards in place”. Now that Lehman, Bear, AIG, Merrill, Fannie and Freddie have all but vaporized (or close to it), then ANYTHING is possible. I’d bet my bottom dollar that 99.9% of Americans on 9/10 would NEVER have thought that BOTH WTC towers would/could collapse or the grisly details. IF the facts could possibly be determined, then I say we pursue them…don’t we owe it to ourselves to make policy based on facts not opinion?
September 19th, 2008 at 4:09 pm
Occam’s razor, people. We had plenty of greed, we don’t need fear. Terrorism was not the problem, greed was. Stopping the short sales doesn’t even begin to fix the problems.
The top one percenters have to give up wanting even more, and start giving back. If we just bail out the top, we go to depression land, and Bernanke knows that. The Fed is playing a dangerous, dangerous hand here.
September 19th, 2008 at 6:02 pm
In one sense. After 911 the thinking was it is ok to ignore the rules for a while to stabilize the situation. And it is ok to bypass existing norms on taxes, spending, debt, and war because of the situation. And it is ok to have not so bright/seemingly crooked people in charge because they are patriots. Finally, two months before the exit, its ok to abandon capitalism. Hey there might still be a terrorist at the other end of that wire.
And because of these things everything went to hell.
So in that sense it’s been a long slow terrorist attack, and 911 succeeded beyond Bin Laden’s wettest dreams. It isn’t really ‘terrorist’ though as it didn’t result in nation wide terror, in retrospect it was more a ‘stupidist attack’.
September 19th, 2008 at 6:09 pm
The pattern is clear; the government does what ever it wants, blames terrorism, and the “educated” people roll over.
Wake up before it’s too late.
September 19th, 2008 at 6:11 pm
To Reinko:
You are right that it is weird that in the middle of the night the rules suddenly change.
But in the gold and silver markets I recently observed bid and ask prices that were both above the future spot price.
So who knows what is real and what is not?
September 19th, 2008 at 7:42 pm
Don’t be confused folks, there are many people in Dubai and Saudi that want the USA to survive, we have made them rich.
Al Queda hate the Saudi Royalty as much as they hate the USA. They especially hate Russia (Putin) and Pakistan (Musharrif). Note their markets.
Ultimately the origin of the mega shorts have been traced to Dubai. This is not Tim Knight, Dougie Kass, Bill Fleckenstein and their devotees doing this. Nor, apparently, is it the hedge funds.
I knew something was up when, even mega Bear Tim Night and his crew started to get a little nervous.
Catch the viedo of Sen. Chris Dodd (D-CT)with Wolff Blitzer tonight. Soemthing is up, unless, of course, you claim that Sen. Dodd is a dupe of George Bush.
September 20th, 2008 at 3:03 am
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September 20th, 2008 at 4:58 pm
Perhaps this is more a case of opportunistic financial warfare. Russia was seeing a massive capital outflow post BP, Georgia … They successfully halted trading then made a massive intervention which theoretically allowed further control of target companies. Forcing a bailout by the US government will weaken the dollar and lead to long term inflationary pressures. Both very helpful to their resource based economy. Seems like the type of strategy a judo master like Putin would embrace.
September 21st, 2008 at 1:09 am
I wrote an article on this exact theory on 9-17-08 on the OTF. My screen name is: MaryKay1965. Here is the link: http://www.onlinetradersforum.com/showthread.php?t=47810 I emailed my “theory” and a “live link” to Jim Cramer after I wrote the thread and that idiot takes my “theory” and runs with it the very next day on CNBC. I even included a copy of the email I sent to Jim Cramer with the time/date stamp in tact. You can also check out my website: http://www.BuyingOnDips.com