We have a bull market excess stupidity.

Now that I think about it, this could very well be the longest bull market in history, running as it has for several 100,000 years.

The latest manifestation of this intellectual failure is the new government proposals to ban or radically restrict short selling.

Of all the anti-free-market proposals out there, turning equities into a one way bet is by far the least defendable, most ignorant, most damaging to the markets we have seen.

NYT excerpt:

“They have been reviled as the bad hats of Wall Street, nefarious traders who cashed in on the market collapse and, some insist, helped precipitate it. Now short-sellers, the market skeptics who correctly called last year’s downturn, are coming under even more unwanted scrutiny, this time from federal regulators. The Securities and Exchange Commission appears poised to reverse itself and reinstate rules that would make shorting stocks — that is, betting their prices will decline — somewhat more difficult.

Whether the S.E.C. will go far enough to satisfy the many critics of short-sellers is far from certain. The controversial role of these investors has divided not only the financial industry, but also federal regulators. As the S.E.C. considers its options, the debate is heating up.  Hedge funds and big pension funds argue that short-selling is vital to modern markets. Such trading not only enables investors to hedge their risks but also to ferret out weak companies or, as in the case of Enron, outright frauds.”

Short sellers are the messengers, and they tell the story of fraud, over-valuation, and irrational exuberance. They also act as a good counter balance to the Street’s inherent cheerleading. Short seller Jim Chanos explains why the SEC should not further restrain Short Selling in some recent commentary (Letter tp the SEC is here).

One of the factors that the lawyers at the SEC don’t understand is the importance short sellers play in cushioning collapses. A brief excerpt from Bailout Nation:

“In September 2008, with the crisis in full flower, [SEC Chief Christopher] Cox made shorting financial stocks illegal. Apparently, he was unaware that fierce market sell-offs often end with short sellers covering their positions, locking in profits on their bearish bets. With short sellers out of the market, the downturn became even fiercer. From the market highs of October 2007, the S&P 500 and the Dow Jones Industrial Average were cut in half in 12 months. Much of the damage came after the no-shorting rule went into effect.”

Here is a chart of the S&P500, showing when the ban went into effect and the subsequent result. The ban did not cause the sell off, but it removed natural buyers from the process that could have cushioned the blow:

spx-chart

via StockCharts.com

>

Sources:
S.E.C. May Reinstate Rules for Short-Selling Stocks
GERRY SHIH
NYT, July 2, 2009

http://www.nytimes.com/2009/07/03/business/03shorts.html

SEC Should Not Further Restrain Short Selling
JAMES CHANOS, PRESIDENT OF KYNIKOS ASSOCIATES LP,
Thursday, July 02, 2009 at 06:11 PM EDT

http://watchingthewatchers.org/indepth/21546/why-sec-should-not-further-restrain

See Also:
Financial Detectives

http://www.financialdetectives.org/

Shorts Story
GENE EPSTEIN
Barron’s, July 6, 2009

http://online.barrons.com/article/SB124657282666888819.html

Category: Bailout Nation, Legal, Psychology, Regulation, Short Selling

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

59 Responses to “Banning Short Selling”

  1. Bruce in Tn says:

    Onlooker from Troy posted this yesterday, but it is too good not to read today…

    Happy 4th. Lefty, plenty of sunscreen….

    http://pragcap.com/the-recession-isnt-over

    THE RECESSION ISN’T OVER

    “While most Americans are taking the day off David Rosenberg is in Canada cranking out killer research notes. His latest is a treasure trove of useful facts:”

  2. call me ahab says:

    BR Says-

    “One of the factors that the lawyers at the SEC don’t understand is the importance short sellers play in cushioning collapses. ”

    exactly- and you are right- it’s the short seller who bring attention to companies that are overvalued and poorly run- throwing the big spotlight where it needs to be-

    I wonder what effect this will have on inverse ETF’s- and whether leveraged ETF’s (inverse of course) will be banned outright as postulated by Jim Cramer

  3. danm says:

    I just want them to pile on the mistakes as fast as they can. Let’s get it over with ASAP!

  4. Bruce in Tn says:

    http://www.latimes.com/business/la-fi-foreclosure4-2009jul04,0,5145254.story

    Another wave of foreclosures is poised to strike

    “Separate from that group, Kelly said, Chase is proceeding to deal with an additional 80,000 borrowers in default whose foreclosure process had been voluntarily halted by the lender starting late last year.

    Bank of America, the nation’s largest servicer of home mortgages, also did not release the volume of likely foreclosures. The bank said it had extended offers to modify loans to more than 45,000 borrowers under the Obama plan. Bank of America spokesman Dan Frahm said the company was projecting a “slow increase” in the number of monthly foreclosures, potentially reaching 30% above previous normal levels.”

  5. Marcus Aurelius says:

    The recession is, of course, not over. It won’t be over for another 12 years, or so. After we have political/social change, and maybe a domestic war, we will begin the slow process of rebuilding. As for short selling, I’m with damn — the more GS and its ilk serve their own best interests, the faster we’ll get to resolution. This will be painful for the lower classes, but fatal for the moneyed/political classes. Fuck ‘em.

    This is a good day to hope for the return of independence (personal and national).

  6. KidDynamite says:

    the only upside to this is that if they reinstate the uptick rule, it will once and for all silence the “shortsellers are to blame” crowd the next time the market tanks – as a decline cannot possibly be blamed on short sellers when every short sale must be buyer initiated.

  7. CuriousCreature says:

    Short selling is necessary. Nothing wrong there. Reestablishing the uptick rule is also necessary to keep shorts from piling on in droves.

    Naked short selling is illegal but not enforced. Enforce it and throw offenders in jail. Period.

    Trading on insider information is illegal but not enforced. Enforce it and throw offenders in jail. Period.

    Personally I think Chanos and his firm are the scum of the earth. I’ve read reports, e-mails etc. of his firm trading on insider information provided by analysts. There are honest short sellers out there. He is not one of them.

    Until the players who operate on the fringe of the market are prosecuted, rules and regulations will affect all.

    Curious

  8. Bruce in Tn says:

    http://www.marketwatch.com/story/2009-gmc-sierra-hybrid-a-few-jolts-lots-of-volts

    Auto Review
    Jul 4, 2009, 6:01 a.m. EST

    2009 GMC Sierra Hybrid

    …Why are you posting this, Bruce? Well, I read this story today, as I am considering a new farm truck. My 1999 Sierra gets 18 miles to the gallon, and has 170,000 miles on it. I saw this and read the article. The test driver of this HYBRID got 18 mpg and the truck retails for 49,500.

    The point is that GM is going to be under a tremendous penalty once they emerge from bankruptcy..(Chrysler too). I have two Prius hybrids, and they are wonderful. I need a truck for the farm I live on, but an extra 20k for a truck that gets basically the same mileage as the non-hybrid? What are these guys smoking? They have lost the hybrid car battle…and I was thinking maybe they would win the hybrid truck battle…but the article states they are lost, have no clue they are lost, and the new company will have tremendous odds to take on the Asian companies. I imagine a hybrid Toyota truck with mpg of 40 or so will be here in the near future, and they will sell the hell out of such a machine…

    Later…going to a cave to see some bats..and hike in a river…

  9. m111ark says:

    Naked short selling IS the problem. The criminal class never covers, they’re short forever, driving companies out of business. Read Deepcaster and know. But then, the markets have always been corrupt, just seems that today the corruption is so widespread and open that “they” don’t care anymore because they know they’ll never face the consequences. So who did Madoff piss off?

  10. constantnormal says:

    The imbecilic morons who are running the show fail to look around and see how well this strategy has ever worked for others … here’s a decent account of the Pakistani exchange’s struggles to control the decline in their stocks last year … http://ajayshahblog.blogspot.com/2008/12/karachis-experiments-with-circuit.html

    And the events at teh Karachi exchange were also covered here …
    http://bigpicture.typepad.com/comments/2008/07/pakistani-inves.html

    I eagerly await the evening news coverage of the NYSE in ruins, with burning tires and the like …

  11. constantnormal says:

    @m111ark 9.37

    “Naked short selling IS the problem.”

    Really? With sky-high valuations and an apparently robust rally, you can see any impact at all from short-sellers of any kind?

    This is merely the last gasp of an administration obsessed with making a horrible situation look good, and hoping that Reality will eventually comply. A sort of activist response to “the only thing we have to fear is fear itself”.

    Sometimes there actually ARE things to be feared, and painting over a horrible situation instead of honestly addressing it only makes things that much worse.

    I just wonder what will happen when Goldman Sachs and Morgan Stanley decide it’s time to sell — betcha whatever ban is imposed doesn’t apply to THEM.

  12. constantnormal says:

    leftback — if this does get implemented as proposed, do you think that the “leftback bottom” at 666 back in March will hold?

  13. franklin411 says:

    @constant
    Naked short selling is illegal. There should be no debate about whether the law should be enforced.

    @Barry
    Gimme a break, will ya? Nobody is talking about banning short selling. All that’s being discussed is the reinstatement of a Depression era rule–the uptick rule.

    You might remember another Depression era rule–Glass-Steagall, which you so strongly advocate reinstating. I agree. Both should be reinstated. Are you carrying Fleckenstein’s water?

    @Kiddynamite
    I agree. The argument against the uptick rule is one of the most disingenuous I have seen. Their argument is a complete contradiction:

    1. The uptick rule was outdated and ineffective. Reinstating it will have no effect on the market, but;
    2. Reinstating the uptick rule will destroy short selling.

  14. franklin411 says:

    PS–I’m strongly for keeping short selling…as long as a signed, physical consent form is obtained by the short seller from the owner of the property in question within 24 hours of his intended sale.

    If you take property that doesn’t belong to you and sell it, you’re guilty of theft in 99% of the civilized world. Nobody slaps you on the back for helping the market with price discovery. It’s only in the make-believe world of Wall Street where you’re congratulated as some sort of Lone Ranger type hero for your crime.

  15. constantnormal says:

    @Franklin411

    I’m not disputing that naked shorting is illegal, and the laws should be enforced. I’m unaware of anything that indicates they are not being enforced, but am willing to accept that they are not as a starting premise. Given that, and looking at any market chart of the past quarter, I fail to see the impact of this hypothetical short-selling. Stock prices are ridiculously high, and valuations are at historic levels, with absolutely zero signs of substantially increasing sales or profits.

    My take is that what is being proposed is not a ban on naked shorting (which as you note, is already illegal), but a ban on ALL short-selling. From there it is only a short step to banning all selling whatsoever, and establishing an artificial floor under stock prices. You can see how well that worked at the Karachi exchange, with trading volume promptly falling to zero.

    If indeed it is only a reinstatement on the uptick rule (a silly and artificial thing that accomplishes nothing except to magnify the swings in the markets, by introducing unnecessary friction in a fruitless attempt to push prices higher — and once that friction is overcome, the downward momentum is more pronounced), then I’ll retract my criticism.

    But regardless of whether it is a ban on short selling or a reinstatement of the up-tick rule, it is clearly an attempt to manipulate the markets and push them even higher than they already are at their current unsustainable levels.

    If they would pair the up-tick rule with a down-tick rule to also ban margin purchases unless the preceding trade was a down-tick, I might be more accepting. That puts the “friction” aspect into clearer perspective, and clearly shows that the game here is to manipulate the markets higher.

  16. constantnormal says:

    Franklin411 — BTW, and a bit off-topic, have you received any IOUs yet?

  17. franklin411 says:

    @Constant
    There’s nothing in the article Barry cited that suggests that there is any attempt to ban short selling afoot. Not that I wouldn’t agree with sharply curtailing the practice. I’m a capitalist, and capitalists believe in private property. It’s Marxism that believes in “from each according to his ability, to each according to his need.”

    No IOU here. I got paid as always on the 1st. Only vendors and income tax refunds are being issued scrip right now.

  18. mark mchugh says:

    Here’s the thing:

    The removal of the uptick rule in combination with naked short-selling is not what caused the precipitous market decline in 2008. What it did was changed who profited from the decline. Since 1980, when the 401(k) tax laws went into place and regular people started pouring money by the trillions into stocks via mutual funds, there were rules in place that traders wouldn’t be allowed to “burn the fucking house down”, while Johnny America was at work.

    All that changed with the uptick rule removal and the SEC forgetting to enforce Reg. SHO. It became a first come first-first served proposition that allowed vultures to steal from everyone else’s retirement and college savings (from people, who the SEC provided absolutely no means for self-protection, other than a false sense of security). The mutual fund giants never protested and the net effect on the public was that they had been had.

    Now, we’ve got a very different problem on our hands:

    Confidence is essential to running a con-game , and Wall Street has artificially inflated prices about as high as can on it’s own. Greater Fools have become an endangered species, so they are cuing Congress to restart the “false sense of security trade”. I’ve said before that the whole “markets recover before the economy” axiom is bullshit. “Wall Street inflates prices before the suckers buy back in”, is a much more accurate statement. However, this time around – they’re fucked and they know it. Johnny America ain’t coming back.

    Make no mistake, the removal of the uptick rule was criminal, but bringing it back now isn’t going to prevent another crash. It will only change the demographics of the victims a little. They are scrambling to restore Johnny America’s confidence before the NYSE becomes a penny-pitching parlor.

    Of course, the only real way to restore confidence in the system is with swift and terrible justice. Don’t hold your breath……..

    Sorry about the length, this is my hot button issue.

  19. dead hobo says:

    http://www.themistrading.com/

    Themis Trading White Paper: Toxic Equity Trading Order Flow on Wall Street

    ZeroHedge put this on his site. I went to the source and you can get to it a little better from them. It’s an eye opener that describes the odd trading activity of late and clearly explains why and how it is going on. It describes how slicksters can make Pavlov’s computers salivate on cue and how high frequency traders are making a fool out of everyone else.

    It also makes the short seller argument appear to be a partial red herring.

    Kill the naked shorts.

    Everyone and everything else is just noise, unless you add in high powered computers, loose rules, half witted regulators, accommodating exchanges, and remove the average investor from the equation. The shorts are old school and almost quaint in this environment. Afraid of shorts … what nostalgia.

    Only a moron would knowingly put their life savings in the stock market today as long as these sharpies rule it.

  20. [...] Banning short selling. [...]

  21. constantnormal says:

    @Franklin411 — then as a capitalist, an accumulator of wealth (as I interpret your stance), I take it you don’t necessarily subscribe to the notion that markets act as devices to establish a price? And that if one permits buying on credit, then one should also allow, in a symmetrical fashion, selling on credit? Or are you simply opposed to credit?

    I agree that naked shorting should be prosecuted to the fullest extent of the law, and am curious why it is not, if indeed it is not being curtailed. But short-selling (aside from naked shorting) serves as an essential counterpart to margin buying, does it not?

  22. constantnormal says:

    Franklin411 — “Only vendors and income tax refunds are being issued scrip right now.”

    heh — I suppose it’s not kosher to pay one’s taxes due with scripts one has received, is it? If not, that would be a telling point about the value of those things.

  23. constantnormal says:

    @ dead hobo —

    “Only a moron would knowingly put their life savings in the stock market today as long as these sharpies rule it.”

    But are the debt markets any better? Or even US Treasuries, with spending soaring without limit and no sign of a credible plan to turn things around?

    I’m not disagreeing, I am just wondering where one is to put one’s life savings, if not stocks or bonds? Gold seems (to me) to be a poor choice, if one subscribes to the notion that we face a prolonged period of deflation. Eventually, the pent-up supply of fiat cash will spark SERIOUS inflation, but only after there is demand in the economy for all those dollars, and that seems to be very far off. For now, the safest place for it is in the mattress, right next to the passport.

    I think that eventually, Obama and even the brain-dead Congress (or their successors), will come to the realization that pouring more debt on an overly-leveraged debt-ridden situation is not going to help things if one does not at the same time make a serious effort toward zeroing out the toxic debt (via bankruptcies).

    But that realization seems to me to be as far off as a recovery in the economy. Perhaps they two things are somehow linked.

  24. Winston Munn says:

    @ Bruce in Tn

    Thanks for posting this: http://pragcap.com/the-recession-isnt-over

    While reading the material I couldn’t help but be reminded of Von Mises and his description of the misallocation of resources that occurs in a debt bubble. It appears those 4 million permanent jobs that have been destroyed were never really permanent to start – only misallocated labor – and now it will take year upon year to create new industry to fill the demand for real work.

    We had the slow motion slow down – now we seem to have a slow motion recession.

  25. rootless_cosmopolitan says:

    @Franklin411:

    “… I’m a capitalist, …

    … I got paid as always on the 1st….”

    You might be a wannabe-capitalist, but if your main income comes from salary then you are not a capitalist. To be a capitalist your main income would have to be capital income.

    rc

  26. bergsten says:

    Wouldn’t it be easier all round to just ban bad news?

  27. franklin411 says:

    @Constant
    Buying stock on credit is fine. I don’t do it, but if I did, the transaction would be that I ask a lender to lend me capital. We negotiate the terms, and then we both consent to the loan. I take the loan and use it for my own purposes–buying stock, buying a car, buying liquor, whatever. Nothing wrong with that. Both parties consented to the transaction.

    Selling stock on credit? How do you do that? You can’t sell something you don’t own. Now, if a stock owner wants to lend you his stock for you to sell on terms you agree to, then fine. Nothing wrong with that. The problem with short selling is that you don’t actually obtain the expressed consent of the person whose property you’re selling. In essence, you’re stealing it in the hope that you can profit from the transaction and then replace the property before the victim grows wise to your crime.

    And I don’t care what purpose short selling serves. It’s my property, not the short seller’s. Period.

  28. manhattanguy says:

    Absolutely ridiculous to ban short selling. What’s next? Everyone is compelled to invest their savings in stock market?

    Anyways its a fine day out in the Finger lakes area in upstate NY. I just flew on a Cessna 150 aircraft. Thinking of taking some flying lessons this summer and get my pilot license. Hope you guys not spend too much time on your computer :)

  29. @ mark mchugh,

    from this quarter, I think it’s foolish to apologize for being ‘long-winded’.

    at least, you’re one of the few that has been paying attention. with that, and in order to convey such understanding to others, one needs to use a couple of syllables and, maybe, a few more words.
    http://www.thefreedictionary.com/syllables
    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=words

    past that, know that yon’ ED: redacts at will, and w/ glee..

    IOW, it’ll take care of itself..

  30. mark mchugh says:

    @ Franklin – I have to disagree that short-selling serves no purpose. Without it, stocks would have no price discovery process – it would be boom-bust-boom-bust…..

    The issue I have with selling borrowed stuff, is it is a completely theoretical trade when there is no buyer on the other side (and no, market-makers don’t count).

    I do have a somewhat related question for the group:

    Does anyone think these “technical glitches” at the NYSE (twice in the last month, as far as I know), may actually be liquidity problems somewhere in the system?

  31. constantnormal says:

    @franklin411 — “Selling stock on credit? How do you do that?” —

    here’s how it works — you borrow the shares that you do not own, setting aside reserves to cover the value of the shares, as you have a commitment to buy them back in the future (this is very important). If the value of the shares that you have sold rises, then your reserve requirement also rises. If the prices rise enough, then the short seller is squeezed sufficiently hard that they must liquidate their position, buying back the borrowed shares and ultimately losing money. If the price falls, the short seller can close out his position at any point in time, realizing a profit. Note that EVERY short sale (even naked shorts) is accompanied by a future purchase. The problem with naked short selling is that it amounts to unlimited leverage on the bet.
    http://en.wikipedia.org/wiki/Short_(finance)

    It is the exact counterpart of buying on margin, where one puts up a certain amount of reserves, which are securities pledged to back the margin purchase, and if those reserves fall below the designated limits, one must close out the margin position, This can happen by having the reserves backing the stock you have purchased on margin fall in value, such that you have insufficient assets to guarantee your ability to repay the amount you have borrowed to buy the stock.

    You can always sell something that you don’t own, provided you enter into an agreement to buy it back at a later date. A bank does this when they lend out their depositors’ money. The depositors hand over their money to the bank with the expectation that the bank will lend it back out, and pay them for the use of their money.

    It’s rather curious that you seem to be unaware of how all this works.
    And you are the dispenser of knowledge to the students in your university?

  32. constantnormal says:

    @F411 — “And I don’t care what purpose short selling serves. It’s my property, not the short seller’s. Period.”

    Fine. Take delivery of the certificates, and they won’t be lent out. Same thing with money at a bank — if you don’t want the bank to lend it out, stash it in a safe deposit box or in your mattress. But if you allow your shares to be held in “street name” then you are allowing them to be loaned to short sellers.

    For God’s sake man, get a clue! I thought you were just being obtuse, but I’m beginning to see that you really don’t understand the mechanics of the system at all …

  33. Onlooker from Troy says:

    manhattanguy

    Ah yes, the mighty 150! :) What do they charge these days for lessons in a 150? I got my private license 20 years ago in upper Maine and paid $30/hr wet (i.e. fuel included) plus $15/hr for an instructor. I’m curious what the going rate is in an area like you’re in. It’s a comparable area to where I was so the comparison should be apt.

    It can get to be a rather expensive hobby, and you’ll want to do more and more flying once you start. Trust me!

  34. canbyte says:

    The article writer and initial posters do not get it but i see that some posters are starting to understand the real malignancy of short selling. We have to find another way to accomplish the objective (betting on the downside) without causing virtual duplicates to appear (legal and illegal). But first we gotta stop the dishonesty and destructiveness that ruins anything the least bit wobbly. Wobbliness is inherent in creativity. Please go to
    http://www.petitiononline.com/shortNOT/petition.html

    or for more info the shorters don’t want you to know
    http://www.stopshortingstocks.com/

  35. mmh,

    to your Q:, those glitches were FAILs in more ways than one.

    as an aside, the publicity serves as a prop to the ‘new’ Cybersecurity Bill that’s, currently, in the Senate.
    http://www.eweek.com/c/a/Security/Senate-Panel-Approves-Cyber-Security-Bills/
    and, see:
    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=senate+cybersecurity+bill
    note the Clusters~on the left-side margin..

  36. mark mchugh says:

    Franklin,

    My apologies for not seeing your previous post (I was typing).

    “PS–I’m strongly for keeping short selling…as long as a signed, physical consent form is obtained by the short seller from the owner of the property in question within 24 hours of his intended sale.”

    That seems reasonable to me – our views are not that different.

  37. constantnormal says:

    @mark mchugh — “Does anyone think these “technical glitches” at the NYSE (twice in the last month, as far as I know), may actually be liquidity problems somewhere in the system?”

    Nope. Anyone familiar with computer systems that are expected to process millions of transaction in real time, day in and day out, will understand that glitches occur — it’s a fact of life. Even with duplicate systems that mirror each and every trade, with redundant power feeds from separate substations, there can still be software-related outages, things that only show up in a one-in-a-million combination of circumstances. Once you begin to process millions of transactions a day, these sort of things begin to pop up with increasing regularity. On the early space shuttles, they had 5 onboard computers, one of a different design and manufacturer from the others, all processing the same data streams and voting to determine the right answers, and they still had glitches pop up from time to time.

    If it were due to liquidity-related issues, there is no way that trading could be restored in a brief time. Back in 1987, I sold everything at the start of the crash, and it took Merrill Lynch 3 days to be able to provide me with even a verbal confirmation that the sales were executed. When systems are overloaded beyond their ability to keep up and things collapse in a jumble of bits, it takes a very long time to put Humpty-Dumpty back together again. To this day I believe that my trades were manually assigned prices on that day just to settle the books (I liked the prices they gave me).

    And if the suspicion is that the systems were stopped manually due to liquidity issues at some major player or other, I doubt very much that such a thing could be kept secret for long, and the convergence of the sharks upon the distressed entity would be rapid and ferocious.

  38. constantnormal says:

    @mmh 1:05 pm

    “PS–I’m strongly for keeping short selling…as long as a signed, physical consent form is obtained by the short seller from the owner of the property in question within 24 hours of his intended sale.”

    Same advice as to Franklin. Don’t allow your shares to be held in street name. The consent you refer to is in the agreement you signed allowing your shares to be held in street name.

    These controls are out there, people.

  39. mark mchugh says:

    Constant, I was just asking……..

    Thanks for the links, MEH.

  40. constantnormal says:

    @ Winston Munn – 12:00 pm

    “We had the slow motion slow down – now we seem to have a slow motion recession.”

    I agree. One might think that all this stimulus would have been better targeted to produce jobs, or support new industries that would be expected to create new jobs, but it seems to me that the banksters are grabbing the lion’s share of the government’s borrowed largesse. I don’t see any surge in job-related lending coming out of the banksters.

    I am reminded of the scene in Terminator 3 when the Schwarzeneggar Terminator has been re-infected with the SkyNet virus, and is choking the life out of John Conner. I do so want to ask Barrack Obama “what is your mission?”, and hopefully he would reply “to save America” and in a moment of zen-like clarity, see the error of his ways.

  41. constantnormal says:

    dammit, I wish I could edit these posts.

    I see Wall Street and the banksters and the SkyNet of our times.

  42. cn,

    I appreciate your experience from ’87, though, do note that, at that Time, ‘derivatives’ were not the Mountain they currently are..

    and, for a different part of your story, know that these:
    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=mission+critical+power+back+ups+

    more than, exist..

    as well, you may care to slow it down a bit, mmh’s Q: was pertaining to multiple close-time proximity instances of what you refer to as ‘one-in-million combinations of events’ — leading to Halts/FAILs
    ~~

    mmh,

    no prob.~

  43. constantnormal says:

    @MEH 12:58 pm

    So long as we have distributed systems that rely on communications networks for their operation, we will be vulnerable to takedown from coordinated strikes and attacks on the networks. But even so, there are simple obvious things that can be done to make our computerized infrastructures more secure and fault-tolerant. Not that I expect anything that comes out of the Congress to move us in that direction.

    Luckily, due to our globalized commerce and everybody being exposed to everybody else, we face no significant threats (other than espionage) from other nations. But terrorist groups, who have the goal of bringing down western civilization, are another matter entirely.

  44. SteveC says:

    In general, short selling is good for the market.. It provides important information about market sentiment and provides fuel for rallies. Does anyone (other than Jim Cramer) really believe that the financials were driven out of business by short sellers? Like it didn’t have anything to do with bad business decisions ie writing liar loans or trading derivatives without proper collateral?

  45. cdskiller says:

    The reason short selling is dangerous is because, like derivatives, it’s not a strategy that is truly available to everyone. It helps to rig the game for wealthy hedge fund investors. You want to allow it, fine, it can serve a price discovery purpose, instead of just being destructive, but the trade-off needs to be COMPLETE TRANSPARENCY of hedge fund activity. Not just registration, complete transparency of methodology. Don’t want that? Okay, then raise capital gains taxes to 75%. No? Okay, fine. Let everyone do whatever they want with their money, but raise the top tax rate back up to 90% on all income over $2 million.
    We have to change the culture, understand? Sacred gambling has to end. The right to game the system has to be taken away, somehow. The shadow banking system has to be brought completely into the light and made benign instead of malignant.

  46. manhattanguy says:

    Onlooker – Glad to know you used to fly. Yes, it is expensive to get a pilot license. They are charging $75/hour ($25 for lesson + $50 for fuel+rental). It takes about 50-60 hours flying time to get a license. But if you become a member of the flying club, you will save some money.

  47. cn,

    I hear you, though, w/this: “Luckily, due to our globalized commerce and everybody being exposed to everybody else, we face no significant threats (other than espionage) from other nations.”, especially, this: “Luckily, due to our globalized commerce…”– Do you ever wonder if that’s even *True. Ever answer the question: “Where do you live?” ? Ever understand what Nappie, at Waterloo, taught us about Supply Chains? Ever wonder what Japan did, in the early ’40s, when they were cut off from Oil?

    LSS: “Global Trade” has always been a Luxury Good, and, it Always will be.

    That we’ve made a Luxury a ‘Necessity’, is Insane.

    past that, see: http://www.wepin.com/articles/afp/afp02.html
    to your, other, too familiar, ‘plaint about ‘terrorists’

  48. constantnormal says:

    perhaps “Luckily” was not quite the best choice of words. But I do not wonder in the slightest about the extent of global trade, when I can buy from and sell to pretty much any place on the planet via the web. (I said “pretty much”)

    Napoleon and Japan were at war (I know, not with each other), and in times of war the supply chains are much more restricted than in times of peace, for obvious reasons. But your point about supply chain vulnerabilities is a good one, and competent corporate management will tend to avoid single-sources of essential items. Looking at things in one way, dual-income households might be thought of as fail-safe-ing the household income stream (I know, that’s not the normal motive, but it does lower the risk of zero income a bit).

    Luxury is always a relative notion. To the man without a job or an income, a dinner at McDonalds might seem to be a luxury, compared to dumpster-diving for leftovers. Of course, there is relative, and then there is relative. I agree that our (American) expectations are a tad on the high side, but I fully (sadly) expect Reality to adjust those expectations over the fullness of time. I hate dumpster-diving for dinner.

  49. yon’ cdskiller,

    good point, and, seriously NFK.

    this, current schema, is no way to run a Whorehouse.
    ~~

    as an aside, manhattanguy, I’d advise that you get your License this Summer. You’ll never regret it. though, in those 150s, pack a chute, and stay out of Weather/Higher Winds. Past that, the change in POV is worth multiples of the cost.
    ~~

    w/that, yon’ Coals are up, and I’m off. We’d do well cogitating on whether we are Independent or In Depenpence, and remembering that, too, many don’t need wonder about it, they’re reminded Every Day.

  50. constantnormal says:

    @ MEH 2:14 pm

    Amen, bro’

  51. ted butler says:

    From a year ago. Reasonable people can disagree

    http://www.investmentrarities.com/ted_butler_comentary/07-21-08.html

  52. Andy T says:

    It’s really quite difficult to fathom that the SEC/gov’t could be THAT stupid, again. It really, really boggles the mind. If they really do anything to restrain short-selling, I would recommend that everyone short the SP futures on any bounce from that “new development” and then brace for the move to 600.

  53. Onlooker from Troy says:

    manhattanguy

    U.S. Air Force, Retired

  54. catman says:

    Personally this is some of the most annoying bullshit of all time. Executing a short sale is a huge pain in the ass for an individual. I searched high and low for a web broker that would do it back in the day. When I found one my executions were slow and suspect. I can’t believe the average hedge fund, prop desk or market maker had this problem. I found Grzzx and (eg) twm and got my hedges done, but this continued posturing just stinks.

  55. manhattanguy says:

    Onlooker: That’s great. Do you still fly? I noticed a ton of people bring their own planes to fly out of the airport today. I wonder what the ownership cost would be to own a plane (maintenance+insurance+club+hangar fee etc).

  56. Onlooker from Troy says:

    Nope, I don’t. I was an airline pilot for a bit, before getting laid off. I now have chronic and occasionally severe back problems that have taken me out of the game. Have fun. It is an expensive hobby and I’ve never done it recreationally due to the pretty high cost for the average Joe.

  57. [...] Banning Short Selling — Barry Ritholtz – Short selling is extremely important, for the reasons Ritholtz mentions plus one more that I will discuss in my forthcoming book. Shame on the government! [...]

  58. [...] Just look what happened the last time the Feds banned short selling.  (Big Picture) [...]