Posts filed under “Bailouts”
Bill Moyers sits down with former Nixon White House strategist and political and economic critic Kevin Phillips, whose latest book BAD MONEY: RECKLESS FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISM explores the role that the crumbling financial sector played in the now-fragile American economy.
September 19, 2008
WSJ: NYT: > Sources: Markets Soar, but New Rules Upset Traders VIKAS BAJAJ, ANDREW ROSS SORKIN and MICHAEL J. de la MERCED NYT, September 18, 2008 http://www.nytimes.com/2008/09/20/business/worldbusiness/20markets.html U.S. Bailout Plan Calms Markets, But Struggle Looms Over Details DEBORAH SOLOMON and DAMIAN PALETTA WSJ, SEPTEMBER 20, 2008 http://online.wsj.com/article/SB122186549098258645.html
Paul Krugman, an economics professor at Princeton University, talks about the U.S. government’s move to cleanse banks of troubled assets and halt an exodus of investors from money markets and the outlook for the U.S. financial-services industry and economy
00:00 "Socialization" of U.S. financial system
01:51 Bailout’s justification; "inevitable" rescue
04:13 The outlook for U.S. banks is "not clear."
05:02 "Weakening" economy into next year
Running time 05:57
Krugman Sees `Socialization’ of U.S. Financial System: Video
Bloomberg, September 19, 2008 17:53 EDT
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.
SEC: Ban All Short Selling (September 18, 2008)
SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets
SEC Chairman Christopher Cox
FOR IMMEDIATE RELEASE 2008-211
Here is tonite’s theater of the absurd SEC headline:
SEC intends to temporarily ban short selling, but it’s not clear if the commission has approved the move. Cox is briefing congressional leaders. Separately, the government is seeking congressional authority to buy distressed assets.
This is nothing short of a total panic by people who have no clue what they are doing. And to think, I mocked Russia for being a nation run by market commies.
This is the ultimate bailout attempt, which will have repercussions far far beyond our imaginations:
1) We suffer a loss of Market Integrity; The US is now a Banana Republic
2) Blatant market manipulation: this is nothing more than an attempt to force markets higher;
3) 60 days prior to a presidential election? This is a none-too-subtle attempt to influence the elections — especially coming on top of the Fannie/Freddie bailout;
4) The coming pop will create a huge air pocket, ultimately leading to us crashing much lower;
5) Expect a huge increase in volatility — upwards first, then down;
We Are A Nation of Morons, led by complete Idiots, making us complicit in our own self destruction.