Err, Will?

It was helped by the three-month ban on \’short-selling\’ – borrowing shares you don\’t own just to sell them, which had earlier in the week threatened to provoke Britain\’s second bank run as our top mortgage lender HBOS reeled from its impact.

You do know that short interest in HBOS was under 3% last week, don\’t you? That short selling had a trivial effect upon the share price?

That means new public banks, new regulatory structures, new managed exchanges for securitised debt and public insurance of securitised assets……Similarly with the new technology of securitisation. It enables the economy to sustain more debt. The choice is to condemn the new technology and force an economic crash as debt and credit regress to presecuritisation levels. Or it is to devise a system of public banks, government-supported insurance companies and a robust regulatory framework that allows the economy to enjoy the benefits.

Is he seriously suggesting that the government should insure bonds? Really?

Jebus, Mrs. Hutton\’s property empire must be in worse shape than we thought.


10 thoughts on “Err, Will?”

  1. The scourge of the markets has not been short selling, but naked short selling.

    But being the government, they took at a sledgehammer when a flyswatter would do.

  2. Ok, I don’t understand why everyone is upset over the moratorium on short selling. I’m happy to be corrected, tho. But remember earlier in the year when the French firm had a rogue trader who lost them about 40 million euros? They brought in their ‘best trader’ to unwind his positions – and proceeded to lose another 30 – in no small part because of shorting.

    What am I missing?

  3. Naked shorts are fine as long as they are not being used solely to drive down the price of the stock. But that’s by-the-by: naked shorts have been banned in the US at least for a while now.

    And Pamela, shorts are a mechanism for identifying and securitising risk. The fact that a stock is being sold short is an additional piece of information. From a technical standpoint, short selling is necessary for portfolio managers to be able to access all parts of the efficient frontier.

    There are already regulations in place to mitigate the negative effects of shorting, like the uptick rule.

  4. And remember the very old rule on naked short-selling:

    “He who sells what isn’t his’n must buy it back
    or go to prison.”

  5. David Gillies: There are already regulations in place to mitigate the negative effects of shorting, like the uptick rule.

    No. The uptick rule was removed several years ago. If it were still in place, I agree, shorts should still be allowed.

  6. Why’s the uptick rule make such a difference? if short-selling is beneficial, then I don’t see why it is not beneficial if the uptick rule is in place. Things have a value to a buyer, and he/she should buy it when it goes below that value.

  7. Matthew: The uptick rule basically said the short sellers could not start to play unless the stock had ticked up. When the rule was withdrawn short sellers could pile on and on, ultimately creating a self-fulfilling prophecy and driving the stock down.

    This was the big complaint Alan Schwartz of Bear Stearns had – short sellers were driving the stock down without fundamental reasons. I disagree – there were very good reasons to drive that stock down, specifically undercapitalization. Nevertheless, had the uptick rule been in place, it would have been less of a mess.

    I don’t know who the genius was who decided it would be a good idea to get rid of the uptick rule. Another Master of the Universe, I suppose.

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