New Haven Independent

Bush Officials To the Levees To Shore Up Markets

by Patricia Dillon | September 19, 2008 10:53 AM | Permalink | Comments (5)

In a dramatic move early Friday, the SEC imposed a temporary ban on short selling in U.S. financial markets.

Imposed on the day that the expiration of stock options threatens further
erosion in capital markets, the measure, if successful, should result in large gains today in major indexes.

It follows similar moves in the UK and in CALPERS, California’s massive pension fund.
The Wall Street Journal had reported that last weekend, financial leaders had pleaded with Bush officials that the SEC take similar action, only to be rebuffed. Subsequent days saw the bankruptcy filing of Lehman Brothers, a federal takeover of AIG insurance, and the shuttering of possibly two major money market funds as their assets deteriorated.

Although the measure is temporary, it is an implicit admission that the repeal of New Deal reforms enacted in the wake of the 1929 market crash contributed to the financial crisis.

Most Americans do not follow the intricacies of stock market regulations. But they do know that their savings and pension funds have suffered serious erosion.

Gains today will not undo the wreckage of the past week.

Coming at the end of the week, it may change the psychology of a market that seemed to be feeding on itself.

Despite the complexity of SEC rules, at the end, much of the market operates implicitly on confidence and trust.

Today’s measure is an attempt to restore that trust.

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Comments

Posted by: robn | September 19, 2008 12:40 PM

A One Trillion Dollar bailout??? ...so that Wall Street guys don't lose their third house in the Hamptons? Heres a crazy idea...let them die. Free markets at work.

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/17/AR2008091702971.html?hpid=opinionsbox1

Posted by: anon | September 19, 2008 3:38 PM

Robn, how about an extra 50% tax on all incomes and capital gains above $1 million? Wouldn't that be easier?

Posted by: Your Tax Dollars at Work | September 19, 2008 5:13 PM

Short sales are needed in order to preserve orderly markets. Banning (in UK & US) is throwing out the baby with the bathwater. SEC's elimination of the "uptick rule" was an example of unwise Bush deregulation. If the rule had been in placeduring the last few weeks last weeks' market downturns could have been greatly softened. Besides traders will find ways to get around the ban.

Posted by: Rep. Pat Dillon | September 19, 2008 5:40 PM

YTDAW,
We agree. For starters, when you invest your money (or someone else's) in a company it's also wise to protect your assets by shorting (or hedging).
But shorting works one way - the way you describe - in an up market, another way in a down market.
In a down market it can pummel the capital base of a company, and there's no mercy rule in the stock market.
Today's action is timely but still worrisome, because it's broad yet temporary. When Cox limited shorting earlier this year he made it temporary too. That rule expired Aug 12 and short interest spiked.
Since this rule expires after ten days, day eleven may be mayhem.

Posted by: robn | September 22, 2008 9:39 AM

The rules for shorting were loosened by GOP to the extend that it became damaging. Fixing the rules seems prudent, but suspending short selling is outrageous. Like the Wizard of Oz (an appropriate historical referenece), the Fed is saying, pay no attention to that man behind the curtain. Shortselling is supposed to be the canary in a coal mine which reveals potential underlying weakness. The suspension removed a control mechanism from the marketplace.

Bush Officials To the Levees To Shore Up Markets

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