Brits Ban Short Selling Financials – We Should Too!

Posted by admin on September 18, 2008 under Economy, Opinion | Comments are off for this article

While it hasn’t been discussed nearly enough in the U.S. media, the short selling of Lehman Bros, AIG, Morgan Stanley and others has gone a long way toward precipitating the current economic crisis. What is Short selling? Wikipedia describes it as:

“The practice of selling securities the seller does not own, in the hope of repurchasing them later at a lower price. This is done in an attempt to profit from an expected decline in price of a security, such as a stock or a bond, in contrast to the ordinary investment practice, where an investor “goes long,” purchasing a security in the hope the price will rise.” (Source)

When you or I short a stock, it has no effect because we’re only dealing with a few hundred shares, but when hedgefunds do it by the 10’s of thousands of shares, they’re forcing the price of the stock down. This downward pressure attracts more short sellers and becomes a death spiral to the stock price.

The downward price of the stock lowers the value of the underlying corporation, and degrades their ability to borrow or otherwise raise capital. This further presses the stock price down. Eventually the stock collapses, unless…

Unless you’ve got a new scheme, and that’s to drive down companies that the U.S. government can’t let crash. Fannie Mae and Freddie Mac, the largest mortgage underwriters in the country, the government can’t let them crumble. Same with AIG one of the nations largest insurors, the government can’t let that fade away, so they come up with a bail out plan.

The bailout “saves the day” for the stockholders, many of whom are the very short sellers that precipitated the crisis, buoying the stock price back up and letting the hedge fund take a new profit at tax payers expense.

It’s happening around the world, and London has had enough. Today the British government announced that it was banning the short selling of stocks of financial institutions as of midnight tonight.

The ban, which has been approved by the watchdog’s board of directors, will prevent investors from creating or adding to short positions in all publicly quoted financial companies. The ban will remain in force until January 16, 2009, when the FSA plans to publish a comprehensive review of short-selling rules.
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News of the ban comes amid growing political backlash against short-selling, which has been blamed for exacerbating the woes of the country’s banks, and for contributing to the crisis of confidence in some of the country’s largest financial institutions. (Source – Financial Times)

The time is now for the U.S. government to follow suit, and implement a similar ban. We need positive action to stop this crisis, not a Commission to study it and do nothing. Contact your Congress Person and urge them to support a ban on shorting finies!

Is Bush Still Messing with McCain?

Posted by javavoodoo on September 17, 2008 under Opinion, Politics | Read the First Comment

George Bush ran one of the nastiest campaigns in history against John McCain in the 2000 Republican primary. Even going so far as to send flyers out to North Carolina voters saying McCain had an illegitimate black child. (Source) The McCains have an adopted black daughter. I think it’s fair to say that for years, John McCain and George Bush had a strained relationship.

But one thing about John McCain is that he won’t let a little thing like his personal principals stand in the way of his blind ambition to become president. John sucked up his personal dislike of W, and became one of the most reliable Bush votes in the US Senate, voting 95% of the time along the Bush line. Since declaring for President, McCain has reversed himself on virtually all the other 5% of issues where he and Bush were politically apart.

You have to almost think George W. Bush still enjoys messing with John McCain.

Yesterday McCain said we cannot bail out AIG. Then Bush bails out AIG late yesterday afternoon, so today McCain reverses himself saying “we had to bail out AIG.” (Source) A 180 degree turn in under 24 hours!

The same thing happened earlier in the campaign on the topic of offshore drilling. McCain was against new offshore drilling, then Bush came out and said, “hey, let’s drill in the Gulf of Mexico” and so McCain had to do another quick turn and become Pro offshore drilling. (Related)

To be fair, McCain did say it would only offer a “psychological” benefit. But then he started chanting, “Drill Here, Drill Now” so maybe he’s just trying to psych out those high gas prices?

Still George Bush has a well documented mean streak. Call it the frat boy prankster in him if you will, but you can’t miss it in his smirk when he thinks he’s landed a zinger to some reporter. For his part, McCain did give Bush only 8 minutes at the RNC this year. Maybe he was worred what W might say?

The way the Bush team doesn’t tip McCain to their decision making, makes me think W’s still enjoying making John squirm as long as he can.