According to The New York Times yesterday, people and companies have been upset and raising some cane about the possibility of the government limiting--just limiting, mind you--short selling on the stock market.
I've said before, what should happen is that short selling should be just outright killed.
Why, you ask?
A stock is a bet, really. A stock is a bet on a company doing well, when you get right down to it. If it does well--and you hope it does, of course--you do well. If the company does not do well--if it's badly managed or whatever--you do poorly.
I ask you, does that not qualify as a financial, business bet?
So short selling, which is "the practice of borrowing stock and selling it in the hope that its price declines", is a bet on a bet, purely and simply.
To short-sell a stock, you're betting the company and the stock do poorly and that the stock price falls.
This is no way to run a stock market for two reasons, at minimum:
1) It is, as I said, a bet on a bet and it weakens the stock market and
2) It causes a decline on the stock market to precipitate and increase in its fall, once the fall starts.
If you have a down market--a bear market, to use the term--it helps make the negative side of themarket increase and so, it falls further than it otherwise would.
And check this out--the rule that the government is considering putting back in has two pretty interesting characteristics about it.
First of all, it was only taken out 2 years ago, just before this halving of the markets. This seems to indicate the effect the elimination of this rule has had, I think.
And second, this is a law that was put into place back in 1938, during the Great Depression. It was in effect that long in our country's history. I think this shows that this same law stood us in pretty good stead, over all those years and through all those markets.
Seems to me like a good time and a good idea to put it back into our system of laws--along with other ones that would separate banking from insurance from
investment houses, while we're at it. Those laws came out of the Great Depression, too, of course.
The right thing to do, for our lawmakers, is to put these rules and laws back on the books. But you know representatives in government--in the first
place, they usually show the backbone of a sea slug and secondly, there's money to be made in taking corporate lobbyist's money, instead of doing the right
thing for you, me and the country.
Get this, from the original article: "They"--the corporate shills, against resinstating the laws--"have also said that the changes in the accounting
rules and the proposals to restrict short-sellers threaten to undermine the independence of the regulators and show their willingness to buckle under heavy political pressure."
Boy, that's a beauty.
What they're, in effect, saying is that, if the government does the right thing--that is, put these rules back into place--that they'll be "buckling under heavy political pressure" and that they're undermining "the independence of the regulators." Unbelievable.
Sure there's heavy political pressure. The financial world was going to hell in a handbasket, folks. Everyone was at the lifeboats. It seems only right to fix the system, since its broken.
What they were doing there is calling the government people who suggest we do the right thing with these rules cowards, in hopes of not having any restrictions put on them. All they want to do is be able to make as much money as possible, as frequently as possible, with as little rules as possible.
Let's hope our government does the right thing for the markets, the country and the American people and puts these rules, regulations and laws back into place.
As close as we supposedly/apparently came to total, worldwide financial meltdown, you would think intelligence and right would prevail.
Link to original story:
http://dealbook.blogs.nytimes.com/2009/04/06/some-revile-plan-to-limit-short-selling/?scp=2&sq=some%20revile%20plan%20to%20limit%20short%20selling&st=cse
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