R C Macaulay wrote: > Howdy Vorts, > > Let's see if I have this right,.. Nancy Pelosi and Chuck Schumer asked > the SEC to prevent " nekkid short selling" of financial stocks to > prevent further meltdown? So who's the guys doing it ? Not me ..said > Wall Street.. look in your own back yard, Nancy girl.
And a good chunk of the problem is almost certainly the repeal of the uptick rule. They did that a couple years back, very quietly, under pressure from hedge fund managers who found it an impediment to their program trading schemes. Testing before repeal to determine if repealing the rule would result in sufficient additional volatility to be a problem was somewhere between laughable and totally inadequate. The rule was instituted as part of the package of fixes after the '29 crash, as lack of an uptick rule contributed to the meltdown on Black Tuesday: As a stock starts to plummet, people -- or computers -- can decide to make a quick buck and "short" it on the way down. This accelerates the fall, of course, and can help to produce a "free fall" situation, where the asking price continues dropping with *no* *takers* (no transactions at all, because there are no offers to match against any asking price). Naked shorting -- selling stock without first borrowing it, IIRC -- can exacerbate the problem but it's not the heart of the problem. The heart of the problem is shorting on a downtick -- jumping on a falling stock to push it down faster. Note, particularly, that short sellers benefit enormously during a free fall situation -- the stock can go all the way to zero (company busted) and the short sellers just cheer. So, something to put the brakes on during a free fall is something they do not want. The uptick rule said no short sale could take place *except* after an uptick: A trade which took place at a price higher than the previous trade. That locks out short sellers during market collapses. Trouble is, hedge fund operators, who have an awful lot of money, *want* to jump on falling stocks to push them down faster, because it's a great way to make money, if you happen to have billions of dollars to throw around and a computer tied directly to the exchange data lines to make the trades for you. So, they lobbied long and hard to get the uptick rule repealed, and they eventually succeeded. And ever since it was repealed, the market has been wild -- far more volatile. And recently we've seen astonishing price collapses on a number of companies, with the price collapses contributing mightily to the financial problems of the markets and of the companies affected. (You better believe CEO's of large companies do not have quite the same interests as hedge fund managers! But the average CEO doesn't have anywhere near the resources available to him or her that a hedge fund manager does, and what's more most CEO's are too busy running their companies to pay a of attention to esoteric stock trading rules. As with so many situations, the only people who pay constant and close attention to the issue are the floor traders and fund managers who deal with it every day, but they actually represent one tiny special interest group whose interests are totally different from those of the rest of us.) And so the SEC has recently suspended short selling in something like 750 large securities, none too soon, IMHO. For sure, they should put the uptick rule back in place ASAP, as well, but I'd bet a box of bagels it's not going to happen -- too many rich gamblers really love the wild rides unbridled short selling can provide, never mind that the downside volatility it produces may ruin the occasional company, and probably acts to depress the world economy. > > The guys managing the Cal pension funds are the bad guys, wez' just > kids playin' wid matches. > > "The California Public Employees’ Retirement System, the nation’s > largest pension fund, said that starting Thursday it is no longer > lending out shares of Goldman Sachs Group Inc. and Morgan Stanley, > joining a growing number of public pension funds that are attempting to > curb short-selling of two investment banks’ stocks. ( MSNBC News Sept 19)" > > And I thought there may be sum'tin sneaky going on in the back room at > the Dime Box Saloon.. man !, these people are incorrigible. > > Richard >
