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Here Is What Happened When The SEC Banned Shorting Financial Companies In 2008
There are those who say the upcoming short selling ban in all stocks in Italy and France, which according to CNBC will take place as soon as after the close today, or in one hour, will be beneficial to stocks. Then there are facts. To those who may have forgotten, on September 18, the SEC banned the shorting of all financials here in the US. Below is a chart of the carnage that ensued... The same chart is coming to Europe first. End result: 48% drop in under a month.
As for the justification provided by the SEC back in 2008, it has an eerie resemblance to that used today:
Given the importance of confidence in our financial markets as a whole, we have become concerned about recent sudden declines in the prices of a wide range of securities. Such price declines can give rise to questions about the underlying financial condition of an issuer, which in turn can create a crisis of confidence, without a fundamental underlying basis. This crisis of confidence can impair the liquidity and ultimate viability of an issuer, with potentially broad market consequences. Our concerns are no longer limited to the financial institutions that were the subject of the July Emergency Order. As a result of these recent developments, the Commission has concluded that there continues to exist the potential of sudden and excessive fluctuations of securities prices generally and disruption in the functioning of the securities markets that could threaten fair and orderly markets. In these unusual and extraordinary circumstances, we have concluded that, to prevent substantial disruption in the securities markets, temporarily prohibiting any person from effecting a short sale in the publicly traded securities of certain financial firms, which entities are identified in Appendix A (“Included Financial Firms”), is in the public interest and for the protection of investors to maintain or restore fair and orderly securities markets.
End result: LOL
Full SEC letter.
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Intentional destruction that they pawn off as helping us....
LOL. it's all 911 logic these days..
We're getting down to the "vinegar strokes," folks.
Amazingly/mysteriously Washington Mutual Bank was left off the Short Selling List at that time and days later (though Solvent) it was seized by the OTS.
Hmmmmm coincidence? LOL
I think not.
what happens to the short ETFs then?
I made a ton of cash in 2008 using SKF and SDS, which don't hold the actual stocks. They are derivatives based on the bank index and the S&P, and are supposed to be double-weighted the inverse of the underlying indexes. They aren't perfect, making maybe 175 percent rather than 200 percent, but they work pretty well for the short run. I was using them in a self-directed IRA, so I could buy and sell without worrying about short-term cap gains taxes.
Buy puts on the long etfs.
It is only the stocks that could get hurt not the ones the banks are doing themselves for the government. shorts on metals will always be allowed, that could never get stopped. They wouldn't do that to themselves it is too important.
as a holder of spxu, faz and dto, i applaud this stupidity. they are making it too easy to make money in this centrally planned ponzi.
I reject your reality and substitute my own
http://www.youtube.com/watch?v=W8qcccZy03s
Well we know that Euro markets will get a quick bump up in the short covering, but then plunge as traders sell positions to balance risk. This is going to be awesome as it fails to float the markets. Looks like Sarkozy and Merkle will be meeting twice a day soon.
WOW so we got a market rise based upon banning short selling thus destroying the markets and certain plunge to come. Just fantastic work again FED world bankster boys! Standing ovation!!
I wonder if this will be bullish for gold as a safe haven or if, combined with the hiked margins, incite margin calls and push people to liquidate
Yes.
Markets always rise at first on a short ban. Then they start to implode.
Is that why the FTSE has a hardon right now, up 3.17%(+465)?
Yeppers! Look for it to open down tomorrow though.
Sure, you get a quick covering of the shorts for a nice ~10% pop. then the longs look at that as a chance to get out at a slightly better price than a few hours ago and start selling because it's a still a shitty situation. With no shorts left to cover at any point in the future, panic selling starts and it cascades down into the toilet.
Banning shorts is equivalent to shooting the messenger.
Human sacrifice, dogs and cats living together. Mass hysteria.
http://www.youtube.com/watch?v=O3ZOKDmorj0
oh contraire
It worked.. it extended and pretended for another few weeks.
Actually 'it worked' for 2 days.
Are you ready for some football?!?!?!?!?
i said back then it would not work as they had hoped and i am 100% positive this desperate, disgusting move will blow up in their faces as well.....you NEED both sides to have a market ......WHAT IS SO HARD TO UNDERSTAND !!
We're sorry...we can't hear you over the sound of the jets warming up. Can you help us move these boxes into the cargo hold?
Turn on that painted-rock radio, then call the tower...
This will create a nice air pocket beneath the market. Once the last buyer comes in, price will drop like an elevator with it's cable snapped.
Correlation does not equal causation.
Exactly.
Reducing the cause of the plunge in 2008 to the short selling ban is way too simplistic.
If it looks like a duck, quacks like a duck, walks like a duck, its a duck.
Right, correlation ain't causation, and there was an unintended and unhealthy consequence. Since you couldn't short banks, we had everyone and his brother becoming a bank to get in on that from the corporate side, and also to grab more federal money as a "bank". Few have reverted to what they really are. Just another way for some to game the system.
NAKED short-selling is equivalent to counterfeighting and SHOULD BE BANNED
but covered short-selling is ok
Naked long buying should be banned too.
Nonsense. If I'm short of something, just why the hell would I want to own it?? That's the point of a short.
Tyler, You seem to forget that this time will be different!
Never look back, keep your eyes on the horizon!
while you're 100 yard from the cliff....
They had to ban it! It didn't fit into their Inside Trading Strategy!
Fixed that for them.
You must choose the red pill or the blue pill.
Still cannot believe we're gonna do this again x2.
TAKE THE BLUE PILL WITH 2 SHOTS OF VODKA!!!!
YOU'LL BE DRILLING FOR OIL ALL NIGHT!
Bullshit. I'm taking both.
Annette Bening: "What do you sell, anyway?"
John Cusack: "I sell confidence."
Who's conning who?
http://www.youtube.com/watch?v=yGlkaHGj0Ug
If it comes here, watch the bullion banksters get an exemption; national security, dontcha know.
I don't get how 3 years later, we are still doing the same shit that doesn't work. And it is being done over and over again.
The status quo really is fucking nuts.
As long as we continue to concentrate on yesterday, we will be doomed tomorrow.
When the fundamentals fail at first blame and ignore them and insert hopium. Then resort to manipulation and finally everything becomes reliant on perception which has been failing us for about 3 years now so all they have left is more attempts to create opinion and alter perception.
This isn't about doing what actually works, this is political.
Political "correctness" means doing that which gains you the most political power. Often that means doing the polar opposite of what is truly correct.
Fact is, to the little people on the street, watching their nest egg going up in smoke, us short sellers are satan in the flesh. Average Joe is freaking out as his retirement savings vanish before his eyes and there's me, loving it because I'm applying a little price discovery on Joe's behalf seeing as he wasn't interested enough to bother to research the true value of his stocks.
Clearly, therefore, the market going down is all the fault of us bears and popular anger rises, something that power hungry politicians are NEVER slow to capitalize on. In true political correctness, they promise to give the people what they want and ban the bears. Half the time, these same politicians probably know damn well that this will only make Average Joe lose even more, but they don't care because Joe has no idea.
Same shit as always, different day.
a friend of mine just posted this on facebook, thought it was pretty good:
If you had purchased $1000.00 of shares in Delta Airlines a year ago, you would have $49.00 today! If you purchased $1000.00 in AIG shares, you would have $33.00. If you purchased $1000.00 in shares in Lehman Brothers, you would have $0 today! But if you purchase $1000.worth of beer, drank all the beer, turned in the aluminum you would have $214.00. Therefore the best investment plan is to drink heavily and recycle. It's called the 401 keg plan!
Winning the future!
scrap aluminum going for about .55 per pound here.
$214 in beer cans from $1,000 worth of beer? Not likely, unless you are drinking really cheap swill and live in a state with $.10 deposit on the cans.
Or you could have bought $500 worth of gold, $500 worth of beer, recycled $107 for a total of $857 dollars...all while being drunk and both financially and ecologically sound.
Diversification!
Your friend doesnt know math.
Delta would leave you with $500, AIG with ~$550 today. As for the scrap beer cans - extremely unlikely.Your friend is a troll.
At the end of the day if you hold the bank stock ... you are still going to sell it. Just not today!
Somebody ever heard about a synthethic Short? (Short Call, Long Put, Same Strike)
This is Ridick-less!
LOL - Smile Face
little guy hasn't ... and that's the point.
The point is to shift the blame to the, "evil speculators."
Banning short-selling is merely prepping the PR battle field.
It's just like yelling, "Don't kill me!" after you shoot somebody. All the witnesses remember is that the dead guy was trying to kill you.
They would like to live in a world where you can only Buy and never Sell. You can buy on margin and have a credit morgage but you can't try to correct this madness. "The bubble is the problem,not the crisis". Basically, its right to mount a ponzi scheme and its wrong to point out its a scam. They wouldn't like us to look at the structure of the Ponzi-Social Security
Blatant manipulation... Unless of course you write the rules to allow...
No worries. The DOW is back above 11,000. Party on and don't think about tomorrow!
Does this mean I shouldn't have dry cleaned my old tattered DOW 10,000 hat ???!!!
Must View!
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Two confirmed Volcanic eruptions...more coming friends....
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*****The Creek...short video.
Parallel to knocking your head in the Stock Market...
http://www.youtube.com/watch?v=BLRAqfN48zo&feature=feedbul
not untill the west coast sinks into the pacific do I have my edgar cayce moment.
Also, the earth rotated giving the appearance of the sun rising in the east...and the tides continued to ebb and flow. Stay tuned!
Are you calling that website a traveshamockery?
I'm saying that about every post from the ArchDufus.
Hmmm, it would seem to me that if the institutions are in good shape, facts will always protect your organization shorterm stockprice notwithstanding. However if you are trying to hide the ugly truth then you have to resort to bans and jawbonning and chicanery. In the end it the financial truth wins the day. Any one that doesn't believe this just remember this list and what their respective CEO's were saying just days before the truth prevailed:
Bear Stearns, Country Wide, Enron, Wachovia, Worldcom, Leahman Bros, Washington Mutual, Merrill Lynch, Citigroup, AIG, Bank of America, Goldman, Barney Frank, Chris Dodd, Geithner, Greenspan, Long Term Capital, GM, GE...the list is actually exhaustive but I think I made my point. In no instance did a healthy company crater because of lies and damned lies, in fact the only way these and other corporations prosper or held on longer than what they should have been is because of lies and chicanery.
Funny isn't it that it's lies that gave them prosperity and truth that leaves them in the dust yet on the way down the liars claim other liars are damaging their entities. Kind of ironic I suppose.
Why doesn't the SEC et al talk of a ban on buying on margin when the market is in overbought mode?
Because the people working at the SEC are captured former industry.
Some people never learn anything! Totally clueless!
Nice. Timely reminder. Thanks!
Bye bye short covering rallies...
"market" ? LOL nuttin but BS bail outs day after day. See you at the pawn shop.
Only the most retarded of lawyers are brilliant enough to believe that banning something will cure the problem. I'm surprised no one has banned sandbags since they show up everytime there is a danger of flooding.
Also, when they tip over all hell breaks lose and 24h news coverage ensues.
Question: During the short-selling ban, I can still sell my puts on EWI when they go through the roof right?
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