This page has been archived and commenting is disabled.

Here Is What Happened When The SEC Banned Shorting Financial Companies In 2008

Tyler Durden's picture


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.

SEC Fin Ban


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 08/11/2011 - 10:38 | 1550783 yipcarl
yipcarl's picture

Intentional destruction that they pawn off as helping us....


LOL.  it's all 911 logic these days..

Thu, 08/11/2011 - 10:43 | 1550820 Buckaroo Banzai
Buckaroo Banzai's picture

We're getting down to the "vinegar strokes," folks.

Thu, 08/11/2011 - 11:00 | 1550884 SparkySC
SparkySC's picture

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.

Thu, 08/11/2011 - 10:38 | 1550787 Spitzer
Spitzer's picture

what happens to the short ETFs then?

Thu, 08/11/2011 - 10:51 | 1550854 dhengineer
dhengineer's picture

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.

Thu, 08/11/2011 - 10:58 | 1550880 oddjob
oddjob's picture

Buy puts on the long etfs.

Thu, 08/11/2011 - 11:00 | 1550892 sunnydays
sunnydays's picture

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.

Thu, 08/11/2011 - 10:39 | 1550789 101 years and c...
101 years and counting's picture

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.

Thu, 08/11/2011 - 10:39 | 1550791 dbach
dbach's picture

I reject your reality and substitute my own

Thu, 08/11/2011 - 10:41 | 1550792 firstdivision
firstdivision's picture

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.

Thu, 08/11/2011 - 10:39 | 1550795 SheepDog-One
SheepDog-One's picture

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!!

Thu, 08/11/2011 - 10:53 | 1550863 dbach
dbach's picture

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

Thu, 08/11/2011 - 11:52 | 1551133 Absinthe Minded
Absinthe Minded's picture


Thu, 08/11/2011 - 10:55 | 1550869 slaughterer
slaughterer's picture

Markets always rise at first on a short ban.  Then they start to implode.  

Thu, 08/11/2011 - 10:58 | 1550876 RobD
RobD's picture

Is that why the FTSE has a hardon right now, up 3.17%(+465)?

Thu, 08/11/2011 - 11:17 | 1550952 firstdivision
firstdivision's picture

Yeppers! Look for it to open down tomorrow though.

Thu, 08/11/2011 - 11:16 | 1550948 chunkylover42
chunkylover42's picture

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.

Thu, 08/11/2011 - 10:42 | 1550796 Cognitive Dissonance
Cognitive Dissonance's picture

Human sacrifice, dogs and cats living together. Mass hysteria.

Thu, 08/11/2011 - 10:39 | 1550797 Waffen
Waffen's picture

oh contraire


It worked.. it extended and pretended for another few weeks.

Thu, 08/11/2011 - 10:46 | 1550830 SheepDog-One
SheepDog-One's picture

Actually 'it worked' for 2 days.

Thu, 08/11/2011 - 10:40 | 1550799 No One
No One's picture

Are you ready for some football?!?!?!?!?

Thu, 08/11/2011 - 10:40 | 1550800 Seasmoke
Seasmoke's picture

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 NEED both sides to have a market ......WHAT IS SO HARD TO UNDERSTAND !!

Thu, 08/11/2011 - 11:02 | 1550899 snowball777
snowball777's picture

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?

Thu, 08/11/2011 - 21:34 | 1552863 StychoKiller
StychoKiller's picture

Turn on that painted-rock radio, then call the tower...

Thu, 08/11/2011 - 10:41 | 1550805 Johnny Yuma
Johnny Yuma's picture

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.

Thu, 08/11/2011 - 10:42 | 1550809 hedgeless_horseman
hedgeless_horseman's picture

...the SEC banned the shorting of all financials here in the US. Below is a chart of the carnage that ensued...

Correlation does not equal causation.

Thu, 08/11/2011 - 10:48 | 1550837 swissaustrian
swissaustrian's picture


Reducing the cause of the plunge in 2008 to the short selling ban is way too simplistic.

Thu, 08/11/2011 - 10:52 | 1550858 SheepDog-One
SheepDog-One's picture

If it looks like a duck, quacks like a duck, walks like a duck, its a duck.

Thu, 08/11/2011 - 10:51 | 1550856 DCFusor
DCFusor's picture

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.

Thu, 08/11/2011 - 10:42 | 1550812 Debugas
Debugas's picture

NAKED short-selling is equivalent to counterfeighting and SHOULD BE BANNED

but covered short-selling is ok

Thu, 08/11/2011 - 11:39 | 1551079 Doubleguns
Doubleguns's picture

Naked long buying should be banned too.

Thu, 08/11/2011 - 11:49 | 1551123 JohnG
JohnG's picture

Nonsense.  If I'm short of something, just why the hell would I want to own it??  That's the point of a short.

Thu, 08/11/2011 - 10:42 | 1550814 Sudden Debt
Sudden Debt's picture

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....


Thu, 08/11/2011 - 10:44 | 1550821 Sudden Debt
Sudden Debt's picture

They had to ban it! It didn't fit into their Inside Trading Strategy!


Thu, 08/11/2011 - 10:45 | 1550825 MichaelG
MichaelG's picture

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, especially when there is a fundamental underlying basis.

Fixed that for them.

Thu, 08/11/2011 - 10:45 | 1550827 treemagnet
treemagnet's picture

You must choose the red pill or the blue pill. 

Still cannot believe we're gonna do this again x2. 

Thu, 08/11/2011 - 10:52 | 1550859 Sudden Debt
Sudden Debt's picture



Thu, 08/11/2011 - 14:20 | 1551555 Putty
Putty's picture

Bullshit. I'm taking both.

Thu, 08/11/2011 - 10:46 | 1550829 Spastica Rex
Spastica Rex's picture

Annette Bening: "What do you sell, anyway?"

John Cusack: "I sell confidence."

Who's conning who?

Thu, 08/11/2011 - 10:47 | 1550835 apberusdisvet
apberusdisvet's picture

If it comes here, watch the bullion banksters get an exemption; national security, dontcha know.

Thu, 08/11/2011 - 10:48 | 1550840 lizzy36
lizzy36's picture

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.

Thu, 08/11/2011 - 10:55 | 1550867 John McCloy
John McCloy's picture

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.

Thu, 08/11/2011 - 11:26 | 1551007 Mediocritas
Mediocritas's picture

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.

Thu, 08/11/2011 - 10:49 | 1550843 OpenEyes
OpenEyes's picture

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!

Thu, 08/11/2011 - 10:55 | 1550855 hedgeless_horseman
hedgeless_horseman's picture

Winning the future!

Thu, 08/11/2011 - 11:19 | 1550962 pazmaker
pazmaker's picture

scrap aluminum going for about .55 per pound here.

Thu, 08/11/2011 - 11:08 | 1550924 dussasr
dussasr's picture

$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. 

Thu, 08/11/2011 - 11:16 | 1550946 snowball777
snowball777's picture

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.


Fri, 08/12/2011 - 03:38 | 1553513 ZeroPower
ZeroPower's picture

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.

Thu, 08/11/2011 - 10:51 | 1550852 Everybodys All ...
Everybodys All American's picture

At the end of the day if you hold the bank stock ... you are still going to sell it. Just not today!

Thu, 08/11/2011 - 10:54 | 1550864 TTaco
TTaco's picture

Somebody ever heard about a synthethic Short? (Short Call, Long Put, Same Strike)
This is Ridick-less!
LOL - Smile Face

Thu, 08/11/2011 - 10:55 | 1550871 Everybodys All ...
Everybodys All American's picture

little guy hasn't ... and that's the point.

Thu, 08/11/2011 - 11:10 | 1550894 hedgeless_horseman
hedgeless_horseman's picture

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. 

Thu, 08/11/2011 - 11:24 | 1550992 TTaco
TTaco's picture

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

Thu, 08/11/2011 - 10:55 | 1550870 Eagle Keeper
Eagle Keeper's picture

Blatant manipulation... Unless of course you write the rules to allow...

Thu, 08/11/2011 - 10:56 | 1550874 dwdollar
dwdollar's picture

No worries.  The DOW is back above 11,000.  Party on and don't think about tomorrow!

Thu, 08/11/2011 - 11:06 | 1550917 Rainman
Rainman's picture

Does this mean I shouldn't have dry cleaned my old tattered DOW 10,000 hat ???!!!

Thu, 08/11/2011 - 11:00 | 1550890 Arch Duke Ferdinand
Arch Duke Ferdinand's picture

Must View!

*****Pacific Northwest and Alaska Volcanic Eruptions Update

Two confirmed Volcanic eruptions...more coming friends....

*****The Creek...short video.

Parallel to knocking your head in the Stock Market...

Thu, 08/11/2011 - 11:04 | 1550912 the not so migh...
the not so mighty maximiza's picture

not untill the west coast sinks into the pacific do I have my edgar cayce moment.

Thu, 08/11/2011 - 11:20 | 1550967 snowball777
snowball777's picture

Also, the earth rotated giving the appearance of the sun rising in the east...and the tides continued to ebb and flow. Stay tuned!

Thu, 08/11/2011 - 12:04 | 1551178 Absinthe Minded
Absinthe Minded's picture

Are you calling that website a traveshamockery?

Thu, 08/11/2011 - 12:24 | 1551243 snowball777
snowball777's picture

I'm saying that about every post from the ArchDufus.

Thu, 08/11/2011 - 11:01 | 1550895 notadouche
notadouche's picture

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.


Thu, 08/11/2011 - 11:12 | 1550935 Dain Bramage
Dain Bramage's picture

Why doesn't the SEC et al talk of a ban on buying on margin when the market is in overbought mode? 

Thu, 08/11/2011 - 11:24 | 1550996 snowball777
snowball777's picture

Because the people working at the SEC are captured former industry.

Thu, 08/11/2011 - 11:20 | 1550968 RemiG2010
RemiG2010's picture

Some people never learn anything! Totally clueless!

Thu, 08/11/2011 - 11:26 | 1551012 RiskAverseAlertBlog
RiskAverseAlertBlog's picture

Nice. Timely reminder. Thanks!

Thu, 08/11/2011 - 11:38 | 1551075 Bob Paulson
Bob Paulson's picture

Bye bye short covering rallies...

Thu, 08/11/2011 - 12:11 | 1551193 DarkStarDog
DarkStarDog's picture

"market"  ?  LOL  nuttin but BS bail outs day after day.  See you at the pawn shop.

Thu, 08/11/2011 - 12:32 | 1551268 Cortez
Cortez's picture

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.

Thu, 08/11/2011 - 22:21 | 1553011 fraud-fed
fraud-fed's picture

Also, when they tip over all hell breaks lose and 24h news coverage ensues.

Thu, 08/11/2011 - 12:43 | 1551299 Muwabi
Muwabi's picture

Question: During the short-selling ban, I can still sell my puts on EWI when they go through the roof right?

Sat, 08/13/2011 - 02:50 | 1556602 yang46
yang46's picture

A final piece wedding flower girl dress of advice for a young bride dress: select your bridal gown. 20s tend quinceanera dress to be very those wedding dress pictures for decades to come. Choose a wedding dress 2011 style which suits the young lady evening dress you are today,a line bridesmaid dress yet one which you will short evening gowns also loticated woman cocktail dresses .

Sat, 09/03/2011 - 13:15 | 1629614 Donald Harper
Donald Harper's picture

I would like to join your blog anyway so please continue sharing with us. Thank you for sharing to us.there are many person searching about that now they will find enough resources by your post. Thanks for providing some great guidelines for ways to improve and protect your credit rating! So many unknowns and misconceptions about what impacts your credit score and this information is very helpful it understanding the largest impacts and where to focus first on improving credit scores...



Wed, 09/14/2011 - 05:50 | 1667685 chinawholesaler
chinawholesaler's picture

Wedding Favors
Wedding Favors

Wholesale Bedding
Wholesale Scarf
Wholesale Lanyard

Wholesale Glass
Wholesale Fan
Wholesale Tableware

Personal Safety Products
Wholesale USB Flash Drive
Wholesale Cap

Writing Instrument
Outdoor Leisure Products
Coin Bank

Recorder Pen
Heating Products
Wholesale Ruler

Lady Beauty Care
Wholesale Scale
Wholesale Pen

Wholesale Clothes Rack
Wholesale Banner
Flash Gift

World Cup Products
Wholesale Calendar
Wholesale Badge

Wholesale Keyboard
Wholesale Keyboard
Wholesale Speakers

Wholesale Binoculars
Wholesale Pin
Promotional Items

Book Light
Sport Support Products
Wholesale Helmet

Wholesale Speakers
Poncho Raincoat
Wholesale Coaster

Vocal Concert Products
Garden Decorations
Promotional Gifts

Wholesale Scarf
Wholesale Playing Card
Promotional Gifts

Wholesale Glove

Do NOT follow this link or you will be banned from the site!