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Short Selling Ban Returning To Insolvent European Countries Near You

Tyler Durden's picture




 

"Insanity: doing the same thing over and over again and expecting different results."

 

                                                             - Albert Einstein

Back in August 2011 Europe ushered in the totally idiotic idea of reinstating a short selling ban in financial stocks. We predicted at the time that the result would be a sheer disaster: "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." Sure enough, a week later we were right: "European banks are already unchanged compared to the day of the ban and in France they are now negative! What next: selling is illegal or "Speculation" is a felony? We expect to find out soon..." Why do we bring this up? Because according to Spanish daily Cinco Dias this last sugar high recourse of a collapsing system is soon coming back to an insolvent European country near you. From MarketWatch: "Spanish stocks rebounded from a sharp opening loss on Friday lifted by gains across the banking sector and led by a 26% rise for Bankia SA ES:BKIA +26.37% after a media report on a possible ban on short selling of banks. The IBEX 35 index defied losses across Europe to gain 1% to 6,596.40. Spanish daily Cinco Dias reported Friday, citing banking sources, that banks in the country want market regulator, CNMV, to reinstate a ban on short selling of domestic banking stocks."

At this point we are going to go out on a limb and say that if indeed true, and if it happens in Spain it means it will have to happen everywhere in Europe as well for it to be effective, the ramp higher will last for all of 48 hours tops, just as it did last time, and realistically will be shorter due to the habituation side-effects of a liquidity addicted market, and then proceed to lead financial stocks to new lows, resulting in the same outcome we saw after the last short selling ban: another coordinated global intervention to save the world from collapse. Only this time the OIS is already at +50, cut from +100 previously. What next: the Fed will hand out USDs in FX swap at no cost, or even better, negative?

And when this now biannual intervention fails, what then?

 

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Fri, 05/18/2012 - 08:25 | 2439049 bdc63
bdc63's picture

'bout time -- that oughta fix everything ...

Fri, 05/18/2012 - 08:26 | 2439055 Popo
Popo's picture

Yay.  Free markets.  Capitalism is awesome.  (You just can't short sell us.)  Thank you, -- The banking cartel.

Fri, 05/18/2012 - 09:11 | 2439163 Zero Govt
Zero Govt's picture

Yeah 'capitalism' is failing again although some might think it's Govt sucking the life out of capitalism that's the problem

let's have more Govt intervention in the free (cough) markets (splutter) ...like Spain has ruined their energy sector for example. The windmills worked so well in Spain they attached deisel engines to them to generate electricity (revenue) when the wind wasn't blowing

another fuking brilliant public-private scheme (scam)

Short selling ban on Bank shares? What the hell has become of bankers, these spoilt brats want nappy changing just about every 5 minutes

Fri, 05/18/2012 - 09:27 | 2439265 Stuck on Zero
Stuck on Zero's picture

A short selling ban is like a public announcement in a theater that no-one is to rush for the exits.  Riiigggghhhhtttt.

Fri, 05/18/2012 - 10:22 | 2439618 Popo
Popo's picture

Aside from the general level of panic inducement, it's also an immediate shutdown of 50% of the market volume. Which to add to your analogy, is sort of like "saving" the theater by instantaneously sucking all the oxygen out. Yeah, sure... Now It ain't gonna burn. But everyone's still fucked.

Fri, 05/18/2012 - 10:30 | 2439660 smb12321
smb12321's picture

It is the big boys (the banksters) who profit more by short selling of their less-lucky compatriots then Joe Blow from Jersey.   This move is all part of the ever-increasing drive to remove risk from any kind of financial action.   There are many who feel that folks should NEVER lose money even if they do wacky things, refuse to do their due diligence and make unsound choices.  That kind of "control" will bring about a sterile landscape faster than anything.

Fri, 05/18/2012 - 08:29 | 2439059 rsnoble
rsnoble's picture

Yeah ban everyone from shorting except the big boys.  It's a professional move, only we can do that. LOL.

Recall what happened right after they removed the uptick rule in the US?  Yep, they knew it was coming.

Fri, 05/18/2012 - 08:30 | 2439064 CPL
CPL's picture

Just buy a 25k of sacrifice to make some options.

Fri, 05/18/2012 - 10:31 | 2439671 smb12321
smb12321's picture

Question:  Does banning short sales also mean you can't sell a call or buy a put?  I mean in diving markets it's a one-to-one correlation between stock price and profit, 

Fri, 05/18/2012 - 08:29 | 2439061 malikai
malikai's picture

I thought last year's short ban was on NAKED shorts of financials. No?

Fri, 05/18/2012 - 09:13 | 2439214 Zero Govt
Zero Govt's picture

naked or not these turkeys are heading at ramming speed toward Christmas

Fri, 05/18/2012 - 08:29 | 2439062 Olympia
Olympia's picture

From the Wall Street Crash of 1929 to the Global Financial Crisis of 2007

 

It all started with the big crisis of 1929. The American economy reached a deadlock because of its social "pathogenesis"; a deadlock that led it to economic crisis in a different - faster- pace than the rest of the industrial forces of that time. Important decisions had to be made - mostly social - and the Whites didn't like that, especially the Whites' rulers, the Anglo-Saxons. The USA society had to either be homogenized and "forget" about racism against black people or find itself in a permanent deadlock that would threaten it with social uprising. If they didn't equate the black working people with their white colleagues so that there wouldn’t be an issue with the salaries that threatened the national currency, they couldn't avoid reactions and all that goes with it.

 

The problem which began as social but was turning into economic was simple. As long as the economy functioned adequately and the Blacks worked and asserted what they deserved for their work, the white employers had to "fund" the white working force with extra money because of their skin color. To avoid complaints from a white worker who received the same salary with his black colleague, the employers had no choice but to give them more money. The demands of the Blacks were used as an excuse by the Whites to demand more and everything ended up in the same pocket, since they were under the same employ. The problem that arose from this "strange" tactic was that the increased takings of the "superior" White employers were seeking outlet in investments and that threatened the capital. Having higher salaries, they bought more houses; they bought stocks and so on.

 

 

www.eamb-ydrohoos.blogspot.com/2010/02/ten-plagues-of-pharaoh.html

 

Authored by Panagiotis Traianou

Fri, 05/18/2012 - 08:54 | 2439150 Tortuga
Tortuga's picture

Whaaaat? what provence you from?

Fri, 05/18/2012 - 15:00 | 2441268 boouood
boouood's picture

He is from Greece. He is totally brainwashed. Forgive him and let him spam freely

Fri, 05/18/2012 - 10:34 | 2439687 smb12321
smb12321's picture

I think you have an agenda and rewrite history to support it.   Few (if any) historians or economists share your conclusions.  I seriously doubt that a cabal of big boys sat around discussing the economy in terms of race relations.

Fri, 05/18/2012 - 08:30 | 2439063 LawsofPhysics
LawsofPhysics's picture

Because markets can only be allowed to go up.  How is that going to work for retirement again?   You can on pay in, but you can never take it out?  FAIL.

Fri, 05/18/2012 - 08:37 | 2439095 Oh regional Indian
Oh regional Indian's picture

Sounds like hotel California.

Or actually, sounds like California.

ori

Fri, 05/18/2012 - 09:03 | 2439187 Zero Govt
Zero Govt's picture

the Orange State that looks more like Commie red 

Fri, 05/18/2012 - 09:07 | 2439197 Oh regional Indian
Oh regional Indian's picture

That would be Burnt Orange ZG! :-)

ori

Fri, 05/18/2012 - 09:10 | 2439207 Zero Govt
Zero Govt's picture

...or Blood Orange  

very tasty usually but the Californian version is rotten to the (progressive) core 

Fri, 05/18/2012 - 08:30 | 2439066 timbo_em
timbo_em's picture

Ostrich Economics FTW!!!

Fri, 05/18/2012 - 08:32 | 2439075 Motorhead
Motorhead's picture

Sounds like dealing with some of my colleagues at the office.

To quote Monty Python, "Doctor, my brain hurts!"

Fri, 05/18/2012 - 08:33 | 2439077 kristian01
kristian01's picture

I guess no one has heard of the stats 101 concept of spurious correlation.  The short ban hardly led financials down 48% the last time it was implemented.  How about considering the possibility that the conditions that brought about the panicked short ban is what caused the decline?  C'mon guys, let's be reasonable here.

Fri, 05/18/2012 - 08:47 | 2439121 Global Hunter
Global Hunter's picture

Yes sir the government banning shorts tells the holders of the equity that everything is completely fucked so they hit every bid they can. Simple really.

Fri, 05/18/2012 - 08:52 | 2439144 Tortuga
Tortuga's picture

Reasonable? With the 4 horsemen peeking over the horizon, with the 4th cycle of the Kronnig Winter coming Nov 5.

Fri, 05/18/2012 - 09:09 | 2439201 kristian01
kristian01's picture

quite right...I don't exactly come to this site for a balanced outlook, I should know better

Fri, 05/18/2012 - 09:25 | 2439259 mark mchugh
mark mchugh's picture

You're missing the point.  Distorting markets to inspire confidence in failed institutions is somehow seen as a noble endeavour, and when those efforts fail (like they always do) and actual price discovery is imminent, they lock out market participants because the idea of tranferring wealth to people who refused to see the emporer's new clothes is unacceptable.

Capitalism is supposed to be brutal.  Bad actors are supposed to get trampled to death and the people who backed those bad actors should lose all their money.  That's how people learn the difference between what works and what doesn't.  Interfering with that process to keep schmucks in charge doesn't help anybody.

This ain't Candyland.

Fri, 05/18/2012 - 10:38 | 2439713 smb12321
smb12321's picture

The idea that no one should ever be penalized for a stupid decision or for not researching the facts or for listening to "experts" tell them what to do is rapidly gaining ground in the public and the political arena.  (The JPM is an example, losing 1/1000 of its assets with money that was neither taxpayers nor investors.)  The notion that folks can buy houses they can't afford, live like kings using debt or buy things they don't need with money they don't have is ludicrous but popular.

Fri, 05/18/2012 - 13:58 | 2440895 kristian01
kristian01's picture

I'm not missing the point--the *article* is missing the point by suggesting the short ban has anything to do with the subsequent declines.  Yes, price discovery is delayed with a short ban, but it's not like preventing shorts in any way changed the underlying prospects of the companies or the macro-environment that drove their prospects.  That notion is just absurd.

Naked shorting, if it was going on, shouldn't be tolerated any more than naked buying.  The notion of price discovery is great in theory, but naked shorting, I'm sure you would agree, is a manipulation of that process, and actually distorts the price discovery process.  If that is occurring--I'm not taking a position on that, just challenging the absurd thesis in the original post.

Fri, 05/18/2012 - 23:47 | 2442784 mark mchugh
mark mchugh's picture

I disagree that the article makes the assertion you're seeing.  The article is about panicked central planners changing the rules to the game while they make "a plan."  When they want to disable market participants, it means things are really bad.  Banks stocks don't go down because there's a short selling ban, they ban short-selling because bank stocks will be going down.

,

Fri, 05/18/2012 - 08:34 | 2439079 Burr's 2nd Shot
Burr's 2nd Shot's picture

Say, Ben, would you rub some of this powder on my lips?

Fri, 05/18/2012 - 08:34 | 2439083 lizzy36
lizzy36's picture

Speculators ARE bad (except when they speculate on the market going up).

They deserve everything they get.

PSA - brought to you by populists everywhere

Fri, 05/18/2012 - 08:39 | 2439100 LawsofPhysics
LawsofPhysics's picture

Yes indeed, just like the elite are "job creators".  So why are these owners not called "job destroyers" when their companies are going bankrupt and they are handing out pink slips?

Fri, 05/18/2012 - 08:50 | 2439139 Tortuga
Tortuga's picture

Saw a picture yesterday on a site, with Reagan, Bush, volker, stockman standing around with drinks in hand, laughing hard with the caption " and then we told them wealth would trickle down, haahaaahaahaaaahaaa.

Fri, 05/18/2012 - 08:36 | 2439091 firstdivision
firstdivision's picture

So with no one to squeeze to force markets up, do they hope standing around squeezing their own penises will help markets?

Fri, 05/18/2012 - 08:48 | 2439124 Tortuga
Tortuga's picture

Dammit. Scuse me, gonna go wake up the wife, or not, long as I get mine! be back in 5 maybe 3 minutes.

Fri, 05/18/2012 - 08:40 | 2439102 PaperBear
PaperBear's picture

A ban on naked short selling without stock being borrowed makes more sense than a ban on normal short selling done with borrowed stock.

But then what would sense have to do with this decision ?

Fri, 05/18/2012 - 08:41 | 2439105 sessinpo
sessinpo's picture

As long as they don't ban women wearing daisy dukes, I'm fine with it. The only thing getting between those shorts ought to be me. LOL

Fri, 05/18/2012 - 08:45 | 2439117 Tortuga
Tortuga's picture

I love those shorts. Thanks for resusitating the memory. I owe ya one. click.

Fri, 05/18/2012 - 08:44 | 2439110 Sean7k
Sean7k's picture

Banks can't make money without volatility. If you know the play, you make the hay. 

It is all about jerking the markets around to steal alittle more wealth from the wannabees. Unfortunately, they have to do it across so many platforms now, we get a continuous announcement of the latest lever. 

Fri, 05/18/2012 - 08:49 | 2439130 LawsofPhysics
LawsofPhysics's picture

Yes, paper-pushers (who contribute nothign of real value) steal more wealth on the back of your labor.  Same as it ever was and still unsustainable. 

Fri, 05/18/2012 - 08:57 | 2439158 max2205
max2205's picture

History is being repeated on ever tightening cycles

Fri, 05/18/2012 - 09:07 | 2439190 Zero Govt
Zero Govt's picture

the debt cycle has certainly peaked

..but don't put it passed Bernanke and Draghi to trash the country further in order to save the bankers

Good trade-off that ..more 'winning policies' coming out of Davos

Fri, 05/18/2012 - 09:05 | 2439194 Oh regional Indian
Oh regional Indian's picture

Excellent observation max. Ever tightening, ever accelerating fractal implosion of history. What a time, what a time!

ori

Fri, 05/18/2012 - 09:14 | 2439219 FunkyOldGeezer
FunkyOldGeezer's picture

You guys really want armageddon???????

Rightly or wrongly, the modern world must have a stable finance system for ordinary life to continue. To openly want the world as we know it to crash and burn and not understand the consequences for everyone, including yourselves, is sheer stupidity.

I enjoy having food available, emergency services, modern comforts etc etc. I ceratinly wouldn't want to have to carry a gun, or stand lookout 24 hours a day.

 

Fri, 05/18/2012 - 09:43 | 2439327 LawsofPhysics
LawsofPhysics's picture

Guess what moron, a "stable financial system" requires trust.  Trust requires that the fucking rule of laws and contracts are enforced.  The financial world had a chance in the 70's, the 80's, 2001, and 2008 to prosecute the fucking fraud and restore the fucking rule of law.  Instead, easy money was used to buy the fucking politicians and change the laws such that what was crimminal behavior was no longer criminal.

Now you expect it to get fixed and the youth to strap on the chains of debt slavery so you can have a comfortable retirement. Let me put this as clearly as possible for you, FUCK YOU.

Fri, 05/18/2012 - 09:15 | 2439220 Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

When I used to tell people about my shorting of stocks, most would call me a traitor, anti-American, or someone who liked to profit off others' misery.  1 person called me a "financial terrorist".

The 401K crowd only wants stocks to go up.  Of course, after adjusting for inflation, none of them will make any money, but that's beside the point!

Facts are inconvenient & threatening.  Ban them too!

Fri, 05/18/2012 - 09:28 | 2439266 LawsofPhysics
LawsofPhysics's picture

Peak cognative dissonance- same as it ever was.  Watch yourself, when the groupthink mentality takes over the owners will make sure those of us who took the red pill will be the first targets.

Fri, 05/18/2012 - 09:53 | 2439423 AntiLeMaire
AntiLeMaire's picture

I like short selling bans, especially naked ones ;)

 

But seriously fact most short selling is indeed done 'naked', i.e. without loaning the shares sold to unsuspecting others. Ergo that ensures a failure to deliver later on. That's simply counterfitting. True even in the US.

So unless & until that issue is fixed, why allow any shorting?

Despite protests from bankers that (really) all shorts are covered, there is really little done to verify that.

Ergo they are selling thin air & using OUR (taxpayer) money in case things do not go right. So why allow it in the first place?

Fri, 05/18/2012 - 09:57 | 2439457 LawsofPhysics
LawsofPhysics's picture

I agree.  Ban all shorting, puts, and gambling etc.  Also make all margins 100% if you want to buy some crude oil futures, you must take delivery.  Go ahead, end these paper games, I dare you.

Fri, 05/18/2012 - 10:24 | 2439634 taniquetil
taniquetil's picture

Because banning the naked shorting of the CDS has done SO much in preventing the Euro crisis.

Fri, 05/18/2012 - 10:49 | 2439750 AntiLeMaire
AntiLeMaire's picture

Ahum. It is the simple WRITING (Open Sell) of a CDS that is similar to shorting the underlying.

Arr, hedging the risk of the underlying I should say. A kind of insurance,.. si?

So shorting a CDS on a Eurobond of (say) Greece is tantamount to going long Greek bonds ... Not what you probably intended...

And the writing of CDS's has not been banned. MF Global and JPM have continued doing so. Woops, make that just JPM (and MS, GS etc). Was a real winner for AIG as well AFAIK.

And of course several EU banks supported with taxpayer money continue this wonderfull practice which is similar to you taking out insurance on you neighbors roof (in fact you can do that multiple times & then set fire to the roof ;)).

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