Tuesday, May 18, 2010

Germany to Ban Short-Selling of Stocks and Euro Government Bonds

Via FT Alphaville, Germany is banning short-selling of stocks and Euro government bonds, including CDS on bonds. How is it that the world's trusty regulators are so gosh darn predictable? See below in my last post about what European regulators might do for an encore to stem the bleeding: "They could always go after the shorts again, because that worked for like a minute in 2008." Just as I was confused (and admittedly angry) back in 2008 when governments around the world banned short-selling to resolve the completely unrelated issue of our globally insolvent banking system, I am perplexed by this action. I mean, since 2008, many of the financial institutions that we weren't allowed to short for a brief period of time eventually went bust, or were bailed out. Furthermore, the short-sale ban only hastened the stocks' plunges into the abyss. The stupid ban worked for all of a day, which just happened to be an expiration Friday, when stocks experienced unbelievable volatility, ripping through through call strikes already given up for dead by options traders that either raked it in, or experienced massive pain. And yet, once again, government manipulation of the market is being floated around as a solution by the Germans. And since all of our regulators like to coordinate their actions, even really dumb ones, I fully expect everyone to follow suit.

1 comment:

jack said...

At least in '08, the ban induced a two-week rally to give people a chance to sell everything. This time, the market already seems to be calling BS for the futile attempt it is.