None of those actions, however, brought much catharsis or relief, with banks around the world remaining too frightened to lend to each other, much less to their customers.
Calling it insurance is a great idea. Think of the suffering that could have been avoided in New Orleans if the government had offered retroactive flood insurance after Katrina hit.
Actually, in my mock Senate class in college, which I was in right when Katrina hit, we didjust that. It was a compromise based on actual proposals and passed unanimously with no substantial debate and much mutual back-patting. It felt so wrong, it felt so right.
And then the Treasury said that it would guarantee, at least temporarily, money market funds up to an amount of $50 billion in order to ensure their solvency, a startling intervention to shore up an area that had been considered among the safest investments.
The FSA (our regulator) has banned short selling of shares in financial institutions in the UK until January. The middle-brow press in the UK has done a pretty good job in the last couple of days (along with a few politicians) of making share speculators the No.1 Villains in the country.
Still, my HBOS shares are going up again today, so excuse me while I go join in the spiv-stoning...
i guess krugman's is a specific semi-insider joke about the suspension of short selling, a suspension which (if i understand the commentaries correctly) will put a stop to smart operators jumping out of the rout via making a relative profit off of bad times (bcz such activity brings down the general repute of the morality of financiers, to the level of the curreent repute of their competence perhaps), but may actually -- by decreasing the options for rational response by some operators in the market -- increase the sense of panic...
i can't find anyone explaining why suspending short selling is bad, except thread-commentors in the brusquest "let the market decide" terms: ie that at a time when buyers are hard to find, a move like this removes local, small, speculative buyers from the system -- so value doesn't decline in small "oh sod it" chunks, but gathers over time to fall in really really steep huge declines
in other words (if i am translating right) the spivs would work as a kind of friction (being a sector able to profit, and thus injecting a sort of cheeky confidence?)
i can't find anyone explaining why suspending short selling is bad
Wait, didn't you just give an argument in your previous post as to why suspending short selling is bad (in that it decreases the options for rational response)? Did you mean to say "suspending short selling"?)
Not understanding your shorthand ("spivs"?).
I won't say I'm understanding the issues involved in short selling (which is the practice of borrowing a stock and selling the borrowed stock in the hope that when you buy it back and return to lender it will be at a lower price, hence you make a profit), but the people who seem like they understand it seem to be saying:
The suspension isn't meant to last; the basic argument in favor of allowing short selling in general is that it is a way for some investors to signal that they think the market is overvaluing a particular stock (and of course those investors make money on this overvaluing). So one could say that everything that's happening now (suspending short selling, bailing out firms) is reining in the people who were RIGHT, who knew the shares were overvalued, and coming to the rescue of the people who were wrong and got us into this mess. However, the reason why at the moment it's supposed to be good to briefly suspend short selling is that when the market is in a panic short sellers aren't simply betting that the market will decide that a stock is overvalued, they're betting on the panic itself, that shares will fall owing to panic whether or not the company is sound and its stocks at a good value. Of course, short sellers have a stake in getting the market to believe that the stock they're betting against is overvalued, but presumably in nonpanic situations other investors can evaluate "oh, people are selling this short" as just another signal, like stock price. Whereas now saying, "people are selling short, this is a sign of an impending run, better get ahead of the rush and sell first" could be dangerous.
But my guess is that overall, blaming short sellers for the crisis is nonsense.
historically, spivs were black-market traders* during WW2: demonised, tolerated, tho occasionally -- in an anti-hero kind of a way - celebrated; as jeff suggests, in UK mythology there's a bit of an overlap between spivs and the brasher kind of young male trader in the london stock market (for example, the belief they all come from the east end and essex)
*of eg nylons etc, in short-supply commodities (not stocks and shares)
i did indeed give such an argument (against suspension), but it was off the top of my head: i wanted to link to someone who knows what they're talking about to give an INFORMED argument against suspension
basically it's a blame-the-messenger move, and it only works if the market has reached a stablish value anyway -- if there's as lot more value inflation needs shaking out, then it ensures it happens in much larger tumbles
the profiteering at least ensures some (piratish) people remain liquid -- the really big tumbles are actually wiping whole pockets of money out of existence
OK. Followed the link to Yves Smith, and she's basically over my head but seems to be arguing that the suspension could be immediately bad in that it takes a source of cash away from the companies - such as Morgan Stanley and Goldman Sachs - who would be putting the money into the system. Or something.
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If these nationalizations smack of socialism, it is closer to the Marxism of Groucho than of Karl.
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Calling it insurance is a great idea. Think of the suffering that could have been avoided in New Orleans if the government had offered retroactive flood insurance after Katrina hit.
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And then the Treasury said that it would guarantee, at least temporarily, money market funds up to an amount of $50 billion in order to ensure their solvency, a startling intervention to shore up an area that had been considered among the safest investments.
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The entire financial sector has just lost its shorts.
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Still, my HBOS shares are going up again today, so excuse me while I go join in the spiv-stoning...
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in other words (if i am translating right) the spivs would work as a kind of friction (being a sector able to profit, and thus injecting a sort of cheeky confidence?)
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Wait, didn't you just give an argument in your previous post as to why suspending short selling is bad (in that it decreases the options for rational response)? Did you mean to say "suspending short selling"?)
Not understanding your shorthand ("spivs"?).
I won't say I'm understanding the issues involved in short selling (which is the practice of borrowing a stock and selling the borrowed stock in the hope that when you buy it back and return to lender it will be at a lower price, hence you make a profit), but the people who seem like they understand it seem to be saying:
The suspension isn't meant to last; the basic argument in favor of allowing short selling in general is that it is a way for some investors to signal that they think the market is overvaluing a particular stock (and of course those investors make money on this overvaluing). So one could say that everything that's happening now (suspending short selling, bailing out firms) is reining in the people who were RIGHT, who knew the shares were overvalued, and coming to the rescue of the people who were wrong and got us into this mess. However, the reason why at the moment it's supposed to be good to briefly suspend short selling is that when the market is in a panic short sellers aren't simply betting that the market will decide that a stock is overvalued, they're betting on the panic itself, that shares will fall owing to panic whether or not the company is sound and its stocks at a good value. Of course, short sellers have a stake in getting the market to believe that the stock they're betting against is overvalued, but presumably in nonpanic situations other investors can evaluate "oh, people are selling this short" as just another signal, like stock price. Whereas now saying, "people are selling short, this is a sign of an impending run, better get ahead of the rush and sell first" could be dangerous.
But my guess is that overall, blaming short sellers for the crisis is nonsense.
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*of eg nylons etc, in short-supply commodities (not stocks and shares)
i did indeed give such an argument (against suspension), but it was off the top of my head: i wanted to link to someone who knows what they're talking about to give an INFORMED argument against suspension
basically it's a blame-the-messenger move, and it only works if the market has reached a stablish value anyway -- if there's as lot more value inflation needs shaking out, then it ensures it happens in much larger tumbles
the profiteering at least ensures some (piratish) people remain liquid -- the really big tumbles are actually wiping whole pockets of money out of existence
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http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4783638.ece
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Poll: Obama tops McCain as football-watching buddy
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