We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
|
Samizdata quote of the day Happily, you can still blame [Securities and Exchange Commission Chairman Christopher] Cox for something. He went as far out of his way as he could to enable the brokerage firms by harassing the small group of informed financial people who have been trying to tell the truth to the markets: the short sellers. They bet against the stock price of a company and so have always had a bad reputation with the public. But in this case, they are the closest thing we have to heroes.
– Michael Lewis, simultaneously making the points that having efficient markets in which it is easy for nay-sayers to short assets is likely to moderate the creation of bubbles and that government regulators have a horrible tendency to turn into cheerleaders for the industries they are supposed to be regulating.
|
Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
|
Gee whiz! Give the guy a break. The SEC is thinking about changing rules and does not approve of matters as they are.
They can’t be expected to do everything at once. 2011 sounds promising……
The best thing the SEC could do would be to abolish itself.
Not likely I fear.
In fact what we have to fear most now is a big boost for economic populism. The NY authorities are already looking around for suitably qualified human sacrifices, just as they did after the dotcom bust.
The mad autarks and the egalitarians, are all screaming loudly for commerce to be choked to death as a cure for the current seizure. Precisely the same cure as for the wicked ‘over-consumption’ of good times, of course, but more likely to be believed now.
Governments are always keen to do more. Standing up to that now will be more difficult.
Attacking short-sellers is dumb anyway because they add to market liquidity by increasing the number of counterparties in a marketplace. For every buyer, you need a seller. How fucking hard is that for even your very average regulator to grasp?
We are also getting an awful lot of rubbish about derivatives. They are valuable in hedging risks.
The real problem stems from how derivatives’ complexity has made it difficult, however, for banks to have an accurate idea of what risk they have. That is an issue that does need to be sorted out, and fast.
Jonathan: how?
You’re not considering the other-other counterparty – the lender (of the stocks) who lends them out to be sold.
Offering a huge bundle of shares for sale suddenly does create a ‘does he know something we don’t’ feeling among buyers and sellers and can indeed start a downards trend for no valid reasons.
You would question quite why the original holders of these shares are quite so willing to lend them out to short-sellers if it seems likely that the short selling is going to be of such an extent that the shares come back hugely devalued or worthless. These are the same original shareholders that seem to have universally overlooked the risks posed by the creation of CDOs etc even on the upside of the trends. All quite strange.
Not true, Anonymous. Offering “a huge bundle of shares for sale suddenly” does put downward pressure on the market, but only for simple supply/demand reasons. It doesn’t matter whether the seller is in a long position (currently owns the shares offered) or short (is borrowing them); the market doesn’t know or care. And it’s the same effect (in reverse) of placing a huge “buy” order, which apparently causes you no problem. Short sellers are very important to the market: they inject valuable liquidity (which helps to minimize price volatility) and add to the total sum of knowledge in the market (their negative feelings about a stock are just as valuable as the positive feelings of buyers). Plus they help create a “floor” under the stock price, since sooner or later those borrowed shares will have to be returned, and the only means to do that is to place a “buy” order. All in all they are a key element in maintaining an orderly and (relatively) effecient securities market.
Also, you misunderstand the source of the borrowed shares. Very few (if any) shareholders lend their shares directly to short sellers; the shares are borrowed from brokerage houses whose customers hold the stock in “street” or “nominee” name. Unless you take physical delivery of stock certificates for the shares you own, the shockholdings in your brokerage account are held in “street” name, too. There is a large pool of them, and when someone sells short the broker “borrows” the shares anonymously from that pool. No one knows (or cares) whose shares are actually used, since they are merely bookkeeping entries and completely fungible. Whether you personally think it’s in your best interest or not is irrelevant; the brokerage house’s only interest is in facilitating trades and maintaining an orderly market. And that’s how it should be.
The last I checked, about a decade ago, the Feds were in the habit of buying futures to bias the market away from downturns. You might say they’re in the habit of blowing bubbles.
Any comments on the similar uses of option trading?
Consider how the Volatility Index is assembled.
Told you so:
“I think we’ve got to look at where there has been irresponsible behaviour and I’ve said for some time that we need reforms in the system.
“I believe there’s now an audience that agrees with me that we should do more.
“We’ve got to clean up the financial system, we don’t want these problems recurring in the future.
“I proposed a number of things to our international colleagues because this is global action that is needed to deal with a global problem, and in our own country we’ll do whatever is necessary to make sure that people have confidence both in the system and we restore the prosperity of the country.”
– Gordon Brown
What was that speculation about Labour’s scorched-earth strategy?
So do I, Gordon. It doesn’t make you right.
I also heard Obama saying that the way to fix this problem isn’t to “keep heading in the same direction”. Couldn’t agree more, Barry. Except I’m not sure you and your disciples understand what direction we’ve been heading in.
Be afraid. As I said yesterday, they smell an opportunity.
Oh, Gordon will do something alright. He’s about to play his part in turning the Crash Of 2008 into Great Depression II.
If people wish to oppose regulations (and politically motivated show trials of Wall Street types) then they should also oppose the subsidies.
No more “lower interest rates” via Federal Reserve Board credit/money expansion – which Alan Greenspan did on a vast scale.
The Federal Reserve system should not exist – as the whole point of it is to prop up an acceptable system.
A financial system that holds that one can have lending that is not 100% financed by real savings.
One can not base a financial system on smoke and mirrors and Ponzi schemes – which is why there tended to be a banking collapse every few years before the Fed was created in 1913 – and it is why the Fed was created.
But haveing government (in the shape of a “private” organization) back the mess does not make it not a mess – it just makes it a bigger mess.
If you want to borrow 100 Dollars (for consumption or investment or whatever) then someone else must save (not consume) the money – and you must agree to pay whatever interest rate they demand (or you do not get the money).
And they do NOT still have the money after they have lent it to you. It is NOT an “asset” on which they can build a castle-in-the-air.
They only have the money WHEN AND IF you pay them back – at which point you do not have the money any more.
There is no honest way that credit can “expand the money supply” (only dishonest ways).
“But we need more credit money so that we can lend and …..”
Oh dear, how sad, never mind.
What such a person really means is that they need more credit money in order to a vast credit bubble and an economic crash.
Fair enough – but do not then ask for bailouts.
And, of course, such a person has no right to complain about any regulation whatever.
Separation of investment and retail banking, demands that bankers spend their entire lives hopping about on one leg, demands that bankers cut off both their arms with a saw held in their teeth……
Whatever.
Once the Bank of England or Federal Reserve system style credit/money expansion fraud (for it is fraud – although on a massive scale) is agreed to, then there is no moral standing to complain about anything else.
Once bankers denounce the credit money expansion – then their complaints about regulations should be listened to.
I should have typed an “unacceptable” system.
Also I forgot to say that I totally oppose the ban on going short on a stock.
Yes I know that this was what the posting was about – and I apologize for not dealing with the matter.
However, I am more interested in the “elephant in the room” at the moment.
I should have typed an “unacceptable” system.
Also I forgot to say that I totally oppose the ban on going short on a stock.
Yes I know that this was what the posting was about – and I apologize for not dealing with the matter.
However, I am more interested in the “elephant in the room” at the moment.