Friday, Sep 19, 2008
Short-sellers didn't cause this crisis - the government and bankers did
MoneyWeek: Short-sellers didn't cause this crisis - the government and bankers did
Short sellers are only taking advantage of the underlying problem, writes John Stepek. The banks made wildly irresponsible loans all through the property boom, and now that the bubble has popped, they are in serious trouble...
Posted by damien @ 10:55 AM (576 views) Add Comment
5 Comments
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1. d'oh said...
As per usual, Money Week hits the nail on the head.
2. planning4acrash said...
More to do with the government, and it allowing fiat money and Capitalist/Marxist central banking.
3. nubbers said...
Short sellers are just a more sophisticated version of those who gambol on bubbles. Lets face it, none of them are any use. They are not investing in the companies such that they can grow and prosper, and acutally do 'stuff'. They just leach money out of the system.
As a business owner, I am never going to take a company private until we have packed the whole lot of them (along with the beaurocrats who make my company admin into a living hell) into a spaceship destined for Pluto, or failing that, the Falkland Islands.
4. icarus said...
In many cases it's true that shorting is a symptom and not the problem. It's also true that regulations to curb shorting can backfire - if a big player is obliged to disclose its short positions this can lead to others' shorting the stock.
Nevertheless it is possible to manipulate markets and cause a bust without there being a fundamental weakness in the thing that goes bust. The electronic herd can short whole countries by shorting their stockmarkets, bonds and currencies. This is why Mandela and Mbeke were unable to fulfill their promises to the mass of their supporters in SA - do, or even say, the wrong thing and the herd will short the country.
Look at Asia in the late 90s. Hot money suddenly exited and booming economies went bust. This sudden reversal of funds - money had been pouring in and then poured out - seems to have been triggered by a rumour about a weakness in Thailand's currency. This set off a contagion because (1) mutual fund managers had marketed the Asian Tigers as a single package (2) electronic, globalised markets are fast and volatile (3) apart from China and Malaysia the countries had succumbed to western pressure to free up their financial sectors, making them vulnerable to speculation and outward flows of money and (4) vultures in Washington, Wall Street and the IMF were waiting to pick clean Asian assets, so no loans of the type that saved Mexico in 1994 were availble. There was no other obvious reason - there were no big deficits, the Tigers' manufacturing sectors were strong, there were no wars or political upheavals. A downward spiral set in - they were forced to prop up their currencies so that they really started to go broke and the markets responded to exacerbate the weakness.
5. renting2 said...
If selling short skews the market surely going long does the same? Should this not also be banned? (Or has banning one automatically banned the other? If this is the case then the market has been skewed again because it's only banned on the market going down.)
Seems to me to mirror the gazundering/gazumping arguments.