Financial Market Manipulation >What has this country become??

Being a real believer in capitalism and having a passion for the stock market, this is a sad day for the good old USA. Banning the short selling of stock by the SEC is an outrage, one that will be heard for a long time to come. I'm not sure many Americans understand what this action means, but let's just say it reeks of socialism.

But rather than listen to what one man thinks, below is a summary consisting of commentary from a few of the top free market capitalists. You decide what the truth is, and what's the official BS.

SEC: Ban All Short Selling
Here is tonite's theater of the absurd SEC headline:

SEC intends to temporarily ban short selling, but it's not clear if the commission has approved the move. Cox is briefing congressional leaders. Separately, the government is seeking congressional authority to buy distressed assets.

This is nothing short of a total panic by people who have no clue what they are doing. And to think, I mocked Russia for being a nation run by market commies.

This is the ultimate bailout attempt, which will have repercussions far far beyond our imaginations:
1) We suffer a loss of Market Integrity; The US is now a Banana Republic

2) Blatant market manipulation: this is nothing more than an attempt to force markets higher;

3) 60 days prior to a presidential election? This is a none-too-subtle attempt to influence the elections -- especially coming on top of the Fannie/Freddie bailout;

4) The coming pop will create a huge air pocket, ultimately leading to us crashing much lower;

5) Expect a huge increase in volatility -- upwards first, then down;

We Are A Nation of Morons, led by complete Idiots, making us complicit in our own self destruction.

Bloomberg:
Financial regulators in the U.S. and U.K., attorneys general in New York, Texas and Connecticut, and the three largest U.S. pension funds are cracking down on short sellers in the wake of the collapse of Lehman Brothers Holdings Inc. and American International Group Inc.

Hedge funds and investors who profit from share declines are being scrutinized after a crisis of confidence in the financial industry erased more than $3 trillion from stocks globally this week. Goldman Sachs Group Inc. and Morgan Stanley, the only remaining independent securities firms on Wall Street, suffered the worst-ever declines yesterday. Morgan Stanley's chief executive officer, John Mack, said short sellers may be spreading false information and using abusive tactics to attack companies.

"You have to enforce the rules with regards to short selling,'' said Mario Gabelli, who oversees about $28 billion as chairman and chief executive officer of Gamco Investors Inc. in Rye, New York. "Shorts were running amok.''

The U.S. Securities and Exchange Commission said it may require hedge funds to disclose short-sale positions and plans to subpoena their communications, while the Financial Services Authority in the U.K. banned short selling financial shares for the rest of the year.

New York Attorney General Andrew Cuomo began an investigation into whether bears illegally drove down stock prices of financial firms. The California Public Employees' Retirement System and the New York State Common Retirement Fund decided to stop lending shares for short sales, after a similar move by the California State Teachers' Retirement"

Marketwatch:
"Gathering anger over short selling of vulnerable financial stocks exploded into the open Thursday as top market regulators and industry giants took steps to limit the practice and begin investigation into possible abuses.Britain's stock market regulator on Thursday banned short selling in financial companies and said it might extend the ban to other sectors. The move followed the Securities and Exchange Commission's curbs on the practice that went into effect Thursday morning.

In other steps aimed squarely at the bearish practice, the country's largest pension fund, the California Public Employees' Retirement System, said it was taking steps to limit the practice on three financial stocks and the New York attorney general called for a wide-ranging investigation of the short selling of some prominent financial companies, including Goldman Sachs (GS) and Morgan Stanley (MS).

The concerted reaction followed two days of sharp declines in global stock markets, triggered by mounting fears that the credit crunch would spin out of control and deepen the financial crisis. As stock declines have deepened, the role of short sellers has come under fire."

And then there is this from Tom Brown, long and wrong all the way down:

"The moves should help restrain the abusive short-selling practices lately rampant in the stock market," said analyst Thomas Brown of Bankstocks.com. "Short sellers can no longer deceive their brokers about their intention or ability to deliver shares."

Sources:

Short-Selling Crackdown Extends to New York, London

Michael TsangBloomberg,

Sept. 18 2008

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQeq1yaXSHzQ&

Regulators, industry giants seek to curb short selling

Matt Andrejczak, MarketWatch,

5:48 p.m. EDT Sept. 18, 2008

http://tinyurl.com/banshorts-upyours
Thursday, September 18, 2008 07:50 PM

Consolidated source content from:
The Big Pucture
Thursday, September 18, 2008 07:50 PM
Link to from here

Short Selling Stock >A Bear Strategy

This post is a result of Mystery Blogger IP force...

Long Buying Stock or Short Selling Stock?
When most people think of taking a position in a stock, they probably think of buying and holding. The objective of their “buy and hold” strategy would be a rise in the price of their chosen stock and for some, to collect a quarterly dividend. This position is known as being “long”.

Most people have no idea that they can take the exact opposite position and profit from a drop in price. This strategy is known as having a “short” position or “selling short”. When you buy a stock or invest in a mutual fund, your account appreciates when the stock, or stocks in the case of the mutual fund, increases in value. Most of America understands this premise as the only way one can invest.

Experienced traders on the other hand, know the profit potential gained by selling short! Instead of riding the market down with long positions (which is typical of most investors), they take a short position and profit when the market is in a downtrend! To sell short is to sell a stock that you don’t own. The position is opened by a sale instead of a purchase.

Short Selling Stock
Therefore, short selling stock is where you profit if the price of the stock drops. For example, if you think stock XYZ price has reached a peak, and will soon begin to fall, you could short sell XYZ. You would sell the stock at the current stock bid price, even though you don’t own, or have never purchased, and shares of XYZ stock. However, to cover this short selling stock transaction, you are required to have stock margin, which is sort of like a loan.

Let’s say XYZ stock is trading for $20/share. You don’t want to purchase the stock at this price because you think the stock price is about to drop. So you sell short XYZ at $20/share instead, which means this stock investment is worth, and always will be worth, $20/share, regardless what the stock is actually trading for in the future.

This allows you to sell, anytime you chose, the XYZ shares for $20/share. So in essence, you know the stock selling price. To complete the stock transaction, at some point you will purchase this stock at the current trading ask price. Therefore, you want the stock price to be lower than $20/share, because you are buying the stock for which, your selling price is set at $20/share.

Short selling stock transaction example
You decide to sell short 100 shares of XYZ stock at $20/share, for a total of $2000.

Your stock brokerage firm credits $2000 of XYZ stock margin to your account, for which you are financially obligated to ‘repay’. The ‘repay’ amount is determined by the share price you pay to buy XYZ stock in the future.

Two weeks later XYZ ask price is $15/share, so you decide to buy 100 shares at that price, for a total of $1500. The brokerage firm debits the 100 shares of XYZ stock margin from your account for the ‘repay’ amount of $1500, and this investment has left a $500 profit in your account.

BUT…

If two weeks later the XYZ ask price is $25/share, to buy 100 shares at that price will cost a total of $2500. The brokerage firm would then debit the 100 shares of XYZ stock margin from the account for the $2500 ‘repay’ amount, and this investment would leave the account with in a $500 loss.

(note: The two week time frame was used as an example and has no significance. This closing transaction can occur whenever the trader decides the time is right.)

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