Quien es mas macho?
| Thu Sep. 18, 2008 12:03 PM PDT
¿QUIEN ES MAS MACHO?....John McCain, desperately searching for something manly to say about the current financial crisis, has decided to call for the firing of mild-mannered-but-extremely-conservative SEC chairman Chris Cox:
"The primary regulator of Wall Street, the Securities and Exchange Commission (SEC) kept in place trading rules that let speculators and hedge funds turn our markets into a casino," McCain says."They allowed naked short selling — which simply means that you can sell stock without ever owning it. They eliminated last year the uptick rule that has protected investors for 70 years. Speculators pounded the shares of even good companies into the ground."
Somebody help me out here. This all sounds more plausible than Sarah Palin's nattering about construction bonds yesterday, but does it actually parse any better? I know Jim Cramer has been bellowing about the uptick rule for several months, but it's not pressure on stock prices that's been responsible for the banking crisis, is it? It's the other way around. Do McCain's comments make any sense? Set me straight in comments.
Continues Below
Continued From Above
Comments
Submitted by Keith M Ellis (not verified) on Thu Sep. 18, 2008 2:21 PM PDT.
Now that I've delightedly answered Kevin's semi-obscure reference, I'd like to ask if McCain actually understands what short selling really is. The whole point of shorting a stock is that you don't own it. You borrow it. A naked short, as several people have explained, is when you don't bother to actually borrow it.
And, anyway, short selling performs an important market service. It's not a menace?that's stupid. It'll increase downward pressure when there's a run on a stock, but that momentum is conserved and pushes the stock back up when the short is covered. (That is, when those who short a stock decide it's time to realize their gain by buying low and returning the stock to the lender.)
Submitted by Cliff Mason (not verified) on Thu Sep. 18, 2008 4:25 PM PDT.
Hey, I'm the senior writer on Mad Money, and I've got a couple points that might be helpful here (as well as a defense: financial terrorism was a metaphor, and I'll explain why it's an apt one).
First, the uptick rule, they tested out repealing it during the bull market from 2003-2005 and found it had no effect (SURPRISE!), now that we're in a bear market where the uptick rule would be helpful, you can see the results. The uptick rule forced the shorts to wait, it slowed things down. Without the rule, it's much easier for short's to hit stocks down and create a lot of fear, which causes more selling etc? Longs don't have the same ability. You could bid a stock up in the hopes of attracting momentum buyers the same way short-sellers knock 'em down, but I think fear is a fundamentally more powerful force than greed, which is one reason for rules that prevent unfettered short-selling.
As far as naked shorting, this SEC has not treated naked short-selling as a crime (even though that's the law) until Monday when Cox announced he'd actually enforce the rules. Over the summer there was a brief period, you may remember, of "emergency rules" that protected 19 financials from naked shortselling, but the SEC let those lapse after about a month.
Does this matter? Yes, especially when we're dealing with financial companies that desperately need TO RAISE CAPITAL. One of the MAIN WAYS companies RAISE CAPITAL is buy SELLING STOCK. This is one of those rare cases where the stock price directly impacts the solvency of the business. If you look at how quickly Bear Stearns, Lehman Brothers and AIG collapsed, without, I should add, much in the way of news (AIG fell from $20 to $2 in a week?that seemed like too much, after-all, it's not like it was news a week and a half ago that they'd written insurance for a lot of bad mortgage-paper), I think you can see the influence of hedge funds relentlessly shorting these stocks and driving them down by creating a free fire zone, as they didn't have to borrow the shares first (remember, Cox only announced he would start going after naked short-sellers this monday).
Now, maybe it was right for AIG to fall from $20 to $2 in a week. But with its stock at $20 AIG could have RAISED CAPITAL WITH A SECONDARY OFFERING, something that would have at the very least given it some more time to spin-off some of its valuable, but illiquid properties and stay afloat.
The same pretty much goes for Lehman. You can argue that the prices the shorts took these stocks down to were justifiable given the fundamentals. But you can't argue that naked short-selling and the lack of the uptick rule allowed these stocks to fall MUCH FASTER than they would have in the 1990s when the uptick rule was in place and naked short-sellers got in trouble.
How significant is this? Intelligent, well-informed people can disagree. But it seems fairly clear to me, a die-hard Obama supporter, that McCain is right about these two things. At the very least, Lehman and AIG would have had more time to raise capital (and in AIG's case, all it needed was time because it has many valuable businesses that it could have sold if given the opportunity).
Naked-shortselling without upticks pushes stocks down faster and harder than legit short-selling with the uptick rule in place--that seems hard to argue. It's possible AIG and Lehman would have failed eventually, but the aggressive, naked shorting, by making it pretty much impossible for these companies to raise money through an equity offering, had at least SOME IMPACT on their demise.
Not long ago Merrill did a huge secondary offering at $22 to raise capital after selling off $30 billion worth of bad paper at six cents on the dollar. On September 9th, AIG opened at $22. You saw it fall to $2 over the course of the next week. If it had had more time to do a stock offering at $22, it might not belong to the Soviet Socialist Republic of North America (and I say that with all the love in the world for Leon Trotsky). One the shorts pushed AIG under $10, there was no way it could do a stock offering to raise capital. Same thing happened to Lehman.
Don't forget, why do stocks exist? They exist so companies can raise money! They do not exist simply to tell us what valuation on the Ouija board the invisible hand of the market is pointing to at the moment.
No one's suggesting that the shorts were the SOLE REASON for the fall of any of the recent casualties. Obviously the shorts couldn't kill a solid company with plenty of capital, but if a company needs to raise capital to survive, the shorts can eliminate issuing stock as an option, which could certainly be the death of many a company.
Yes these companies were in trouble, but unfettered short-selling was the MARGINAL cause of the collapses of Bear, Lehman and AIG (aren't economists supposed to think at the margin?). On Mad Money we've been relentless in our criticism of Dick Fuld (now former CEO of Lehman) and Robert Willumstad (now former CEO of AIG, along with his predecessor), going so far to put them on our CEO Wall of Shame. Both companies also had toxic assets and opaque financials, with the lack of transparency making it much easier for the shorts to inspire fear. There's no reason you can't believe both that LEH and AIG were poorly managed with nightmare balance sheets, and that the relentless, unchecked short-selling played a role in their downfalls, even if you only think the shorts sped up the inevitable that still matters. If things had fallen apart at a slower pace, there would be a lot less panic (well, no panic today) and uncertainty out there.
Thus the term "financial terrorism." Counterfactuals are hard, but let's say Lehman would've survived in a world where the uptick rule was still around and shorts had to find stock to borrow before they sold it, well then the shorts destroyed billions in value?financial terrorism. Also, we're a TV show. We try to be entertaining. It's a metaphor.
Submitted by Keith M Ellis (not verified) on Thu Sep. 18, 2008 2:21 PM PDT.
Now that I've delightedly answered Kevin's semi-obscure reference, I'd like to ask if McCain actually understands what short selling really is. The whole point of shorting a stock is that you don't own it. You borrow it. A naked short, as several people have explained, is when you don't bother to actually borrow it.
And, anyway, short selling performs an important market service. It's not a menace?that's stupid. It'll increase downward pressure when there's a run on a stock, but that momentum is conserved and pushes the stock back up when the short is covered. (That is, when those who short a stock decide it's time to realize their gain by buying low and returning the stock to the lender.)
Submitted by Cliff Mason (not verified) on Thu Sep. 18, 2008 4:25 PM PDT.
Hey, I'm the senior writer on Mad Money, and I've got a couple points that might be helpful here (as well as a defense: financial terrorism was a metaphor, and I'll explain why it's an apt one).
First, the uptick rule, they tested out repealing it during the bull market from 2003-2005 and found it had no effect (SURPRISE!), now that we're in a bear market where the uptick rule would be helpful, you can see the results. The uptick rule forced the shorts to wait, it slowed things down. Without the rule, it's much easier for short's to hit stocks down and create a lot of fear, which causes more selling etc? Longs don't have the same ability. You could bid a stock up in the hopes of attracting momentum buyers the same way short-sellers knock 'em down, but I think fear is a fundamentally more powerful force than greed, which is one reason for rules that prevent unfettered short-selling.
As far as naked shorting, this SEC has not treated naked short-selling as a crime (even though that's the law) until Monday when Cox announced he'd actually enforce the rules. Over the summer there was a brief period, you may remember, of "emergency rules" that protected 19 financials from naked shortselling, but the SEC let those lapse after about a month.
Does this matter? Yes, especially when we're dealing with financial companies that desperately need TO RAISE CAPITAL. One of the MAIN WAYS companies RAISE CAPITAL is buy SELLING STOCK. This is one of those rare cases where the stock price directly impacts the solvency of the business. If you look at how quickly Bear Stearns, Lehman Brothers and AIG collapsed, without, I should add, much in the way of news (AIG fell from $20 to $2 in a week?that seemed like too much, after-all, it's not like it was news a week and a half ago that they'd written insurance for a lot of bad mortgage-paper), I think you can see the influence of hedge funds relentlessly shorting these stocks and driving them down by creating a free fire zone, as they didn't have to borrow the shares first (remember, Cox only announced he would start going after naked short-sellers this monday).
Now, maybe it was right for AIG to fall from $20 to $2 in a week. But with its stock at $20 AIG could have RAISED CAPITAL WITH A SECONDARY OFFERING, something that would have at the very least given it some more time to spin-off some of its valuable, but illiquid properties and stay afloat.
The same pretty much goes for Lehman. You can argue that the prices the shorts took these stocks down to were justifiable given the fundamentals. But you can't argue that naked short-selling and the lack of the uptick rule allowed these stocks to fall MUCH FASTER than they would have in the 1990s when the uptick rule was in place and naked short-sellers got in trouble.
How significant is this? Intelligent, well-informed people can disagree. But it seems fairly clear to me, a die-hard Obama supporter, that McCain is right about these two things. At the very least, Lehman and AIG would have had more time to raise capital (and in AIG's case, all it needed was time because it has many valuable businesses that it could have sold if given the opportunity).
Naked-shortselling without upticks pushes stocks down faster and harder than legit short-selling with the uptick rule in place--that seems hard to argue. It's possible AIG and Lehman would have failed eventually, but the aggressive, naked shorting, by making it pretty much impossible for these companies to raise money through an equity offering, had at least SOME IMPACT on their demise.
Not long ago Merrill did a huge secondary offering at $22 to raise capital after selling off $30 billion worth of bad paper at six cents on the dollar. On September 9th, AIG opened at $22. You saw it fall to $2 over the course of the next week. If it had had more time to do a stock offering at $22, it might not belong to the Soviet Socialist Republic of North America (and I say that with all the love in the world for Leon Trotsky). One the shorts pushed AIG under $10, there was no way it could do a stock offering to raise capital. Same thing happened to Lehman.
Don't forget, why do stocks exist? They exist so companies can raise money! They do not exist simply to tell us what valuation on the Ouija board the invisible hand of the market is pointing to at the moment.
No one's suggesting that the shorts were the SOLE REASON for the fall of any of the recent casualties. Obviously the shorts couldn't kill a solid company with plenty of capital, but if a company needs to raise capital to survive, the shorts can eliminate issuing stock as an option, which could certainly be the death of many a company.
Yes these companies were in trouble, but unfettered short-selling was the MARGINAL cause of the collapses of Bear, Lehman and AIG (aren't economists supposed to think at the margin?). On Mad Money we've been relentless in our criticism of Dick Fuld (now former CEO of Lehman) and Robert Willumstad (now former CEO of AIG, along with his predecessor), going so far to put them on our CEO Wall of Shame. Both companies also had toxic assets and opaque financials, with the lack of transparency making it much easier for the shorts to inspire fear. There's no reason you can't believe both that LEH and AIG were poorly managed with nightmare balance sheets, and that the relentless, unchecked short-selling played a role in their downfalls, even if you only think the shorts sped up the inevitable that still matters. If things had fallen apart at a slower pace, there would be a lot less panic (well, no panic today) and uncertainty out there.
Thus the term "financial terrorism." Counterfactuals are hard, but let's say Lehman would've survived in a world where the uptick rule was still around and shorts had to find stock to borrow before they sold it, well then the shorts destroyed billions in value?financial terrorism. Also, we're a TV show. We try to be entertaining. It's a metaphor.
Steve has got your back at the old stomping grounds:
http://www.washingtonmonthly.com/archives/individual/2008_09/014779.php
Of course short selling has nothing to do with the subprime housing market and is only tangential to the cascading failure of investment banks.
Submitted by Debra (not verified) on Thu Sep. 18, 2008 12:07 PM PDT.
Not to mention that McCain wants to put your Social Security money into that casino...
Republithugs are not macho - the are what my daughter and I call "faux macho", or for short, 'facho', which is manifested through 'fachismo'. The kings of Republithug fachismo, are, of course, Bush and Cheney. Who's up for more of the same?
Submitted by Daryl McCullough (not verified) on Thu Sep. 18, 2008 12:12 PM PDT.
Debra writes: Not to mention that McCain wants to put your Social Security money into that casino...
Obama needs to be saying that, loud and often.
Yeah, what I've seen is that, while the president does appoint him with the authorization of congress, he has no authority to fire him.
Maybe next week McCain will argue the president should start firing all those activist judges? Better yet, he could deliver the speech in the Latin American country of Spain.
Shorts get their asses handed to them unless, you know, they are RIGHT.
Cramer was screaming today that there should be an investigation in to possible financial terrorism via shorting. What a buffoon.
Where is that GWOT when you need it?
Short selling involves borrowing share of stock from a third party--usually your broker--and selling them; obviously, you believe that the share price will fall, and you can make a profit. The rules governing short selling require that your broker verify where you're going to get the shares from (or your ability to buy them) before implementing your sell order. (This is a "covered" short.)
A "naked" short is one in which you have no source for the shares. "Naked" shorts are currently, and have for a long time been, illegal.
Apparently the rule about only being able to sell short on an uptick--the share price is rising--has been eliminated, but I'm not sure why that's a big deal.
Short sellers are not the cause of the crises. Kevin is right. It's the underlying assets of a bunch of complex financial instruments that's the problem. IndyMac's shares didn't fall because of short selling; BearStearns' shares didn't fall because of short selling; and so on. Those share prices fell because people buying and selling shares of their stock thought those firms were insolvent.
(Note to self: Maybe it's time to short GM.)
Chris Cox has actually been much more reasonable as chairman of the SEC than he was as a congressman. For example, he worked very hard to push through an agreement to improve shareholder rights, despite vociferous opposition from the other two Republican committee members. This is particularly noteworthy because it was labor unions --- acting through their pension funds --- that were pushing to use these shareholder rights to hold boards accountable on issues such as CEO pay.
If the SEC is at fault it is for allowing more leverage for investment banks in 2004. See Ritholtz at Big Picture today. The rant against short sellers is the standard whining from bulls who are losing money. While we can't condone planting false rumors and shorting stocks and should prosecute those who do this, it's almost never the real problem.
In fact, short sellers provide a valuable service in stabilizing the markets and volatility would be much worse without them. Most of the "rallies" in the last six months were triggered by running the shorts with either commando like tactics or surprise announcements from the FED. Without these short covering rallies the markets could have crashed easily at least three or four times in the last six months.
It takes a lot of courage to be short because everyone wants higher prices and you are beset on all sides. Those ranting about short sellers better be careful. Without the shorts there's no trampolene to bounce off of.
Grandpa McCain must be constipated today. The Beer Queen must have forgotten to pack the Metamucil. I think firing (and perhaps imprisoning) Chris Cox is a dandy idea - but not for the reasons Grandpa cited.
Cox was a private securities attorney who made a fortune beating down the rights of individual investors on behalf of large corporations before coming to Congress and then being named head of the SEC. He has a lifelong record of trying to put the screw to the little guy who invests a buck in the market. Naming Cox to head the SEC was like naming Timothy Leary to head the DEA.
I absolutely agree with McCain, and I absolutely agree that this is the right way to approach it.
Americans don't seem to realize the awesome scope of the President's hiring authority on taking office. In January, a new SEC chairman will be chosen (in effect, 'firing' whoever was there before).
The correct sentiment is that the President needs to be wise in choosing who to run FEMA, or the CDC, or as Chairman of the SEC.
But McCain is not the right person for this. His head economic advisor is Phil Graham. He can fire Cox all he wants, but we know what kind of guy he would hire. Obama would hire Jason Furman.
So I really do think that the sentiment is valid (though the phrasing is technically incorrect), but completely insincere.
I don't doubt that Cox is partly to blame for the recent financial crap, but I think it's quite curious the timing of this statement by McCain.
Chris Cox decided yesterday to finally crack down on short sellers. And now, today, McCain decides that he'd fire Cox.
So is McCain's decision based on a recently lax SEC, or on Cox's decision to tighten up the regulations?
I know Jim Cramer has been bellowing about the uptick rule for several months, but it's not pressure on stock prices that's been responsible for the banking crisis, is it?
Responsible for it? No. The screaming about shorts is the same stuff as the screaming about speculators driving up oil prices. Speculators may have driven up oil prices a bit, they could only do so in an enviroment where demand was increasing, supply was super-tight, etc. Shorting has been legal since ever, basically, and normal shorting could drive stock prices down. In turn this could affect the balance sheets (directly and indirectly) of the banks, if those banks are in trouble and overleveraged anyways.
That's what things like capital reserve requirements are about - being able to meet short-term obligations.
I do not down for a second that short-sellers are driving prices down; that's what they're supposed to do. What this really amounts to is the sort of complaining about bear raids that went on during the Depression and whatnot. What people (and banks and politicians) want is for the stock market to go up forever, which of course, it cannot do. (See 'Dow 36,000') So Cramer squealing about shorts is just the usual crappy-doodle from people who really don't believe in free markets, they just believe in rising markets.
There really needs to be heavy pushback on this, because the R line is clearly developing that this is either speculator's or Bill Clinton's fault, and they should not be getting away with this.
max
['And I don't think they will.']
I'll just doff my tinfoil hat for a minute...
The uptick rule, put in place in 1934 after the great financial panic of 1929, was eliminated in 2007 and a year later we have another "once a century" (we hope) panic.
And who were primary intended beneficiaries of the elimination of the rule? Hedge funds.
Another thing, calling it financial terrorism may be a bit extreme but that doesn't mean shorting now isn't deliberate. Didn't Soros make his fortune shorting the GBP?
Who the freak would take the job this late into a ever increasing lame presidency? He had a hard enough time getting Cox!
I get the job. I used to live in Jersey, right across the Hudson from Wall Street. I mean, a short walk and you could SEE Wall street. Right over there! Well, unless it was really foggy or rainy or something. Still, I gotta be some kind of expert.
Launching rumors you know to be false seems to be what the allegation is against shorts. Which might be viewed as the reverse of those who "pump and dump" stocks. It's the deliberate falsity intended to goose the market that should be the issue (if it is going on), not the act of shorting itself.
When you sell short you borrow the stock from a broker and then sell it on the market expecting to buy it back at a lower price and pocket the difference. In the US the borrow and the sale all occur at the same time - one transaction. In Europe you borrow and then sell two transactions. So in neither case do you own the stock. A naked short sales is one where you sell short but haven't borrowed the stock. Of course there are other ways to play the down side on a stock - like buy put options. Selling short says what people think about the prospects of a stock.
Grits, of course shorting is deliberate. The short thinks the stock (or whatever) is overpriced and will go down and hopes to profit on that belief.
As to the phrase "financial terrorism" as used by Cramer, he REALLY meant terrorism, not some metaphor. He believes it is at least possible terrorists may have been making a strike at the US by attacking the financial system. He actually said this.
As for the timing of the uptick rule change, coincidence is not causality.
Submitted by neil wilson (not verified) on Thu Sep. 18, 2008 2:03 PM PDT.
Yes, naked shorting is a fairly big deal.
The problem with Bear and AIG is the speed with which they crashed. Lehman died slowly.
The markets have a better chance of taking care of themselves when people have time to protect themselves.
Naked shorts allow people to move very quickly so the markets don't have as much time to react.
I don't know anyone who would have told you on 9/9/08 would have predicted that AIG would be nationalized within a week!!!!!! AMAZING!!!!
The market value was about $48Billion and it now about $7Billion.
$41,000,000,000 of market value disappeared since last Tuesday evening.
Catfish: How about Palin? She lives close to a bank.
Hahaha! Yeah, she must know all about this by osmosis!!! Though I hear that some people prefer to learn by catalysis.
She has lived her whole life on earth - she must be an expert in geology!
Submitted by Keith M Ellis (not verified) on Thu Sep. 18, 2008 2:10 PM PDT.
No! Lo siento, Schoolbus es mas macho que lightbulb.
Submitted by Keith M Ellis (not verified) on Thu Sep. 18, 2008 2:21 PM PDT.
Now that I've delightedly answered Kevin's semi-obscure reference, I'd like to ask if McCain actually understands what short selling really is. The whole point of shorting a stock is that you don't own it. You borrow it. A naked short, as several people have explained, is when you don't bother to actually borrow it.
And, anyway, short selling performs an important market service. It's not a menacethat's stupid. It'll increase downward pressure when there's a run on a stock, but that momentum is conserved and pushes the stock back up when the short is covered. (That is, when those who short a stock decide it's time to realize their gain by buying low and returning the stock to the lender.)
WASHINGTON -- The Securities and Exchange Commission is not expected to make permanent restrictions on short selling that it temporarily instituted earlier this summer, a move that will please traders on Wall Street but could disappoint financial firms whose stocks are being hit by short selling.
In July, the SEC said it would restrict certain types of abusive short selling in 19 financial companies, including Fannie Mae, Freddie Mac and Lehman Brothers. At the time, the agency said it would consider extending the order to the rest of the market.
Instead, the SEC intends to make other, less sweeping changes aimed at curtailing abusive short-selling.
The recommendation, which comes from the SEC's staff, still requires the approval of Chairman Christopher Cox and the four other commissioners. Mr. Cox could seek to propose extending the terms of the emergency order to the full market, although going against the staff would be unusual.
Submitted by ThymeZone (not verified) on Thu Sep. 18, 2008 2:58 PM PDT.
Um, as has been pointed out, the president cannot remove a sitting SEC chairman. So, you tell me if McCain's blurb makes sense, or if Barack's counter makes more sense: Fire all the people who brought you this disaster by voting the Republicans out of office in a few weeks.
As a criminal lawyer, I've represented brokers who, say, filled the portfolios of little old ladies with penny stocks in which they had an interest, driving up the price, before the stocks ultimately tanked. They invariably claimed that the penny stock issuers were real companies with great prospects, and only the work of the evil "shorts," caused any problems. McCain is a naif if he believes this crap.
Submitted by Cliff Mason (not verified) on Thu Sep. 18, 2008 4:25 PM PDT.
Hey, I'm the senior writer on Mad Money, and I've got a couple points that might be helpful here (as well as a defense: financial terrorism was a metaphor, and I'll explain why it's an apt one).
First, the uptick rule, they tested out repealing it during the bull market from 2003-2005 and found it had no effect (SURPRISE!), now that we're in a bear market where the uptick rule would be helpful, you can see the results. The uptick rule forced the shorts to wait, it slowed things down. Without the rule, it's much easier for short's to hit stocks down and create a lot of fear, which causes more selling etc Longs don't have the same ability. You could bid a stock up in the hopes of attracting momentum buyers the same way short-sellers knock 'em down, but I think fear is a fundamentally more powerful force than greed, which is one reason for rules that prevent unfettered short-selling.
As far as naked shorting, this SEC has not treated naked short-selling as a crime (even though that's the law) until Monday when Cox announced he'd actually enforce the rules. Over the summer there was a brief period, you may remember, of "emergency rules" that protected 19 financials from naked shortselling, but the SEC let those lapse after about a month.
Does this matter? Yes, especially when we're dealing with financial companies that desperately need TO RAISE CAPITAL. One of the MAIN WAYS companies RAISE CAPITAL is buy SELLING STOCK. This is one of those rare cases where the stock price directly impacts the solvency of the business. If you look at how quickly Bear Stearns, Lehman Brothers and AIG collapsed, without, I should add, much in the way of news (AIG fell from $20 to $2 in a weekthat seemed like too much, after-all, it's not like it was news a week and a half ago that they'd written insurance for a lot of bad mortgage-paper), I think you can see the influence of hedge funds relentlessly shorting these stocks and driving them down by creating a free fire zone, as they didn't have to borrow the shares first (remember, Cox only announced he would start going after naked short-sellers this monday).
Now, maybe it was right for AIG to fall from $20 to $2 in a week. But with its stock at $20 AIG could have RAISED CAPITAL WITH A SECONDARY OFFERING, something that would have at the very least given it some more time to spin-off some of its valuable, but illiquid properties and stay afloat.
The same pretty much goes for Lehman. You can argue that the prices the shorts took these stocks down to were justifiable given the fundamentals. But you can't argue that naked short-selling and the lack of the uptick rule allowed these stocks to fall MUCH FASTER than they would have in the 1990s when the uptick rule was in place and naked short-sellers got in trouble.
How significant is this? Intelligent, well-informed people can disagree. But it seems fairly clear to me, a die-hard Obama supporter, that McCain is right about these two things. At the very least, Lehman and AIG would have had more time to raise capital (and in AIG's case, all it needed was time because it has many valuable businesses that it could have sold if given the opportunity).
Naked-shortselling without upticks pushes stocks down faster and harder than legit short-selling with the uptick rule in place--that seems hard to argue. It's possible AIG and Lehman would have failed eventually, but the aggressive, naked shorting, by making it pretty much impossible for these companies to raise money through an equity offering, had at least SOME IMPACT on their demise.
Not long ago Merrill did a huge secondary offering at $22 to raise capital after selling off $30 billion worth of bad paper at six cents on the dollar. On September 9th, AIG opened at $22. You saw it fall to $2 over the course of the next week. If it had had more time to do a stock offering at $22, it might not belong to the Soviet Socialist Republic of North America (and I say that with all the love in the world for Leon Trotsky). One the shorts pushed AIG under $10, there was no way it could do a stock offering to raise capital. Same thing happened to Lehman.
Don't forget, why do stocks exist? They exist so companies can raise money! They do not exist simply to tell us what valuation on the Ouija board the invisible hand of the market is pointing to at the moment.
No one's suggesting that the shorts were the SOLE REASON for the fall of any of the recent casualties. Obviously the shorts couldn't kill a solid company with plenty of capital, but if a company needs to raise capital to survive, the shorts can eliminate issuing stock as an option, which could certainly be the death of many a company.
Yes these companies were in trouble, but unfettered short-selling was the MARGINAL cause of the collapses of Bear, Lehman and AIG (aren't economists supposed to think at the margin?). On Mad Money we've been relentless in our criticism of Dick Fuld (now former CEO of Lehman) and Robert Willumstad (now former CEO of AIG, along with his predecessor), going so far to put them on our CEO Wall of Shame. Both companies also had toxic assets and opaque financials, with the lack of transparency making it much easier for the shorts to inspire fear. There's no reason you can't believe both that LEH and AIG were poorly managed with nightmare balance sheets, and that the relentless, unchecked short-selling played a role in their downfalls, even if you only think the shorts sped up the inevitable that still matters. If things had fallen apart at a slower pace, there would be a lot less panic (well, no panic today) and uncertainty out there.
Thus the term "financial terrorism." Counterfactuals are hard, but let's say Lehman would've survived in a world where the uptick rule was still around and shorts had to find stock to borrow before they sold it, well then the shorts destroyed billions in valuefinancial terrorism. Also, we're a TV show. We try to be entertaining. It's a metaphor.
Hey, let's send McCain-Palin down to NASA and blast 'em off into space. Just tell 'em they're going to Washington and they can reform all they want.
This is getting embarrassing. Now they're just making up crap. Well yes, they have been all along, but now people are reading it and noticing it's really bad crap. It's not even the high quality stuff campaigns usually put out.
We can't risk letting John McCain or Sarah Palin getting a foot in the White House.
We need to let Obama try to fix these problems.
I've met Chris Cox through mutual friends. We once shared a long ride to a historical site which was in shaky financial shape due to inadequate funding. I remarked that it was a shame that it had to close due to its historical importance. His answer: "Well, let the market take care of it." I tried to be polite and nodded and smiled, but the simplistic, magical quality of his thinking has stayed with me over the past several years.
What is being said about the uptick rule needs to be brought out! Although the uptick rule does not play directly into the banking crisis, it was put in place after the great depression to disuade excellerated selloffs in a colapsing market. Markets are more volitale now than ever before in history because of the easy flow of information.... no matter how true or untrue it may be. The act of eliminating the stop gaps set in place that prevent huge drops in our financial markets should be punishable and someone needs to be held accountable for allowing that to happen. Our nation can't afford for the ecomomy to collapse on a whim of bad news OR people just trying to capitalize from a volitile market. McCain is dead on here.
Submitted by 自動車 保険 見積 (not verified) on Thu Sep. 18, 2008 11:02 PM PDT.
CMD+Tab is nice and all, but it's much slower to switch to a window you can (partially) see compared with focus-follow-mouse. This is especially true when you are working on a laptop where the touch pad is right under your thumb and your window is furthur back in the switch list. At least when I CMD+Tab, I tend to overshoot.
