The Short End of the Short-Selling Stick

"The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," SEC Chairman Christopher Cox said in a press release. The ban on short-selling financial stocks is part of comprehensive plans being taken by the Federal Reserve, the Treasury Department and lawmakers on Capitol Hill. The SEC is also using emergency authority to require institutional short-sellers to disclose new short sales.

Regulators are essentially halting the practice of profiting when securities fall in value, a method most commonly used by hedge funds, as a means of easing the volatility in banking shares.

Shorting is the bread and butter of hedge funds, epitomizing the act of "hedging" against risk. A typical hedge fund will go short on half of all its trades. "It's a big problem for us," said one trader, who said the complete ban on short-selling was unexpected. "It's pretty extreme."

More here. And, one suspects, much more to come on this front.

reason on SEC head Chris Cox back in 1995, when he was a So-Cal congressman:

The former securities lawyer was in the headlines when Orange County declared bankruptcy in December. In fact, he broke the story when he was handed a note from the county's lobbyist during a meeting with reporters. The note read: "Urgent: Orange County may declare bankruptcy by 1:30 this afternoon. Please call the SEC to get the federal courts to freeze the asset pool" to stop investors from pulling their money out. Cox read the first sentence aloud—he later said he assumed the news was already public--and thereby precluded any behind-the-scenes federal intervention.

As the GOP's point man on financial markets and an Orange County representative, Cox would be the logical person to head any congressional inquiry into the bankruptcy. That means the county's financial shenanigans are unlikely to spark a witchhunt against derivatives or other esoteric securities.

As part of the Contract with America, Cox is principal sponsor of the Securities Litigation Reform Act, a bill that would make it more difficult for investors to file class-action lawsuits against the companies they invest in or the brokerage houses from which they take advice. Cox's bill would require an investor to hold at least a 1-percent stake in a security before filing suit; force plaintiffs to prove brokerages intentionally lied rather than merely gave bad investment advice; and make investors who lost lawsuits pay the defendants' legal fees. Nuisance suits when stock prices fall are pet peeves of growth companies in particular, including the high-tech communities in both Orange County and Silicon Valley.

More here.

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  • ||

    If only we can pump enough heroin into the veins of the economy, then everything will be all right.

  • ||

    The ironies are just delicious: The party that lectures everyone on free markets is conducting one of the largest gov't interventions in U.S. history. The party that lectures everyone on fiscal restraint has produced 5 of the largest budget deficits in U.S. history within the past 8 years. The party that used to lecture us on the evils of 'nation building' has engaged in two wars which will cost us trillions...and the list goes on and on and on. Republicans are worthless sacks of shit, plain and simple.

  • gmatts||

    So the gov't is now saying that the only way a person may look and act in regards to the market is to say that the market is going to go up? This is beyond moronic. It's one thing to add some type of reform to the practice of short selling, but an outright ban is an alltogether different thing.
    Does this mean that I'm now forced to bet the over in every NFL game from here on out? Because I think the Titans/Texans game will be a low scoring game

    Also, I was listening to McCain's big speech this AM and his plans for what's happening is:

    1) End greed on Wall Street, and presumably everywhere else.
    2) Take those that offered adjustable rate mortages and throw them in jail. (He made no mention of the diciplinary measures to be applied to those people that signed the adjustable rate mortgages and didn't read the fine print - which leads to the 3rd plan)
    3) Create a gov't backed fund to purchase the bad mortgages and ensure that those that signed mortgages that they couldn't afford get to stay in the hosues that they should default on.


    Why is it that I've yet to hear one person of any significance state that what is going on in the financial markets may be a good thing?

  • ||

    It just keeps getting better, doesn't it? I think I will order some 7.62x39 today.

  • Fluffy||

    Here are some thoughts to chew on:

    1. They claim the guarantee on money market accounts is only for a year. But having guaranteed them once, they have given everyone cause to believe that they are guaranteed forever.

    2. The short-selling ban is a direct intervention on the part of the government to dictate that shareholders who bought shares in overleveraged financial companies deserve to make money, and people who shorted overleveraged financial companies deserve to lose it. I would liken this to the government deciding who wins at roulette or the lottery, but it's actually worse than that. Those are games of chance, so one winner is just as good as another in the final analysis. But in this case, the government has decided that the people who bet correctly on the basis of underlying conditions deserve to lose, and the people who bet incorrectly deserve to win.

    3. Once the government uses tax dollars to buy those subprime mortgage-backed securities, the agency owning those securities has the ultimate say on granting workouts on foreclosures on the underlying properties. It is quite likely that the taxpayer will be screwed by two giveaways at once: first, they will be forced to overpay for illiquid securities. Then, they will be forced to not enforce their rights on the underlying assets to the securities, because I guarantee you a foreclosure freeze and a massive asset giveaway on the mortgages making up these securities.

  • ||

    James,

    I'm so sick of that prevarication. When has any member of the Republican leadership said a peep about free markets, fiscal restraint, or evils of nation building since GW Bush was sworn in? And you could go all the way back to 95 except for 'nation building'.

    You are correct that Republicans are worthless sacks of shit. I'm just sick of people saying that they talk a good game, because they don't even do that.

  • Warty||

    If we were smart, Epi, we would have put all our assets into ammo. Fuck gold, I know what's the real stable store of value.

  • ||

    I want to know what the real picture is like if all of these firms go under. The short of it, at least with the lending crisis, is that there are a lot of houses out there that are owned by investment banks that are horrifically overvalued, and the banks aren't getting anywhere near the amount of money back on them that they hoped because it turns out not too many people are able to pay them the amounts they counted those houses as being worth.
    Is that all?

  • jtuf||

    "The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," SEC Chairman Christopher Cox said in a press release.



    So is Ron Paul; that is why he wants to eliminate the Federal Reserve and deregulate the economy.

  • Doug||

    To hell with Yin! Yang all the way to the top, baby!

  • ||

    I reckon the women no longer corner the market on feeling like multi-holed chattel.

  • ||

    If we were smart, Epi, we would have put all our assets into ammo. Fuck gold, I know what's the real stable store of value.

    Violence is the only true currency.

  • tarran||

    jtuf for the win!

  • Fluffy||

    Good thing the Republicans are in office, because if Democrats had been in power for the last 8 years, the size and scope of government might have grown! Right? Right?



    Seriously, am I the only one who is getting dangerously close to sending an email to Lew Rockwell to say, "Um, I'm feeling a little sorry that I always called you a crank"?

    Nobody cared if short sellers raided Enron, and shareholders of that company lost their money.

    Nobody cared if short sellers raided Lucent, and shareholders of that company lost their money.

    But because now it looks like Wall Street Bankers might lose their money and position, it suddenly requires wholesale state intervention.

    Wall Street executives are getting the 9/11 Widow treatment this week, and it is starting to make the craziest old Ron Paul newsletters look accurate.

  • Abdul||

    Reinmoose,

    My understanding is that a significant portion, maybe a majority, of the holders of mortgage-based securities are foreign nations. If those securities turn out to be worthless, we could crash the economies of China & Japan.

  • JMR||

    The shorts to watch are the naked silver shorts.

    http://www.investmentrarities.com/09-16-08.html

    If Ted Butler's even 10% right, they're toast, but the taxpayers might have just bailed them out. If that's true, things will unwind in a rather ugly way, IMO.

  • ||

    Seriously, am I the only one who is getting dangerously close to sending an email to Lew Rockwell to say, "Um, I'm feeling a little sorry that I always called you a crank"?

    No.

  • ||

    Yes, it's a shame we haven't had Democrats running both houses of Congress as this situation has been building for the last year and a half, because they surely would have taken steps to prevent it. Wait, what?

  • Anonymoose.||

    Clarification: They banned shorting of about 800 financial stocks -- not all stocks. Not that I'm agreeing with this.

  • Don the libertarian Democrat||

    Since I'm a libertarian Democrat, I support more government intervention than libertarians. This crisis shows why. The government is always going to intervene in a financial crisis like this. Period. So we need regulations to keep it from happening. Period. If we don't, crises like this will lead to massive government intervention. Free markets need rules and regulations in the real world. The best we can have in this country is limited government. Libertarians already agree with Democrats on most social issues, get on board with us libertarian Democrats and work for minimal but effective regulations, and a social safety for the truly needy only. We're a small group, but have ideas on how to actually reduce government spending and intrusion. It's your choice: debating society vs. real world. At least give us a listen.

  • Fluffy||

    So is Ron Paul; that is why he wants to eliminate the Federal Reserve and deregulate the economy.

    That is not open for consideration.

    Anything can be considered, anything at all, other than walking back the powers the state already has.

    To create a situation where future events of this kind would be less likely to happen, we'd need to make market bubbles less likely. To do that, we'd have to eliminate the ability of the Federal Reserve to create bubbles with loose money, and the ability of the Congress to create bubbles with massive deficit spending.

    But those two powers will never be surrendered. Ever.

    The only solutions up for consideration are those that will make it appear that the situation can be controlled while still allowing the Fed and the Congress their current range of powers.

  • ||

    It just keeps getting better, doesn't it? I think I will order some 7.62x39 today. i Episiarch

    Commie rounds. My irony detecter just went nuts!

  • Anonymoose.||

    Don the libertarian Democrat | September 19, 2008, 10:21am | #
    Since I'm a libertarian Democrat, I support more government intervention than libertarians. This crisis shows why. The government is always going to intervene in a financial crisis like this. Period. So we need regulations to keep it from happening. Period. If we don't, crises like this will lead to massive government intervention. Free markets need rules and regulations in the real world. The best we can have in this country is limited government. Libertarians already agree with Democrats on most social issues, get on board with us libertarian Democrats and work for minimal but effective regulations, and a social safety for the truly needy only. We're a small group, but have ideas on how to actually reduce government spending and intrusion. It's your choice: debating society vs. real world. At least give us a listen.

    Um... Government intervention created this mess. The Federal Reserves policy, Fannie & Freddie, the bailouts, blah blah blah.

  • libertarian democrat||

    Seriously, am I the only one who is getting dangerously close to sending an email to Lew Rockwell to say, "Um, I'm feeling a little sorry that I always called you a crank"?

    I am not quite dangerously close, but I am on the way there.

  • robc||

    Don,

    When your group gets a majority in congress or gets a presidential candidate nominated, I will listen to you. Until then, Im ignoring you and the libertarian Republicans.

    At least they have a few guys in congress. Who do you have?

    Who is the Leading libertarian Democrat?

  • Rawr!||

    Serious question, how do you buy gold/silver?

  • Fluffy||

    Yes, it's a shame we haven't had Democrats running both houses of Congress as this situation has been building for the last year and a half, because they surely would have taken steps to prevent it. Wait, what?

    It is not necessary to show that.

    The argument is often offered - and is still being offered, a few threads down - that we have to support the GOP despite their history of blatant lying to libertarians and despite the snake-handling speaking-in-tongues hick trash or tinhorn militarists they offer as candidates these days, because if we don't the Democrats will get in and expand the size of government.

    All that is necessary to rebut that argument is to stand back and point at what the GOP is doing today and what they have done for the last 8 years.

    At least if the Democrats were nationalizing finance I wouldn't have assholes coming around telling me I still had to support them anyway because they were the party of limited government.

  • Raphael||

    That term "libertarian democrat" just baffles me.

  • robc||

    BTW, by "majority in congress" I meant "majority of democrats" not of the whole congress.

  • ||

    Commie rounds. My irony detecter just went nuts!

    My SKS cost me $180, never jams, I don't need to clean it if I don't feel like it, the ammo is cheap, and it's surprisingly accurate. You can take your $2000 AR-15 and shove it up your ass.

  • libertarian democrat||

    robc,

    Although you didn't ask me, there is noone I would call a libertarian that I can think of.

  • ||

    The government is always going to intervene in a financial crisis like this. Period. So we need regulations to keep it from happening.

    Exactly; if we could keep politicians from meddling in the economy, and attempting to provide advantages for some groups of participants over others, we would be better off.

  • robc||

    libt dem,

    That is what I thought. At least the GOP has Ron Paul, even if they dont want him.

    When the libt dems manage to elect their "Ron Paul", I will start taking them seriously. Especially if they treat him better and actually support him.

  • Joe Biden||

    These unpatriotic traders need to start paying more taxes, or God will punish them.

    It's time for them to step up and be a part of this thing.

  • ||

    In case you didn't know...

    Fuck, fuck and double fuck!

  • ||

    "brotherben | June 12, 2008, 12:41am | #

    What I see in America with Obama as POTUS and a democrat controlled congress is a monstrous make work project. Imagine the peace corps meets the CCC of the 30s doing works on the infrastructure. "


    This is where all this is heading, imho.


    Oh, BTW, Pat robertson just had a major Palingasm on the 700 club.

  • Warty||

    Violence is the only true currency.

    Well said. Let's be pals.

  • ||

    That term "libertarian democrat" just baffles me.

    More than "libertarian republican"?
    Why?

  • robc||

    J sub D,

    Both terms are baffling, but at least we know 1 of the latter exists.

  • libertarian democrat||

    That is what I thought. At least the GOP has Ron Paul, even if they dont want him.

    When the libt dems manage to elect their "Ron Paul", I will start taking them seriously. Especially if they treat him better and actually support him.


    And I consider this a completely reasonable position. I wish we had anyone close to as good as Ron Paul (although with some of his paleocon attitudes replaced with more democratic ones, ideally. Not that we wouldn't be lucky to have him as is). I am currently a registered republican so I could vote for him in the primaries.

  • CL||

    Just because the government is going to "insure" all these funds, does this mean that you will really still have control over your money if this happens to you? The way the gov't is just making up rules as it goes along, can't they just claim there's an emergency going on and prevent withdrawals? If this sounds paranoid, it's because I am ...

  • ||

    Oh, BTW, Pat robertson just had a major Palingasm on the 700 club.

    Brotherben,

    What sin did you commit that requires such a harsh penance, watching Pat "weather control" Robertson?

  • ||

    Well said. Let's be pals.

    Sure, after I take all your stuff. Don't make any sudden movements.

  • ||

    Serious question, how do you buy gold/silver?

    Coins. I bought mine off ebay. Search for gold eagle/silver eagle.

  • Anonymoose.||

    Explain to me what a "libertarian democrat" is. They are two terms who are completely opposed in my mind: One wanting individual freedom above all else, the other willing to sacrifice freedom for equality. How does the "libertarian democrat" resolve this.

  • ||

    Short sellers don't inflate investment bubbles, they deflate them. That's why they must be burned at the stake.

  • TallDave||

    because if we don't the Democrats will get in and expand the size of government. All that is necessary to rebut that argument is to stand back and point at what the GOP is doing today and what they have done for the last 8 years.

    The GOP hasn't been great, but it's just delusional to think the Democrats wouldn't have given us even bigger government AND higher taxes. Have you not paid attention to what they've done with Congress?

    True, the GOP dropped the ball in the six years they had most of the power. And I have major problems with all the GOP's social issue stances. And while I support the effort to spread democracy to Iraq and Afghanistan I can understand that other libertarians see those intervention as overly militarist. But let's not pretend the Democrats aren't Democrats.

    Something else to consider, while Obama is out there proposing a trillion in new spending, a trade policy best described as Smoot-Hawley II, and sending flash mobs to suppress dissent: without George W Bush there would have been no Heller victory.

  • ||

    When some twit on the Today Show said that the buy-out of sub-prime mortgages was "the government going into the real estate market" and that eventually "They will make their money back," I actually began to choke on a piece of gjetost.

  • Lefiti||

    The market works great--with a little help from the state. Don't worry, you free market fundamentalists, evidence will never shake your faith. Never!

  • ||

    Anonymoose,

    A "libertarian democrat" is the result of a unicorn and a leprechaun have way too much tequila. "Libertarian republican" are cynical opportunists trying to get votes by pandering to the libertarian principles they constantly betray.

    Or is it the other way around? I can never remember...

  • robc||

    I dont know what he said, but Im glad I finally got around to filtering out lefiti yesterday.

  • Don the libertarian Democrat||

    Here's an economic plan for libertarian Democrats. First, confine the social safety net to the truly needy. Second, have policies that grow the economy so that there are less of the truly needy. Third, the cost of government will go down. In the real world, we need an economy in which the middle class really feels like the middle class, so we can confine government to the truly needy. We will always have a social safety net. We will always have bailouts. As for how many of us there are, not many. I've started a blog on being a libertarian Democrat knowing it might be a hard sell. But I'm interested in actually reducing the size and intrusion of government in the real world. Believe or not, on the left, there are many more people open to libertarian ideas than you think. For instance, I've had a lot of liberals agree to a guaranteed income plan like the one outlined in Charles Murray's In Our Hands. Even if it's a chimera, the worst case scenario is that we find Democrats and liberals who will support us on many issues and take our ideas more seriously. I've tried the LP and GOP, if you still like them, good luck.

  • libertarian democrat||

    A libertarian who thinks democrats are more pro-individual freedom than republicans? Or one who prioritizes the slightly less than imaginary difference on social liberties over the slightly less than imaginary difference on economic liberties?

    Certainly not someone who agrees with the majority of the democratic party, however.

  • ||

    J sub,

    it is what God requires of me for succumbing to a porn addiction way too often.

  • ||

    "We are responding with unprecedented action." -George W Peron

    He got that part right.

  • libertarian democrat||

    Or libertarian-leaning democrats like Don appears to be.

  • ||

    Patrick "Lefiti" Tribett's comment is so retarded I forgot to proofread my last post. The garbled English is all his fault.

  • Raphael||

    "More than "libertarian republican"?

    Because libertarians are usually in favor of freedom from the government and very little government interference in the people's lives. And democrats are usually very much about the government running every single thing and ruling on every single thought we all have, and having more and more programs that allow individuals to not take responsibility for themselves, but instead let the government do it for them.

    And before you go off on me about the Bush admin being any different. I know that. So yeah, considering the current republican administration and it's fixation with religion and spending money for his buddies, the term libertarian republican baffles me too. But if it were the traditional republican way of doing business that used to be the norm, then a libertarian republican wouldn't be such an odd thing.

    But democrats are traditionally, and even more so now, in favor of the government having it's hand in every aspect of people's lives, which is the exact opposite of what libertarianism usually stands for.

  • ||

    Sure, blame others for your Full Retard, NutraSweet.

  • ||

    TallDave,

    The first 6 years with Republican government led to the greatest expansion of government since FDR. More than Clinton, Carter, JFK and eL BJ. How would it have been worse? You can't just say something, and expect it to be true. When you have the spendingest government since WWII, you don't have a leg to stand on when you say, "The other guy would be worse."

  • JP||

    1. Politicians want to get their hands on the goodies.

    2. Politicians need the support of the people in order to get their hands on the goodies.

    3. The vast majority of the people are too stupid to understand basic economics.

    [3a. The vast majority of politicians are also too stupid to understand basic economics, but even for those who aren't (such as Clinton and Obama), it doesn't matter.]

    4. THEREFORE, politicians call for short-selling bans, windfall-profits taxes, predatory-lending penalties, price-gouging investigations, etc. etc. etc.

  • Fluffy||

    The GOP hasn't been great, but it's just delusional to think the Democrats wouldn't have given us even bigger government AND higher taxes. Have you not paid attention to what they've done with Congress?

    Why gosh, you're right, TallDave!

    The Democrats might have expanded entitlements!

    Or enacted campaign finance "reform"!

    Or squashed local control of education!

    Or grown spending!

    Or...nationalized insurance companies!

    Or...tried to control the stock market!

    You know something, in an earlier thread I said that W had increased the size and scope of government more than anyone since LBJ. That little factoid of mine is now out of date, because on the basis of today's activity W has now left LBJ deep in the dust, and is in serious competition with FDR. W now pretty much equals what FDR might have been had he completely disregarded the rule of law and just done whatever struck him at any moment in time.

  • ||

    Did I hear the prez right? He said the companies we "bought" show long term promise for a profit? He also said that anyone caught doing illegal trading will be "persecuted?"

  • ||

    Short selling works if the company is overvalued; if the business is fundamentally sound, and realistically priced, the shorts will get crushed.

  • JMR||

    Mo's right. It took Tricky Dick to reach out to China, and it took our current incompetent to reach these levels of spending growth. No Democrat -- not even Slick Willie (who, if everyone will recall, is the one who proclaimed an end of big government) -- could have gotten away with what Bush has managed to spend.

  • ||

    He did, in fact, say, "persecuted".

  • ||

    My SKS cost me $180, never jams, I don't need to clean it if I don't feel like it, the ammo is cheap, and it's surprisingly accurate. You can take your $2000 AR-15 and shove it up your ass. - Epi

    Luxury. We used to live in a shoe box in the middle of the road....

    No AR-15 here comrade. Most I ever spent was $700 for an M-950. In the mid 90's, I was visiting a gun store (local hangout) that had a pallet of Russian SKS's. One gun on top of the stack had a really crappy looking stock - none of them are particularly pretty, so this was REALLY ugly. A couple weeks later the pallet is half gone but that same ugly weapon is still on top of the stack. A while later I returned and the ugly duckling was the last one left, and they only wanted $80 for it, and it looked at me with its pointy bayonet - I almost broke down in tears, it was so lonely in that big cold store. Sold. Now its got a synthetic monte carlo stock, bipod, metal gas tube grip, compensator, and 30 round magazine, and a good loving home.

    Since we've gone commie, the beautiful swan is in good company.

  • ||

    Lovely. more political hoopla and double talk! Jsut what we need.

    Jiff
    www.anonymize.us.tc

  • ||

    Does anyone else see humor in all this going down on "Talk like a Pirate day"?

  • ||

    Don't talk to me about rifles; if you believe Cramer, we're only a few weeks away from wearing skins, and hunting with spears and clubs.

  • ||

    Quoting himself:

    if the business is fundamentally sound, and realistically priced, the shorts will get crushed.

    The shorts are also more likely to know if a company is fundamentally sound and realistically priced than the longs.

  • ||

    Fluffy @10:22am once again hits the nail on the head.

  • andy||

    am i going to be the first guy on the page to point to deep capture:

    www.deepcapture.com

    shorting IS hedge funds bread and butter, but there are illegal, fraudulent tactics used by hedge funds (they have different rules that apply to them) that destroy public company value; in particular, the practice of naked short selling, where stock is shorted that was never borrowed or stock that may not exist. bear stearns is being investigated as a potential victim of naked short sellers. read all about it at the deep capture blog, helmed by patrick byrne of overstock.

  • andy||

    i didn't even bother to read the comments before i posted that, but now i'm glad, with the speed at which the conversation took a tangent to partisan squabbling.

    seriously, i'm not advocating for bigger regulation, but i am advocating for fraud investigations into hedge funds and the practice of naked short selling. cox earlier publicly recognized this as a problem (http://www.deepcapture.com/the-sec-declares-emergency-and-joe-nocera-yammers-on/), but i haven't seen any mention of hedge funds and this large-scale fraud from reason, which is kind of disappointing. fraud is an issue of justice, not adhering to byzantine financial regulations, and reason should appropriately recognize the issue since it has potentially killed several large, otherwise-successful public companies.

  • TallDave||

    How would it have been worse?

    You're kidding, right? Government-run healthcare alone could have doubled what the GOP added.

    you don't have a leg to stand on when you say, "The other guy would be worse."

    Good God, do you not listen to their proposals? They're PROMISING to be worse! Obama already has a trillion in new spending plans.

  • TallDave||

    Fluffy,

    Yes, they would have done all that AND:

    -- created "universal" government-run health care

    -- thrown even more money at a failing educrat-ridden school system

    -- nationalized the oil companies

    -- sundry other wonderful uses of taxpayer dollars

    I could go on. It's bizarre that you're criticizing Repubs for being too much like Dems, but seem to think Dems are the answer to the problem.

  • ||

    Is there any legal authority for seizing AIG because it might go broke? Going broke is not against the law, per se. To seize such a company the Government is supposed to have to go to court, prove a crime (fraud perhaps?), and then seize the assets.

    As to legality, Congress hasn't approved the current $1 trillion plan (which hasn't actually been written yet). It is tough for anyone to approve something when the people administrating the so-called plan freely admit that they don't know what that plan will be. Anyway, Barney Frank says hearings in Committee on Wednesday, approval by Congress by this coming Friday. What are the chances anyone in Congress will have a chance to read and critique this unwritten plan between now and next Friday's vote?

    Your choices are to laugh or cry though neither are to be what they seem.

    I prefer an AK-74, the old-style Soviet sniper rifle myself. The ammo is the same as the SKS mentioned earlier. Think there will be a run on ammo?

  • TallDave||

    http://www.cbpp.org/2-20-08bud.htm

    Here's a lefty policy complaining Bush doesn't spend enough:

    It is important to note that despite some rhetoric to the contrary, these programs have not grown rapidly in recent years. In 2008, funding for domestic discretionary programs outside homeland security is lower as a share of the economy than it was in 2001. And, between 2002 and 2008, the overall funding level for domestic discretionary programs outside homeland security declined 2.6 percent in real per capita terms.

  • TallDave||

    Is there any legal authority for seizing AIG because it might go broke?

    They're aren't seizing it, they're BUYING it.

  • ||

    Almost all short-selling is "naked" short-selling. You sell the stock today with an understanding you will buy the stock at a future date to make the current seller whole. How else could it work? (Can't see deepcapture from this site.)

  • robc||

    blaupanzer,

    Very little short-selling it naked.

    How else could it work?

    You borrow the shares and then sell them. Most short-selling works this way.

  • robc||

    TallDave,

    They're aren't seizing it, they're BUYING it.

    No they arent. You buy a company by paying it shareholders for the shares.

  • ||

    Think there will be a run on ammo?

    No. It's hella expensive right now because of the war.

  • ||

    At the risk of sounding inflammatory:

    Andy,

    "has potentially killed several large, otherwise-successful public companies"

    NO. In the same way that you cannot cheat an honest man, you cannot kill a successful company with short selling. Naked or otherwise.

    I've had a hand in "killing" companies through shorting (not naked shorts as that would be illegal) but they deserved to die.

    This is a problem with a lot of libertarians. They are all for deregulated markets and "law of the jungle" until it happens to them and suddenly they want to change the rules.

  • TallDave||

    Blau,

    A regular short is a little different:

    In order to make the initial sale, the regular method is first to "borrow" securities from a current shareholder, typically a bank or prime broker, agreeing to return them when demanded by the lender. The trader then delivers these borrowed shares to the buyer, a third party. The lender generally charges an interest fee on the share value during the time when the position is being held by the trader. When the trader wants to "unwind" the position, he buys back the shares in the market and returns them to the lender.

    Naked short selling is a case of short selling the shares without first arranging a borrow.

  • ||

    The Government is "buying" AIG without asking the shareholders if they want to sell. (Yes they very likely would, but we have laws that say the buyer is supposed to ask. This is not about politeness, it is about the law.) In Socialist countries, they seize businesses by exchanging worthless paper for real assets. Since we've decided to create the $85 billion in this case out of thin air, followed by a trillion more dollars today, the "worthless paper" point is most apt. Of course, the Socialists are smart enough to do this with firms that are SUCCESSFUL.

  • robc||

    qingl78,

    Im not even sure how short-selling could kill a successful company. At the worst, it drives down the share price. So what? Unless they are having to sell shares to get cash, it doesnt affect the internal runnings of the company. I guess if they rely to much on stock uptions to pay the employees, they could lose talent.

    Neither case would I call a "successful" company.

    As you said, any that were killed via short-selling deserved to die.

  • TallDave||

    No they arent. You buy a company by paying it shareholders for the shares.

    Sigh. They ARE paying the shareholders. The shareholders are the ones who agreed to the deal. The Feds are giving AIG an $85B loan.

    This is the best deal AIG could get. They actually turned out a private equity offer because they thought a federal deal would be better.

  • TallDave||

    The Government is "buying" AIG without asking the shareholders if they want to sell.

    Argh. Again, this was an agreement WITH THE SHAREHOLDERS, for THE BENEFIT OF THE SHAREHOLDERS.

    http://en.wikipedia.org/wiki/American_International_Group

    On September 16, 2008, as AIG suffered a liquidity crisis following the downgrade of its credit rating, the United States Federal Reserve stepped in to prevent the company's collapse. The Fed announced the creation of a credit facility of up to US$85 billion in exchange for warrants for a 79.9% equity stake and the right to suspend dividends to previously issued common and preferred stock.[1][2][3][4] AIG announced the same day that its board accepted the terms of the Federal Reserve Bank's rescue package.[5] This was the largest government bailout of a private company in U.S. history, though smaller than the bailout a week earlier.[6][7]

    Why would the shareholders agree to this? Because 20% of something is better than 100% of nothing. AIG was about to fail, and they knew it.

  • ||

    Actually,

    I could be wrong but, reading some of the comments on the site, I get the feeling that most people here have never seen the underbelly of free market system.

    It appears that most people here have an etrade account and taken an option trading course and think that they know how markets work.

    I guess I have a different perspective as I started out in dirty, crazy, bare knuckle world of OTCBB on the Vancouver-Miami axis of evil. Think Boiler Room http://www.imdb.com/title/tt0181984/ but with 50 year old sociopathic lawyers who know what they are doing and who aren't above a bit of extra-curricular "persuasion".

    While the stakes are higher for me now, the returns aren't a great and I kind of miss the feral nature of it all.

    It is kind of like the difference between what the UFC is now and what it was "back in the day" before all these rules.

  • Warty||

    I prefer an AK-74, the old-style Soviet sniper rifle myself. The ammo is the same as the SKS mentioned earlier.

    You don't have a shred of a clue about what you're talking about. Stop embarrassing yourself.

  • Fluffy||

    Fluffy,

    Yes, they would have done all that AND:

    -- created "universal" government-run health care

    -- thrown even more money at a failing educrat-ridden school system

    -- nationalized the oil companies

    -- sundry other wonderful uses of taxpayer dollars


    Strangely, none of that happened during the 8 years of the Clinton administration, even during the phases when Clinton had powerful support in the Congress.

    It took the election of W to get campaign finance reform passed and signed.

    It took the election of W to get the Medicare Prescription Drug Benefit passed and signed.

  • TallDave||

    NO. In the same way that you cannot cheat an honest man, you cannot kill a successful company with short selling. Naked or otherwise.

    Exactly. If you short a successful company the longs just laugh and take your money.

  • Warty||

    That was maybe too harsh. Nevertheless, Educate thyself.

  • Alice Bowie||

    The real tragedy in this is the elimination of the Downtick rule.

    Many of these Investment Banks would be alive today.

  • TallDave||

    Strangely, none of that happened during the 8 years of the Clinton administration, even during the phases when Clinton had powerful support in the Congress.

    You mean the two years that saw tax hikes and Hillarycare, which led to the 1994 GOP sweep?

    I suppose you'll tell me next it was Clinton, not Newt Gingrich, that demanded smaller budgets in the fight that led to the gov't shutdown. Sheesh.

  • TallDave||

    In case you slept through 1993:

    Once in office, Bill Clinton quickly set up the Task Force on National Health Care Reform, headed by First Lady Hillary Rodham Clinton, to come up with a comprehensive plan to provide universal health care for all Americans, which was to be a cornerstone of the administration's first-term agenda.

    http://en.wikipedia.org/wiki/Hillarycare

  • robc||

    TallDave,

    If the AIG shareholders still own 20%, they havent been bought out.

  • ||

    Robc,

    Given about a quarter million dollars, a Cayman account, a not-too-bright securities lawyer, a Very smart and experienced securities lawyer and a broker in either Miami or Vancouver (I'm not going to tell you which ones) and I good target on the OTCBB I can kill the company (take all capital and drive the share price down to 0).

    What constitutes a good target? Just about any over leveraged company or any company who is in the growth stages who is not adequately capitalized.

    So if the company is capitalized to 5 or 10 mill, you could probably get about 30 to 70% of it (depending on how early and how well you played your hand).

    The fees for showing you how to do this are very high however and are not for the faint of heart.

    Got to go!

  • TallDave||

    TallDave, If the AIG shareholders still own 20%, they havent been bought out.

    Hmm? They've given the government 80% of their company, in exchange for some badly needed liquidity. It's a partial buyout.

  • Fluffy||

    You mean the two years that saw tax hikes and Hillarycare, which led to the 1994 GOP sweep?

    The Clinton tax hikes actually had a salutary impact on my long-term tax burden relative to the Bush deficits. Want to cut the long-term tax burden? Stop deficit financing immediately, even if that requires modest tax increases.

    Naturally I would prefer the Libertarian Party platform budget, but if we can't have that Clinton's overall budget policies were better than Bush's.

    And Hillarycare did not become law. I would rather have a Democrat seek to expand entitlements and fail, than a Republican campaign against expanding entitlements and then succeed in expanding them once he's in office.

  • TallDave||

    Clinton's overall budget policies were better than Bush's.

    No they weren't. He wanted massive budget hikes. He just didn't get them.

    And Hillarycare did not become law.

    Because Republicans promised to filibuster it!

    That's incredibly bad reasoning. Democrats try to get things you don't like passed, and occasionally Republicans help them, so your solution is... elect more Democrats.

    I can't decide if you really think this poorly or you're just a Dem pretending to be libertarian.

    I'm curious what you'll say if Obama wins and Dems hold Congress, and they immediately start doing exactly what they've promised.

  • gmatts||

    "Is there any legal authority for seizing AIG because it might go broke?"

    The gov't is "siezing" AIG in the same way that I seize my girlfriends boobies. It's cool with her, just like it's cool with the shareholders of AIG for the gov't to "seize" AIG with a cash infusion. However, if I started seizing my neighbors boobies, there'd be problems. Just as if the gov't started siezing other companies. In those cases, I'd be in jail and we'd be living in Cuba.

  • Fluffy||

    Democrats try to get things you don't like passed, and occasionally Republicans help them, so your solution is... elect more Democrats.

    No, my reasoning is that the GOP was slightly more likely to actually occasionally go to bat for limited-government principles when it was the party of opposition.

    As the party in power, every principle is subordinated to blowing the President, so if the President says "let's be FDR II" the party lines up to suck him off and do it.

    If Obama comes into power and brings about every last thing on your list, FUCKING FANTASTIC. Then the failures of government will belong to the Democrats again, and maybe we can elect some real limited-government politicians to set it right.

    But letting GOP apologists like you try to scare us with the Obama boogeyman into supporting the guys who brought us the last 8 years is unacceptable. If we have to be fucked over by increases in the size of the state, I would rather it be at the hands of the Democrats than at the hands of lying bastards who came around with their hand out looking for our support by claiming to believe in our principles, when they never did, not even for a second.

  • Fluffy||

    And if that sounds like spite, TallDave, GOOD.

    If Ayn Rand was right about nothing else, she was right that spite is the proper approach to take when dealing with statists.

  • JP||

    quingl78 wrote: "Given about a quarter million dollars, a Cayman account, a not-too-bright securities lawyer, a Very smart and experienced securities lawyer and a broker in either Miami or Vancouver (I'm not going to tell you which ones) and I good target on the OTCBB I can kill the company (take all capital and drive the share price down to 0)."

    Don't know if you're still around, but it sounds like you're talking about a negotiated transaction or series of transactions, as opposed to open-market trading by itself. Am I right?

  • Geotpf||

    Out of all the bailout motions by the government, this is the only one that really pisses me off (although if they really do end up buying all the bad mortages, without at least getting a big chunk of flesh from the idiot banks et al, I'll be pissed off about that one as well). This basically prevents people from betting that a stock is going to go down. Well, guess what-some companies are run by morons, and those stocks deserve to go down! If you ban short selling, you help companies that are run by idiots, and, in turn, hurt companies that are well run. It might help (a little bit) in the short term, but it will just screw things up long term.

  • TallDave||

    And if that sounds like spite, TallDave, GOOD.

    No, it just sounds short-sighted and self-defeating. If they nationalize healthcare, it will be very very hard to ever get that toothpaste back in the tube.

    Remember when candidates talked about eliminating the Dept of Education? Ah, the good old days.

    But letting GOP apologists like you try to scare us with the Obama boogeyman into supporting the guys who brought us the last 8 years is unacceptable.

    Yeah, just because they're promising to do all the things free-marketers hate.

    The last eight years could have been a LOT worse. Toss a protectionist trade war on top of our current turmoil and you've got the recipe for the Great Depression.

    the GOP was slightly more likely to actually occasionally go to bat for limited-government principles when it was the party of opposition.

    Can't disagree with you there, though.

  • ||

    Argh. Again, this was an agreement WITH THE SHAREHOLDERS, for THE BENEFIT OF THE SHAREHOLDERS.

    This is an agreement with the management, for the benefit of the managers.

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