Friday, September 19, 2008

When all roads only lead out

Houston has millions of inhabitants, counting all the contiguous towns and communities which spread outward from it, cancerlike, down to the coast and east to the bayous.

When major hurricanes come its way and all those folk need to get out, the authorities make all the major roads one-way, leading outward, temporarily. If you must go the other way, you have to rat-run the minor roads.

It was something analogous to that that the UK Financial Services Authority invoked today, reversing the tide of the market and prevent it from spiraling down the whirlpool it had become.

Some might view this as dastardly, others more prophylacticly. FT Alphaville, in reporting the event, seems to adopt the tone that it is the end of markets as ever we've known them:
The regulator has snapped. With the government having torn up the competition rulebook earlier in the day, the FSA has now abandoned the free market in financial stocks.
Guambat generally holds the view that sellers should be allowed to sell, but recognizes that, at some point, highly geared, highly organized and highly mobile institutional selling, with motives ulterior to any intrinsic thought of the target of those sales, is overly destructive, self-serving and market manipulative. At the point, or anywhere near it that comes anywhere close, Guambat is sympathetic to a bit of the cold-shower approach.

Guambat points out that the evil of rumour-mongering and manipulative selling is not worse, however, than the evil of rumour-mongering and manipulative buying, and that it is the latter that created the credit bubble and commodity bubble and the opportunity for short-sellers to be so destructive in the first place.

Turn about will not only be fair play, it will be just as imperative.


FOLLOW UP 20 Sept:

There is some agreement "out there" with Guambat.


CNNMoney.com:
The issue at hand is not that short selling is evil. It is that some short sellers engaged in illegal practices, manipulating the market by spreading rumors to push stocks lower.

It is such manipulation, not the practice of short selling itself, that the SEC should crack down on.
Guambat would add, that any such crack down should not remain temporary.

Lex:
Short sellers perform a vital function. By bringing market prices in line with an asset’s true worth, they provide a mechanism of price discovery. Yet last week short sellers morphed into price creators. It is one thing to short China’s ICBC believing it to be overvalued at three times book value. It is another to short HBOS when it is trading at 0.5 times. The first is an opinion; the second equivalent to inciting a bank run.

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