What a move by the US regulator and followed by the European regulator. Great. Now you cannot short sell. However, please remember you can always buy put options and make money. Unless regulators around the world allow free markets to play, there is no cribbing about how the market behaves. If somebody has short sold Lehman brothers – remember he is putting his money in what he thinks. Just as a bull is allowed to buy what he wants, the bear should be allowed to sell what he wants.
When the Koreans offered $ 7 for a share of Lehman, the EGO of the CEO prevented the deal to go through. Today it is traded at < 1 $ (29 cents to be precise).
Buying and selling are simple price discovery mechanisms. Any interference can make it look good only for a temporary period.
If you watch the Suze Orman show you quickly realize the problems of the average American. He lives far beyond his means. And the finance company lends to him so that he keeps spending. There are some people who will take about 780 years to pay off all the debt. If you are a prudent investor and you see a bank lending to people who just cannot repay, you should short the share. Like a friend in the fund management industry told me in Jan 08, not only should you sell your infrastructure stocks, you should sell your neighbor’s stock also.
The most sensible solution to the credit card problem is to spread financial literacy among Americans, tell them they cannot spend more than what they earn. Then to tell the finance companies just because you are going to colaterize the debt you cannot give a loan of $700,000 to a guy earning $ 17,000. Then you have to tell the Housing finance company you cannot buy collaterized debt just because it is rated.
However, all this is painful to do, does not get brownie points, people cannot see an immediate effect (instant gratification is the essence of the world).
So what to do? Write a cheque for a few Trillion dollars and spread smiles all around.
It is like a leaky bucket. You realize that if water goes into the bucket as a small flow, there will be no water seen in the bucket. However, if you “fill” it with a huge hose pipe -IT WILL LOOK FULL for a few hours.
That is what this “fix” of taking the bad loans will do for the market. It is a bad fix, and a slow poison. Unfortunately you and I will have to endure it. But not very far away in time you might tell and American “Here is a dollar, give me a rupee!!
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