new_trader
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According to the SEC chairman, in times of 'panic' and uncertainty, the Public will directly correlate the drop in share prices with impending company collapse. In a nutshell, it seems all this is being done for the benefit of public perception.
Press Release: Statements of SEC Chairman Christopher Cox and Enforcement Division Director Linda Thomsen Regarding Immediate Commission Actions to Combat Market Manipulation; 2008-209; Sept. 17, 2008
stevespray
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Morning Split,
I take your point regarding not wanting to see a ‘run on the banks’ (in terms of people queuing to withdraw funds). What I don’t agree with is all the ‘smoke and mirrors’ stuff which our government use to artificially enhance where the economy really is. For a long while they have mislead us over the real extent of inflation and in my opinion this is one of the major reasons why this situation has come on top so quickly. Many people live hand to mouth in terms of income and the last two years would have seen a drastic drop in terms of disposable income left over each week or month. This is what makes credit much harder to service because of a lack of flexibility.
You’re right about ‘credit abuse’ but for many it either became a way of life or they simply got swept away on the tide. After all, if house prices are rising and you need a house then what choice do you have? My belief is that would have been extremely hard for any government to control that. That’s because human nature will never change. If credit was available and bigger houses were available then people will move up the chain – it’s a form of greed really which, as we know, is one aspect behind market movements. How can you realistically control that?
With regard to the ‘short selling rules’ themselves – surely this is now a case of ‘slamming the stable door after the horse has bolted’? The damage is done. Northern Rock should have served as the warning which provoked a pre-emptive action if we assume that NRK was the ‘tip of the iceberg’ in terms of potential ‘credit crunch’ victims. My personal belief is that prices would still have fallen. I will concede that the patterns may have been slightly different but ultimately the market as a whole cannot be hoodwinked like the general public – the true values of these stocks would have still been unveiled.
To me the government’s reaction and their subsequent spin is a sign of panic rather than a signal that they are in control of this. History has taught us that the market cycles cannot be manipulated in this manner. Ironically Brown used to talk of “not letting us get back into a cycle of boom / bust economy” whilst all the time allowing the boom flourish! If the housing market wasn’t an indication of that house of cards then what was?
I’m guessing that this business will drag on a fair bit longer as the various governments of the world continue to try and disrupt the completion of the natural cycle. In typical US style Bush wants to buy his way out of trouble! All the while it is just delaying, and perhaps worsening, the ultimate outcome.
Steve.
I take your point regarding not wanting to see a ‘run on the banks’ (in terms of people queuing to withdraw funds). What I don’t agree with is all the ‘smoke and mirrors’ stuff which our government use to artificially enhance where the economy really is. For a long while they have mislead us over the real extent of inflation and in my opinion this is one of the major reasons why this situation has come on top so quickly. Many people live hand to mouth in terms of income and the last two years would have seen a drastic drop in terms of disposable income left over each week or month. This is what makes credit much harder to service because of a lack of flexibility.
You’re right about ‘credit abuse’ but for many it either became a way of life or they simply got swept away on the tide. After all, if house prices are rising and you need a house then what choice do you have? My belief is that would have been extremely hard for any government to control that. That’s because human nature will never change. If credit was available and bigger houses were available then people will move up the chain – it’s a form of greed really which, as we know, is one aspect behind market movements. How can you realistically control that?
With regard to the ‘short selling rules’ themselves – surely this is now a case of ‘slamming the stable door after the horse has bolted’? The damage is done. Northern Rock should have served as the warning which provoked a pre-emptive action if we assume that NRK was the ‘tip of the iceberg’ in terms of potential ‘credit crunch’ victims. My personal belief is that prices would still have fallen. I will concede that the patterns may have been slightly different but ultimately the market as a whole cannot be hoodwinked like the general public – the true values of these stocks would have still been unveiled.
To me the government’s reaction and their subsequent spin is a sign of panic rather than a signal that they are in control of this. History has taught us that the market cycles cannot be manipulated in this manner. Ironically Brown used to talk of “not letting us get back into a cycle of boom / bust economy” whilst all the time allowing the boom flourish! If the housing market wasn’t an indication of that house of cards then what was?
I’m guessing that this business will drag on a fair bit longer as the various governments of the world continue to try and disrupt the completion of the natural cycle. In typical US style Bush wants to buy his way out of trouble! All the while it is just delaying, and perhaps worsening, the ultimate outcome.
Steve.
I don't know, Paul, that's the short answer, but if whoever is in charge thinks it should be tried, I can take it. Let's face it, it's not going to break any of us and any straw in the wind might help, even a little bit.
The damage has been done by excessive borrowing. Stopping credit is, really, going to make our economy creak. Do you know if it is true that the UK owns more credit cards than the rest of Europe combined? I heard it, somewhere, but I can't confirm it. Nevertheless, where there's smoke, there's fire. Just wait until that dries up!
Split
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Isn't this what the politicians and government agents always do? A basic problem is that the general public are so ignorant and unwilling (thick?) or unable to appraise themselves of these matters, that they just want an easy "solution".
Why cannot even the dimmest punter take the trouble to understand that there's no point in shorting a basically sound instrument, and that shorting exploits existing problems ie it's an effect and not a cause? [obviously this can change once the rumours and market sentiment get about]. You'd never believe it according to the politicians' "wicked City spivs" tales!
I had to chuckle at the Labour Party conference where union leaders with mouths bigger than their brains, want to tax the City almost out of existence. Seem to forget that one third of UK Corporation tax comes from this golden goose. And don't they know that George Soros (and other managers) can trade from any country & all they need to trade is a desk, phone and PC connection - oh yes, and plenty of brainpower - something they & the average Sun reader will never understand (apologies to all our learned Sun readers who only buy it for page 3 / football)
Short selling is largely irrelevant - it's basic house keeping eg 125% mortgages, and gearing beyond sensibility - and human greed & stupidity etc etc. All IMHO of course.
PS - just a thought: If we banned all trading it would put a stop to this nonsense once and for all. We could then concentrate on the latest "tractor" stats and printing / borrowing more government money.
I agree that there is no end in sight. I wish that I could say that the Spanish government is any better but Zapatero and Solbes are worse. Unfortunately, the government got re-elected last spring. The opposition has just got it over to them that things, really, aren't too good!
new_trader
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I think there would be an end if governments stopped doing what Steve suggested, ie/try and disrupt the completion of the natural cycle. A recession isn't the end of the world.
stevespray
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The problem is that if we went into full blown recession then it could be huge. This is what the governments fear most. Compare the current retracements in the markets against historical retracements which took place in the 1900's and you will see that what has occured since Jan 08 is little more than a blip. Where would FTSE really be (and where would the pension problem be) if we went into a 10 year decline which saw between 60% to 80% knocked off the all time high? Historically this has occured on several occasions and has, at some point, always followed a period of particularly good times. Is there any reason why we should think that declines, such as the ones Livermore discusses in his various books, cannot occur now? It is very easy to argue that the recent bull market has been the greatest of all time because, since the 1980's, stocks have never had a period of historical undervaluation - thats like a 25 year bull run. If a proper bear market were to follow that period then, for a proper bottom to be established in the cycle, stocks would have to become highly unpopular + market participation would have to shrink drastically.
When I walk around my local sleepy Cotswold town I still see packed coffee shops with people happy to hand over £10 for two cups of coffee and a couple of slices of cake - it strikes me that the majority of people have yet to accept that we are in a recession.
Steve.
stevespray
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The thing is that credit cards are a real money spinner for the co's which provide them. I mean interest rates of 20%+ pa leaves plenty of room for profits even after the number of defaults rise.
The problem areas relate more to the secured borrowing at much lower rates. NRK used to do personal loans for around 5%pa - that means margins are very thin and that they need a very liquid money market to borrow what they need. Same with the mortgage markets - wafer thin margins based on low levels of defaults in a rising house market which used to mean that their loan was pretty much 'safe' within a few months of setting it up due to increasing equity in their secured asset base. Not so now in a stagnating housing market. Surely many of these firms are now just sat on top of a house of cards hoping that the wind doesnt get too strong.
Steve.
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Fair comment. To most people "Recession" is when you lose your job & can't pay your mortgage.
That's true, here, too. Cinemas full, plenty of people on the terraces taking coffee,on sunny days still a lot of traffic on the roads.
On the other hand, property is a disaster area and people in the shopping malls are looking, not buying.
People are still using the credit card while they can.
catracho
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too true..pity no politicians follow this!
Agree completely; The problem was created a long time ago..fear of recession slowing growth, especially in the US kept interest rates TOO low, fuelled housing boom, credit card spending and the general feeling amongst the public(fomented by politicians like G Brown - "the end of boom and bust") of the good times lasting 4ever!
Cycles are part of our behaviour and therefore society...by delaying the down cycle we have only created the conditions for an EVEN bigger DOWN move...now THAT is what is scaring the pants off everybody in power...BUT now they will make it even worse by trying to throw the SAME "solution" at it.
Letting companies fail - like AIG - that have meandered from their traditional business (ie insurance to derivs) is essential to allow GOOD companies to carry on and grow...otherwise you create unfair competition and even more problems.
Spain and most of Europe (maybe not the Germans) will feel it eventually...most Spaniards still living off the sales of worthless rural land at high prices to foreigners..but are caught in rock and hard place...too many houses, no buyers and a 1/3 GDP dependent on construction or related activities
end of rant!!:cheesy:
Agree completely; The problem was created a long time ago..fear of recession slowing growth, especially in the US kept interest rates TOO low, fuelled housing boom, credit card spending and the general feeling amongst the public(fomented by politicians like G Brown - "the end of boom and bust") of the good times lasting 4ever!
Cycles are part of our behaviour and therefore society...by delaying the down cycle we have only created the conditions for an EVEN bigger DOWN move...now THAT is what is scaring the pants off everybody in power...BUT now they will make it even worse by trying to throw the SAME "solution" at it.
Letting companies fail - like AIG - that have meandered from their traditional business (ie insurance to derivs) is essential to allow GOOD companies to carry on and grow...otherwise you create unfair competition and even more problems.
Spain and most of Europe (maybe not the Germans) will feel it eventually...most Spaniards still living off the sales of worthless rural land at high prices to foreigners..but are caught in rock and hard place...too many houses, no buyers and a 1/3 GDP dependent on construction or related activities
end of rant!!:cheesy:
0007
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In very general terms, I think that a basic underlying cause of many of the problems is that no one has to, or is even expected, to take responsibility for their actions: - Bankers, individuals, politicians, media........anybody! (and regrettably, some poor sods who've done their best to work hard and live sensibly, have to suffer)
There's absolutely no reason to be prudent (don't hear much of that GB word these days do we?
) if you know (or have been led to believe) that there will be no adverse consequences. If the banks get away with it this time, they'll just do it again as soon as the fuss has died down (Tulips? South Seas? Railway Mania? 17th C French money?)
I first learnt this when I'd spent all my pocket money and they wouldn't give me any more until it was due. One of the first lessons in life is to take responsibility for your own actions ......... often bit of a joke today eh?
There's absolutely no reason to be prudent (don't hear much of that GB word these days do we?
) if you know (or have been led to believe) that there will be no adverse consequences. If the banks get away with it this time, they'll just do it again as soon as the fuss has died down (Tulips? South Seas? Railway Mania? 17th C French money?)I first learnt this when I'd spent all my pocket money and they wouldn't give me any more until it was due. One of the first lessons in life is to take responsibility for your own actions ......... often bit of a joke today eh?
The market where you can buy and sell a house, is the same type of market as the stock market without the ability to short sell.
You can't short sell property i.e. make a profit from selling you house at less money than you bought it. So removing short selling from the stock market, makes it the same as the housing market
new_trader
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That isn't short selling.
Ok if you really want to pick at it then short selling is selling a property you don't own in the hope of repurchasing it at a later date at a lower price. But the argument still stands you can't short sell houses, and you can't short sell in most supply/demand driven markets, which is why the stock market is more unique/volatile with short selling.
new_trader
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That isn't the reason you "can't" short sell a house. You can short sell anything that is a fungible asset. The reason that short selling a house doesn't work is because the lender would want the exact same house back.
stevespray
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Well, I see Bradford and Bingley's share price falling without any help from those disgraceful, evil , greedy, selfish short-sellers. Hmmm, maybe they'll ban selling next....
So here we are....
B&B are bust (in all but name) and I see banks under pressure again. FTSE is less than 100 points of its recent lows and Lloyds Bank is making new lows! Good plan Mr Brown!
As you say, they could ban selling completely.... or.... even better.... make anyone with cash in their brokerage accounts have to bid the price up and then buy!
Funniest thing is.... I've heard that people who make derivative products arent subject to the short selling rule. Doesnt this mean that people can still sell short on a derivative and thus cause the same implied effect (if there is any)?
Steve.
