Temporary ban on short-selling put into place

  • Article by: THOMAS LEE , Star Tribune
  • Updated: September 19, 2008 - 8:59 PM

The SEC hopes to help the flagging financial services industry. Some local firms are among the 800 affected stocks.

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dcrothersSep. 19, 0810:56 PM

the market is so oversold/overvalued. Short selling, I am told, is what keeps the market honest. Implementing a ban on short selling until October 2nd will allow the stocks to run high. If I understand the theory correctly, stocks should plummet when the ban is lifted.

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rsw71756Sep. 20, 0812:07 AM

This is what keeps the market in balance. This should be an excellent time to make some easy money after they lift the ban.

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JanglesSep. 20, 08 7:53 AM

"This should be an excellent time to make some easy money after they lift the ban." The operative word there is "easy". I suspect when short selling is again allowed, there will be some changes. Dont you have to ask yourselves "If they find short selling as a source of the problem and ban it, why would they reinstate it without modification?"

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linuxguySep. 20, 08 8:53 AM

The SEC "temporary" ban on short trading on 799 stocks is the perfect example of the wrong kind of regulation. First, short selling is just a way of betting that a stock will go down. (Buying stock is a bet that it will go up.) The way short selling works is a trader borrows the stock and sells it. A short while later they buy the stock back and return it. There is nothing inherently wrong with betting that a stock will go down, but there is a problem doing it with borrowed money. When you gamble with your own money, if you lose you are the only one to lose. It you gamble with others money, if you lose OTHER PEOPLE lose. In the 1920's, people borrowed to buy stock and when the stock went up, they sold and repaid the loan and made a profit. When the market went down, not only did the trader lose money but OTHER PEOPLE lost money. The other people were banks and financial institutions. Good regulations did not ban borrowing to buy stock, but it limited how much could be borrowed so if the trader lost, they would only lose their money. Short selling should not be banned, there should be limits on how much stock can be borrowed. That way if the trader loses, they only lose their money. Second, regulations should not be restricted to 799 specially chosen stocks. Third, regulations should not be temporary (designed to get past the next election).

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schnockySep. 20, 08 9:10 AM

You are correct. This is the SEC doing what it needs to do in order to help the firms they "regulate", not anything that will maintain a level playing field in the market. It did accomplish its objective of "stabilizing" the market so that our CONgress could push through legislation this weekend to saddle us (taxpayers) with the debt. Short selling itself is fine assuming that the shares sold short are borrowed. Check the site www.buyins.net to see how many stocks and how many days there are naked short sales (selling counterfeit shares that were NOT borrowed). For a better education, visit www.deepcapture.com and see if that information makes any sense. If they wanted a real solution, they would make the operations of DTCC/NSCC (google them) more transparent and force them to immediately reverse "fail to deliver" transactions. As the previous poster said, there is nothing inherently wrong with short selling, but there is much wrong with what is allowed in our financial markets.

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RipAndersonSep. 20, 08 9:59 AM

The problem is the unscrupulous means some hedge funds have used to drive the stock price down.

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ThornfootSep. 20, 0810:21 AM

Does anyone else find it morally wrong to attempt to make money when a stock goes down? YES it feels wrong, or NO selling short balances investing.

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dkmanSep. 20, 0811:46 AM

Short selling isn't the problem, there's nothing wrong with short selling, but we're using it as an EXCUSE........ Short selling has been a tool used in trading for 100's of years. Short selling is NOT to blame, there are 100's of other reasons, it's just easier to blame it on short selling.

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linuxguySep. 20, 0812:21 PM

How? For every seller convinced the price will go down there is someone else convinced the price will go up. That is the fundamental nature of a market. Hedge manages can no more "drive the stock price down" with sell orders than they can drive the stock price up with buy orders. Where short selling becomes a problem is when the seller "borrows" and guesses wrong, losing more money than they actually have. That's the type losses that destabilize the financial industry. Gambling with other people's money is the problem, not short selling.

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pizann0Sep. 20, 08 4:27 PM

"Does anyone else find it morally wrong to attempt to make money when a stock goes down? YES it feels wrong, or NO selling short balances investing." I think a financial rep who lives in the Moral Universe would be the best person to answer your question. It's a zero-sum situation; if someone is long on a stock, there will be someone who will be shorting it.

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