Every time Wall Street people open their mouths these days, they label themselves as evil peple. And I have come around to McCain's view that the SEC chairman needs to be fired.
"Short selling" is the practice ob "selling" borrowed stock that you do not own at the present price, thereby betting that the stock will go down. "Naked" short selling is where you are not even required to "borrow" the stock that you sell--an abusive process that should never be allowed. The SEC further eliminated the "uptick" rule, where you were formerly only allowed to "sell short" a stock when the previous trade in the stock was up. Amazingly, the SEC has not returned this rule, which is reason alone for SEC Chairman Cox to be fired Now don't be deluded. Wall Street is so "sophisticated" (read "corrupt") these days that the "uptick" rule is not much of a problem for short sellers. Still, it should be there.
The SEC did, or awhile, suspend short selling in certain stocks (mainly the financials that were being driven straight into the ground by short sellers acting in concert). However, that suspension was apparently lifted today, and actions "distressed" financials would indicate it has been.
Here is where the total Wall Street corruption comes in. I actually heard a Wall Street "expert" (corrupt as they are all showing themselves to be) "defend" short selling on CNBC. He did so by describing one of the most unhealthy, and--in my view--corrupt, uses of short selling. That is the "paired" trade that is a favorite of hedge fund speculators (not "investors").
What is a "paired trade"? This "expert" tried to convince me that "paired" trades induce people to invest in individual stocks by allowing them to buy "insurance"--an outright lie exposing the corruption and computer manipulation going on in the stock market.
In "paired trades" there is no net investment in stocks. Rather, what happens is that a hedge fund speculator picks a stock that he thinks is in a "favored" group (and hedge fund managers can act in concert here to make this a self-fulfilling prophecy, even without direct collusion). Say biotech stocks are "hot" among hedge fund managers. The hedge fund guy buys some biotech stocks, and sells short the "disfavored" financials. Notice the unhealthy--I say corrupt--effect of this. Biotech stocks are pushed too high by this speculation that they are a "hot" group (usually involving extensive computer trade "programs"), and the weaker financial stocks are driven toward zero. The "natural" swings of the market are exacerbated, and you get exactly what you are getting today. The "weaker" financial stocks perceived to be "under pressure" are trading straight down (being driven to oblivion), while other, "fad" (hedge fund favored) stocks are being driven up.
Again, to me that Wall Street "expert" convicted his industry of corruption out of his own mouth. "Paired trades", on a huge scale and in concert, inflate some groups of stocks and destroy others, without regard to what should be the "real" investment price of the stock. It is insane to all this on a large scale.
Yep. I don't like most government regulation. But I find myself in agreement with Jim Cramer (who I can't stand) here. It is insane to allow the corrupt people on Wall Street to begin these games again at this time. It is just an invitation to short sellers to destroy most of the financial stocks (a variation of a "paired trade" is for a short seller to buy a "stronger" financial stock, driving it to a higher stock price than it should be, while "selling" weaker financial stocks, often totally destroying them)--especially the financial stocks which the short sellers can, in concert, put under pressure with "paired trades". This is the classic definition of insanity: Doing to same thing (allowing this practice) over and over again, expecting a different result.
Nope. Cramer is right (pains me to say that). This kind of short selling should stay banned--at least so long as this crisis lasts. We can't afford it, and it provides no healthy benefit. It is not healthy to encourage overbuying of "strong" (or those that can be made to seem strong) stocks, and overselling of "weak" (or those that can be made to be perceived as "weak") stocks.
Cramer further agrees with me that Ben Bernanke should be fired as Fed Chief. I don't know if Crameer agrees with me that Paulson should also be fired, but he should agree with me. Now I get the feeling that Cramer is another one of those Wall Street Democrats, if one with an independent streak, who may like Paulson as a Goldman Sachs Democrat. But I may be wrong there. I don't watch Cramer enough to know. I do know he is right on short selling, and right on Bernanke.
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