Re: OSC

Posted by: pistov on September 19, 2008 06:12AM

In response to: Re: OSC by Fearless

I'll say this again in case anyone missed it the first time. Short selling is the flipside of margin lending. If you ban one, you have to ban the other.

It isn't short selling that drives markets to ridiculous heights (NASDAQ 2000). Make no mistake, it's margin lending that turns supposedly rational markets into tulip auctions. Without it, you wouldn't have crashes, since no one would ever get a margin call. You'd still have declines, but they'd be far more orderly since you wouldn't have the forced selling that margin creates.

In theory, every margined share is available to short. The idea is that short sellers act as a counterbalance to optimistic longs who would otherwise bid prices to ridiculous levels. Even with short sellers in the market they will do that anyway, as we've already seen. So, to blame short sellers for taking markets down from heights they never would have reached in the first place without margin lending is to confuse cause and effect.

Eliminating short selling without also eliminating margin lending will simply increase volatility, and heighten the severity and frequency of crashes. You have to eliminate both if you want stable markets.

One other point. If you can't short stocks to hedge risk, then you have to do it in the options market. But what dealer in his right mind will sell a put option if he doesn't have an offsetting short position to cover his own risk? The dealer makes his living off the spread, not the market direction. If you take away his ability to hedge, the result will be much higher option premiums which will make them unattractive to the buyer. Result: no options market.

Just to be clear, I'd like to see both margin lending AND short selling eliminated. To me, a fair market is one where everyone pays cash. End of story. Needless to say, I'm not holding my breath.

ebear

Thank you for saying what I have been thinking for years, but could not articulate as well as you have. Shorting goes against what the markets were intended for and should be illegal. That will be the only way to end the crash. Pistov

In my opinion any kind of short selling whether the supposed legitimate kind or naked should be made illegal with stiff penalties and jail time attached.

Shorting is the well spring of much of the corruption and manipulation in the markets. No one has the right to sell somethng that does not belong to them, it is nothing but conterfeiting of shares.

It was made legal in my opinion for the sole purpose to allow manipulation and so that the financial institutions could play both ends of the market while collecting fee's.

All of a sudden now that it is being used against those financial institutions who have profitted so greatly from it in the past. It is being deemed illegal. This is good.

The financial institutions now realize that the monster they let out has gotten out of control as too many people are starting to realize what shorting is all about.

Many investors are realizing that our supposed free markets are not free at all. Instead they are nothing but a rigged craps game designed to transfer wealth from the working class to the wealthy unless you know how the system is designed.

When enough investors realize this, then they will stop playing the game and not put their money in the markets anymore. This is why in my opinion as the markets continue to crash you will eventually see the authorities ban shorting altogether in order to try and regain credibiity to the system.

If no one enters the casino to play then it will soon go bankcrupt, much better to take a smaller piece of the pie then have no pie at all hahahahahaha.

Regards,

F.F.