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12/26/2008

Cox pressured to ban short selling

Christopher Cox complained that he was under intense pressure from Henry Paulson and Ben Bernanke to ban short selling in September 2008. Now, why would Paulson and Bernanke deemed it necessary and urgent to ban short selling? Both must have known the dangers of short selling and the damage it could have done. They were key players in short selling before, or at least Paulson must have been, being a fund manager. Many hedge funds blamed the banning of short selling for losing their pants. For it is in short selling that they have an edge against the normal small time investors. When the funds longed a position, it is very difficult to sell at a profit as the small investors will be reluctant to buy high or higher. They too will be waiting to sell. On the contrary, for shorting a stock, it will attract more investors to buy as the stock becomes cheaper. The trick by the hedge funds is to sell and push the price even lower to force out the long positions. And the funds don't sell in the thousands, they sold in millions to drive down a stock price. Short term investors will run for their lives as they cannot hold and will cut their positions. Long term investors too will liquidate for fear of something really wrong with the company. Those who pledged their shares will have their positions forced out by the banks. So will margin traders. It is a vicious cycle and the stock will keep going down with increasing momentum. That's when the hedge funds make their money by buying back at rock bottom prices. It is a very destructive method of trading stocks to make money. It destroy stocks, companies and stock exchanges and of course the investors. Trust me, Henry Paulson and Ben Bernanke knew what they were doing. Cox is just another cock that could not see the danger of his inaction. And there are many cocks like him around.

9 comments:

Anonymous said...

Paulson and Bernanke are 'saving' today by destroying tomorrow.

Anonymous said...

Perhaps we've lived too long in a rosy McDonalds age - and now we expect things to be accomplished instantly, and also unwilling to swallow bitter medicine.

Anonymous said...

Singapore is freaking exploitative.

Francis Chua, Singapore

redbean said...

agree that paulson and bernanke are saving today and destroying tomorrow. the rot is america is too deep and too widespread to be saved.

but there were still right to stop the damaging consequences of short selling in the stock market. this is most wicked thing to be allowed to go on. it is very destructive. paulson had done it and knew how bad it is.

Anonymous said...

Before the US started to ban shortselling, pitches to our exchange to do the same went unheeded for many years. The proprietary traders were laughing their way to their banks shorting the market. It was a one way street. You are rite about the cocks.

redbean said...

and the cocks are still crowing how well we have done.
the amount of money lost because of this callous inaction is criminal.

Anonymous said...

It may have been very difficult, almost operationally impossible to implement it. It may have been unacceptable to do so with a free market. It may have been caveat emptor and so sad, too bad, good luck to you. But when the US acted, everything becomes possible like overnight. Hello.

redbean said...

they are still playing follow the leader like little children.

Matilah_Singapura said...

The more the govt interferes with the market, the more pain for investors.

Shorts make for better efficiency on the market.