Is August 12th the end of market socialism?
Jay Walker
July 31, 2008
The Securities and Exchange Commission has recently been promoting market socialism.
How they have been doing that is simple, they have implemented an order preventing naked short selling.
To those who aren´t sure of what naked short selling is, let me explain. One can make money by buying stocks (going long) and selling them when they increase in value. But one can also profit when the stock goes down, or short in trader´s parlance.
A short seller will usually profit by borrowing a stock that is expected to lose value, will sell it and buy it back at a price lower than the one it was sold for.
Naked short sellers will do the same but will not borrow the stock before selling it.
While there is an ongoing debate about naked short selling being immoral and some will even say illegal, it is currently acceptable from a legal standpoint.
And it´s when something is defined as legal but prevented that I have a problem. This SEC order amounts to socialism and I find it hypocritical that a government agency of a country that claims to promote capitalism will act in such a manner. To watch market forces at work when unencumbered is a beautiful thing. Certainly, the occasional stock goes south but that´s the nature of the beast.
Fannie Mae and Freddie Mac are the two largest beneficiaries of this order. However, they should be subjected to market forces just like all publicly traded companies.
The good news is that the end of this order has been announced for August 12th.
The bad news is that the order was originally set to expire on July 31st. The SEC now states that the order will not be extended further.
The worse news and my prediction. I believe that it will be extended further. Much further.
I´m saying this because Fannie Mae and Freddie Mac are technically insolvent. They, along with 7 other publicly traded groups are practically kept in protective custody by the SEC. However, the SEC is fully aware that they will take a major beating coming out of the cage which will be in the form of naked short selling.
Providing the order is actually lifted, there is a total of 9 publicly traded groups to watch from August 12th. They are; Freddie Mac, Fannie Mae, Bank of America Corp, Citigroup, J.P. Morgan Chase, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley.
Now to sit back and watch this unfold.
"Let´s get ready to Rumble".
How they have been doing that is simple, they have implemented an order preventing naked short selling.
To those who aren´t sure of what naked short selling is, let me explain. One can make money by buying stocks (going long) and selling them when they increase in value. But one can also profit when the stock goes down, or short in trader´s parlance.
A short seller will usually profit by borrowing a stock that is expected to lose value, will sell it and buy it back at a price lower than the one it was sold for.
Naked short sellers will do the same but will not borrow the stock before selling it.
While there is an ongoing debate about naked short selling being immoral and some will even say illegal, it is currently acceptable from a legal standpoint.
And it´s when something is defined as legal but prevented that I have a problem. This SEC order amounts to socialism and I find it hypocritical that a government agency of a country that claims to promote capitalism will act in such a manner. To watch market forces at work when unencumbered is a beautiful thing. Certainly, the occasional stock goes south but that´s the nature of the beast.
Fannie Mae and Freddie Mac are the two largest beneficiaries of this order. However, they should be subjected to market forces just like all publicly traded companies.
The good news is that the end of this order has been announced for August 12th.
The bad news is that the order was originally set to expire on July 31st. The SEC now states that the order will not be extended further.
The worse news and my prediction. I believe that it will be extended further. Much further.
I´m saying this because Fannie Mae and Freddie Mac are technically insolvent. They, along with 7 other publicly traded groups are practically kept in protective custody by the SEC. However, the SEC is fully aware that they will take a major beating coming out of the cage which will be in the form of naked short selling.
Providing the order is actually lifted, there is a total of 9 publicly traded groups to watch from August 12th. They are; Freddie Mac, Fannie Mae, Bank of America Corp, Citigroup, J.P. Morgan Chase, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley.
Now to sit back and watch this unfold.
"Let´s get ready to Rumble".
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