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Eurozone may not be helped by naked shorts ban

Robert Peston | 08:45 UK time, Wednesday, 19 May 2010

Bafin, the German financial regulator, was on the blower last night to other European regulators, trying to persuade them to participate in its attempt to ban purely speculative bets by investors that eurozone governments will have growing difficulties paying their debts and that the woes of banks will also worsen.

Euro notes and coinsUnless other regulators do the same - and there were signs last night that some important ones may not - it's difficult to see how the German initiative can have much impact, given that the trading of government bonds and bank shares is a global business.

Or to put it another way, very few of the investors doing the short-selling that Bafin wants to prohibit are German and almost all the relevant securities are traded in financial markets other than Germany's.

Which is not to say that it won't have any effect at all, though not necessarily of the sort that Bafin or the German government desires.

Investors see it as a fairly desperate attempt to ease strains in eurozone markets and fear that it shows that eurozone governments are running out of policy options to hold the eurozone together - so they have sold the euro, which has fallen to its lowest level against the dollar for four years.

What Bafin is trying to do is reduce the volatility of financial markets and the instability of the financial system. But it could have the opposite effect, even if Bafin secures agreement on a Europe-wide prohibition - because the distinction that Bafin wishes to draw between naked short selling, which it hates, and hedging, which it thinks is acceptable, is not as clear cut as it appears to believe.

The German ban is three-pronged: on short sales of eurozone government debt unless the investor has first borrowed the stock; on the use of credit derivatives to bet on a fall in the value of the debt of a eurozone government, unless the investor owns some of the relevant debt; and on short sales of the shares of German banks and insurers, unless the investor has first borrowed the shares.

Bafin sees this as an attempt to put a stop to what it would see as mischievous bets by investors that the financial difficulties of the likes of Greece and Portugal will worsen.

It thinks that such bets are what force down the price of Greek and Portuguese government bonds, which then spook investors, and make it much more difficult and expensive for the likes of the Greek and Portuguese governments to borrow vital new money.

That may be so.

But there's an alternative narrative about the use of naked shorts and credit default swaps which would show them to be less malign than Bafin would believe and which would imply that their prohibition could increase the vulnerability of financially overstretched eurozone governments.

Many investors use credit default swaps taken out on the debt of one government to hedge exposure to some other kind of investment in the same country or to the debt of another eurozone government, inter alia.

So banning the use of credit derivatives and naked short-sales for eurozone government debt could prompt some investors to liquidate those "long" investments and lessen investors' appetite for investing in the eurozone in general.

Which, at the moment when eurozone governments and banks need all the credit they can lay their hands on, would not be the result favoured by the German government.

Update, 11:40: I now have clarification of the scope of the Bafin ban.

It applies only to trading by the financial firms it regulates - and only to naked shorts and CDS's in those eurozone government bonds listed in Germany and also to German banks/insurers listed there.

So its direct impact on speculation in those securities will be only limited, as I pointed out earlier.

Here's the proof of its toothlessness: Deutsche Bank's London branch has agreed to abide by the ban (though I'm unclear that it was obliged to do so), whereas the London operations of Goldman Sachs and Morgan Stanley can continue shorting these products to their heart's content.

As to whether other countries might follow Germany's lead, I am hearing that Austria and Belgium may well impose similar bans - but there's no sign of the larger economies doing so.

So what's motivating the Germans?

Well the view from the London markets is that it's all about persuading German voters and politicians that supposedly horrid speculators are being knee-capped, to allay their concerns that German participation in the great trillion dollar bailout of the eurozone isn't throwing good money after bad.

And never mind that some of these horrid speculators might have funds to invest in the eurozone, and may now take their money to places where they're more welcome.

Comments

Page 1 of 3

  • Comment number 1.

    There's one word for this move: panic.

  • Comment number 2.

    The time has come for some independent academic research on the market effects of some of the more esoteric instruments and the activities of the more speculative investors (hedge funds).

  • Comment number 3.

    I think they should ban canaries in coalmines too. The pesky yellow speculators keep causing poisonous gasses to appear.

  • Comment number 4.

    Surely short selling is just a form of rather tacky gambling and not investment. At least that is how many of us ordinary people who are now paying for our financial masters' failings view it.

  • Comment number 5.

    Do people not realise that if someone is short, they eventually have to BUY their security back, meaning that there are always a set of buyers in the market, i.e some price movements downwards are limited because the shorts are booking some profit by buying back their security. If you remove this set of buyers, you could well see more drastic downward moves because there will be more people who can just go long. Standing in front of a steam train isn't the most appealing position as a buyer if momentum is so much against you as there were less buyers on the way down (the shorts booking profit).

    Oh well, the only way the EU can save the euro from being hit is if, they, er, boot out Greece, Portugal, Ireland, Spain.... But a 20% currency devaluation since the highs above 1.50 late last year will certainly help German exporters, don't see why they care! PPP for the euro/usd is often thought to be in the range of 1.15-1.20, so they won't be too bothered!

  • Comment number 6.

    Hedge funds seek out vulnerabilities, sharing their intelligence, and organise and engineer the downfall of the (perhaps) lumbering behomoths that we have our pensions and savings invested in.

    The seem a bit like the Privateers of Elizabethan times.

    They do not work for Our good. Why should we protect them?

  • Comment number 7.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 8.

    The monetary system is trying to punish its brightest kids like a bad step-mother.

    Robert, I sent an email to the BBC some time ago requesting to get in touch with you. Will that be ever possible?

  • Comment number 9.

    According to the Telegraph, the American Congress voted 94 : 0 against using IMF money to bail out nations where debt has passed 100% of GDP.

    So if the American Congress gets its way the IMF €320 billion part of the €1 trillion EU bailout fund may never materialise, and the remainder from other European Nations is also looking questionable.

    So now we have Germany banning the short selling of European Government bonds.
    And
    The ECB purchasing Government debt, in direct breach of Article 104 of the Maastricht Treaty.

    However ‘always look on the bright side of life’:
    The ECB was ridiculing that wily old goat Mr King last year for his QE activities, and it comes to pass he was way ahead of them in figuring out how all this was going to pan out.

    Finally people are continuing to convert fiat currency into precious metals.
    The price of one ounce gold coin two years ago was around £425.00.
    Last week it was around £850.00.

    Good job gold doesn’t figure in the CPI or RPI isn’t it.

    What in God’s sweet mother earth is the point in contributing to a fixed income private pension scheme?

  • Comment number 10.

    So, let me get this straight

    Germany has banned financial hedge funds selling something they don't own, then buying back the something they don't own and pocketing the money that has been wiped off the value of the thing that they have sold that they don't own and returning the not owned item to the owner with a smaller value that when they sold it

    What is the difference between this and theft?

    When is someone going to analyse the ethics of short selling as the shareholder never seems to get anything from the shares except a loss of value, especially as, at the height of the financial crisis, short selling was in the spotlight and was practically proved to deflate the market simply by being allowed. The ban on short selling propped up the flaky market enough to prevent wholesale destruction yet this dubious transaction is still accepted. Given the results when short selling was banned, the long and short of this practice takes money out of shareholders pockets. It doesn't matter how you arrange it, you borrow something, sell it, deflate the market, buy it back for less and pocket the difference. You might as well just mug the shareholder

    Do most shareholders even know their stock is being shorted? Do they know that hedge funds are fundamentally at fault for the reduction in the value of their shares and are also the ones pocketing all the money from the reduction?

    Some financial instruments, whether they are legal or not are reprehensible and this is one of them. everyone loses except the fund. The company has it's value reduced, the shareholder has their stock value reduced and the banker runs off with the money when they don't even own the stock.

    Would you lend your car to a friend, only for him to sell it, buy it back a while later after someone else had 'used' it for less that he sold it for, and then have the brass neck to pocket all the money and leave you with a car that is worth less than it was when you lent it to him? No

  • Comment number 11.

    @ No.6 You do realise a considerable proportion of Hedge Fund Investors are also your 'lumbering' pension funds, county councils often have money invested in Hedge Funds as well quite often.....

    It is part of risk management, which is the most important thing for massive institutional investors like Pension funds. Quite often this involves investing in short only funds, or hedge funds / Privateers.

    Do you not forget that the Privateers of the 16th Century actually served a purpose for Elizabth I, where do you think the origins of our colonial empire stem from?

  • Comment number 12.

    well someone will make some cash on this whatever. Should they not try to make some as well? Or would that be bit of double standards, which we cannot have ...... Ask that nice Mr Cameron

  • Comment number 13.

    This is a good example of something very good (the banning of naked short-selling, though personally I believe *all* short-selling should be banned for any company that describes itself as an "investment" company), done very badly (by Germany done without co-ordination with other countries.)

    In a globally-competitive world, and one where anyone can purchase shares in a UK-listed company, there's a serious danger in short-selling, in that a determined group of investors from another country (lets say China, for no reason other than they're a major future/present competitor), can ruin a company in this country with minimal risk to themselves.

    It all comes down to what you think the stock market should be for, though - my personal view is that it should be a way for companies to raise money, while offering profit opportunities for others. For many (and, apparently, almost or all City traders), it appears to be merely a method of dubiously obtaining other people's money, and this should be stopped. Dead.

    The Steve 3-point plan:

    1) Go with Germany's ban for now.
    2) Pass legislation making speculators personally liable for damage caused to companies/individuals by short-selling activities.
    3) Immediate introduction of prison sentences (in line with fraud sentencing guidelines) for anyone violating point 1. Bans from working in the City are meaningless when they've already scammed millions.

  • Comment number 14.

    > Do people not realise that if someone is short, they eventually have to BUY their
    > security back, meaning that there are always a set of buyers in the market, i.e
    > some price movements downwards are limited because the shorts are booking some
    > profit by buying back their security.

    Can people not see that, if there is no profit to be made by selling short, there would be less “zero-sum gambling”?

    > Standing in front of a steam train isn't the most appealing position as
    > a buyer if momentum is so much against you as there were less buyers
    > on the way down

    Moving a "steam train" is not the most sensible thing to do, if there is no way to profit from the energy expended. They have one in the Coalbrookedale museum, that you can tow with a winch, and it takes thousands of turns to move it a meter. That's the kind of weight that Tobin Taxes would attach to the Hedgies - and that would certainly slow down their "fear and greed" driven gyrations!

  • Comment number 15.

    Looks like politicians have started believing their own rhetoric about bankers causing the sovereign debt chaos. Don't know what the standing of Bafin is but I'm surprised that a regulator would too.

    Surely the crime of the financial markets is to have been too slow to react to the fiscal imbalances, not too fast?

  • Comment number 16.

    Am I missing something obvious here, or is the financial world really crazy?

    The German government is banning people from selling something unless they actually have it in their possession. What a radical idea!

    Before there's a ban on it, does anyone want to buy a million tonnes of gold from me? I'll sell it to you for a knock-down price if that helps!!

  • Comment number 17.

    Bafin's statement is just so assinine as to suspend belief and heads should roll.

    1. If you tell the markets not to bet against you then they have the perfect reason to bet against you. Witness today's market slump.

    2. If you want the markets to support you (er, money, anyone?) you have got to allow them to hedge.

    3. Short-selling is just the opposite of investing. You have to let investors have a reverse gear, not just a forwards one.

    This could join the long list of idiocies from King Canute to Black Wednesday.

  • Comment number 18.

    These spivs, despite their protestations have absolutely nothing to do with the efficient allocation of capital in the market economy! They simply thrive on chaos and have a vested interest in creating, by fair means or foul, constant volatility. Everyone else, business, pensions, the despised small investor, are the losers and for every coke-snorting hedgie bragging about his antics and profits, somewhere there will be someone who has lost his or her livelihood!

    Short selling in its conventional sense is morally questionable at best. Naked short selling, when you don't even have the shares to short-sell is just plain craziness of the kind that has bought us all the snake-oil dressed in complex mathematics that has bought ruin to so many. The German action will not have much effect but you can't help but salute the moral courage. If only we had the strength to root these parasites out of our own financial sector!

  • Comment number 19.

    # 11. At 09:38am on 19 May 2010, al2975 wrote:

    > It is part of risk management, which is the most important
    > thing for massive institutional investors like Pension funds.

    If it's investment risk management, then it's a knuckle-headed
    strategy - stocks are lower than they were many years ago. It's
    just a piece of typical London nonsense.

    > Do you not forget that the Privateers of the 16th Century
    > actually served a purpose for Elizabth I, where do you think
    > the origins of our colonial empire stem from?

    I hope you don't want to re-impose the slave trade on the world!
    Or to re-create some kind of lame "British Empire"! We've
    had quite enough of that old rubbish, thank you very much!

    Look, we have to curb the hedgies, or it will encourage
    commies and greens etc., and that will be much, much
    worse for "The City" than heavy taxes and very low wages.

  • Comment number 20.

    # 10. At 09:38am on 19 May 2010, Marvin_the_Martian wrote:

    > What is the difference between this and theft?

    With theft, the perp feels a bit guilty, whereas the
    hedgies have a cocktail party!

    Tobin Tax em! Break 'em up! Send them to Swaziland or
    Switzerland!

  • Comment number 21.

    "Unless other regulators do the same - and there were signs last night that some important ones may not - it's difficult to see how the German initiative can have much impact, given that the trading of government bonds and bank shares is a global business."

    Rather wild of the mark, Robert! A sudden 3% drop is 'much impact' in my book.

  • Comment number 22.

    As the FT reports this morning, via their website, that Barclays Capital is advising investors, who would normally have shorted CDS, government bonds and euro currency to instead seek to short the Swedish Kroner and the Australian Dollar!

    What lovely helpful people the advisers at BarCap are.

    I bet the Aussies don't think so, nor the Swedes!

    The FT summed it up beautifully, something politely along the lines of 'ouch'!

  • Comment number 23.

    It's hilarious. This kind of febrile market behaviour is pretty much directly responsible for the heap of evil smelling guano we now find ourselves having to dig away. And has anyone learned a thing as a result? Clearly not. I fear the Germans are whistling in the wind, though it strengthens an argument that much more market regulation isn't just desirable, but necesary.

    But the turkeys won't vote for Christmans, will they?

  • Comment number 24.

    Is *naked* short selling just counterfeiting anyway? i.e. fraud.
    One could sell an unlimited amount forcing the price down.

  • Comment number 25.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 26.

    Re 9: Quite right - any pension fund that is not index-linked (many are even capped at 5%) is pretty worthless. Any pension fund that delivers less than about £5000 pa is also worthless as it just wipes out any means tested benefits. So this sets the bar fairly high - about a third of employees (those below about £18000 pa) should not bother to pay in to a pension, just keep their savings in a cash or equity ISA.

  • Comment number 27.

    The FSA temporarily banned short selling of financials in the UK during the credit crisis and during this period RBS fell by 78%, Lloyds 59% and Barclays 66% and volatility remained the same.

    However, many voters and politicians felt a lot better. Brown even made a speech about naked short selling and confused it with normal short selling which shows how well informed our lawmakers were.

  • Comment number 28.

    Financial markets are suppossed to reflect the real value of assets. They dont. Thats a very substantial reason why we are in this mess in the first place. Short selling is a very poor mechanism to assist the markets to better reflect asset values as the speculator doesnt even need to own the asset.

  • Comment number 29.

    Does this mean that the financial jiggery-pokery which caused our current economic crisis is still active and free to cause the next one?

    The financial predators really are in control of the world and its governments aren't they?

  • Comment number 30.

    You invest into a pension fund. The fund goes short against your currency. Isn't that the biggest fraud of them all?

    In the end, they'll tell you, look, what a fine profit we made for you. But the problem is, they may give you 5-6% interest, but helped to devalue your currency in a much larger scale. Wow, I get 1060 Euros back for my 1000 investment, but with that 106 Euro I'll only get an USA holiday, that one year ago would have cost me 80 Euro.

    And they do that with my money. actualy, they do it by loaning out my shares to shortsellers without asking me.

    In the end, I thing, this actual messure is less against international hedge-funds or foreign banks and investors, it's simply against the big german banks and insurrances, so that at least they cannot with one hand take bail outs from the state and with the other act against the worth of this states currency.


  • Comment number 31.

    Plamski

    "The monetary system is trying to punish its brightest kids like a bad step-mother."

    Hmmm...when are you types going to get the message that you are nowhere near as intelligent as you fondly believe? Having spent some time in contact with City-Types I learned that the greatest insult (even including the coarsest profanity) that could be laid at someone's door was to describe them as being "thick"! People were terrified of being thought of as "thick" so they were quite happy to agree that two add two equalled five type logic. Everyone was furiously agreeing that the Emperor's clothes were indeed truly magnificent whilst wondering if anyone else could also see the Emperor's winkie! Anyone who wondered for a second whether what they were doing was in any interest other than making a profit now...today, was ridiculed as a soft leftie! Oh yes...and "thick!"

    Most people in the City are not really that bright and they conform to the rules of "fear and greed" by following the actions of the handful of folk deemed to be "super-bright". But the "super-bright" types are usually the mildly autistic mathematical whizzes who in turn suffer from the great weakness of mathematical whizzes...they simply cannot conceive of any other, equally valid expression of human intelligence. Such is the narrowness of their world that they reduce all of life down to impressive but deeply flawed equations. You need only see the intellectual horsepower that went into creating Collateralised Debt Obligations whilst completely failing to consider the kind of perfect storm that blew the clever formulae to pieces, to see this point vividly exposed.

    Perhaps we would better served if some of the "brilliant but stupid" kids at the heart of this slugfest were encouraged to acquire a little wisdom? The starting point always being having the intelligence and humility to "know what you don't know!"

  • Comment number 32.

    A question arising from pure ignorance: One can see why the Euro's value is being pushed down, and also why this would drag sterling down to some extent with it. However I don't understand why sterling is going down even faster than the Euro. Can anyone provide enlightenment?

  • Comment number 33.

    # 17. At 10:01am on 19 May 2010, StopFiddling wrote:

    > Bafin's statement is just so assinine as to suspend belief and heads should roll.

    > 1. If you tell the markets not to bet against you then they have the
    > perfect reason to bet against you. Witness today's market slump.

    What slump? The price of our cash is going sky high, against shares etc.

  • Comment number 34.

    The IMF is meant to help poor countries with Balance of Payments problems, not wealthy states that are part of the EU. Greece with a per capita GDP of over US $ 30,000 is taking handouts from India ( per capita GPD US $ 1000). There has to be a limit to this immorality.

  • Comment number 35.

    > 3. Short-selling is just the opposite of investing. You
    > have to let investors have a reverse gear, not just a
    > forwards one.

    Yes, but you will notice that most cars have 5 forward gears
    and one, very very slow reverse one. That's what we want
    to give investors - a very very very slow reverse gear!

  • Comment number 36.

    The problem is not being caused by the markets, the problem is with the Euro it's self, banning short selling (or any other market) will be like curing a runny nose whilst ignoring the under laying chest infection, the patient won't die of a runny nose but will from pneumonia...

  • Comment number 37.

    "Many investors use credit default swaps taken out on the debt of one government to hedge exposure to some other kind of investment in the same country or to the debt of another eurozone government, inter alia."

    Perhaps it is rational to hold less of these investments. Using CDSs as insurance is eminently sensible. The list under "inter alia" may get so obsuredly long that an insurable interest as opposed to a speculative interest may be quite tendential to the holding of the CDS. It is an area that legislators need to work on.

    "The German ban is three-pronged: on short sales of eurozone government debt unless the investor has first borrowed the stock; on the use of credit derivatives to bet on a fall in the value of the debt of a eurozone government, unless the investor owns some of the relevant debt; and on short sales of the shares of German banks and insurers, unless the investor has first borrowed the shares."

    The first two at least is an attempt to introduce an element of "insurable interest" into area, which seems sensible.

  • Comment number 38.

    #29 - ofcourse. Those working for Govt's often worked for Goldman - with their regards to everyone else they cant see the wood for the trees.

  • Comment number 39.

    Regardless of all this guff, somebody somewhere is getting stinking rich by virtue of the fact that they have devalued somebody else. But hey don't worry because they pay a wee bit of tax, much less in real terms than the rest of us, so just carry on regardless.

    It stinks, they manufacture nothing, sell nothing, earn nothing and add no tangible benefits but as long as somebody sowhere is making money let's not worry eh?

    I'd make these shysters go live in the real world for a couple of weeks and teach them a lesson. This country needs to get some sort of manufacturing industry back and perhaps then we can start taxing these good for nothing lombard's so harshly they might just leave.

  • Comment number 40.

    #10. Excellent post Marvin

    I'd like to know why the practice of short selling is allowed at all. Its a destructive form of share trading where the shares are not actually owned by the trader and when "Borrowed", the trader is attempting to make a loss of value on those borrowed shares.

    Please....someone tell me something...anything...that vindicates this method of share dealing.

    Mr Peston, can you give me ONE REASON why there shouldnt be an immediate worldwide moratorium on negative trading/dealing? It would be to the benefit of every shareholder, every company and every country on the planet – pretty much everybody really - that wide boys and greed merchants CANT manipulate the markets in this way.

    They patently dont do it for altruistic reasons - they do it to line their own pockets – so why are we being so complicit in allowing these spivs to continue what is obviously a highly unpalatable and value-destroying activity?

  • Comment number 41.

    I hope that, eventually, those who issue these ridiculous, unenforceable rules learn enough about how markets work to act in the public interest and not against it.

    How can a broker, who gets an instruction to sell a security from a client in Riyadh or Zug, know whether that client is long of that security or is a naked short seller? These people that issue these directives are directly responsible for the current damaging volatility in the markets.

    It is 1035 hrs and the FTSE 100 is at 5,196.20, down 111.14 and the Dax is at 6000.49 down -155.44

    Is that what BAFIN wanted?

    To whom are these people accountable?

  • Comment number 42.

    Just tell it like it is Mr Peston.Naked Short selling is financial fraud,counterfeiting.Selling of securities that have never been issued ,that do not exist needs to be outlawed.

  • Comment number 43.

    This has very little to do with short selling and all to do with control.

    So a Government rebels against it's master - and the master punishes it.

    Never was there a time when bravery was required more - and the Germans are daring to show it.
    This gives the big money men a problem, they can write off other rebels - such as Chavez - who wish to stand up for their citizens rights for resources as 'crazy nuts' or dictators.

    They have a problem, because surely the German Government is too poweful to convince the rest of the world they are wrong in protecting their rights of citizens over the rights of the Bourgoisie. Do the Germans care if the world won't lend them money? - they only need it to purchase imports - maybe they will return to barter and cut out the market parasites.

    They can do it with Greece, Zimbabwe and Venezuala - but Germany is too big and powerful to try that game.
    The worlds resources are our resources. Big businesses which come in to our countries with the sole intention of restricting the issuance of our own resources to our citizens are not welcome.

    Gloablization is our enemy.

  • Comment number 44.

    How come I can sit in front of a computer, surf the net + e-mail etc. and doing all sorts of things, but still, I can't make any money...There again I do not produce anything, so I suppose that I don't expect to make any money...unlike a farmer or a fisherman for example who produces food.
    Now similarly these city slickers are also sitting in front of computers, surfing the net + e-mails etc. and doing all sorts of things...But the difference is that they seem to be making loads of money...and they too seem to be producing nothing...
    I am also very good at Maths + Arithmetic + Languages + Science + History + Computing etc etc...just like the kids coming out of school and university...
    So where am I going wrong.??

  • Comment number 45.

    Let's watch the next days. That the Euro goes down first after this regulation is nothing to wonder about. Who is short or wanted to go short soon has to sell asap to minimize his loss.

    But, if the Euro turns-around in the next hours, maybe days, then one could use the scale of today's down as a rather accurate indicator of the real influence shortselling has had on the Euro.

    The shortsellers argument, that shortselling is only kind of an insurrance for investors seems rather silly to me. The Euro does not need Investors that want the Euro going down, the Euro wants investors that believe in it. To force these investors to take an insurrance aswell is contraproductive, as the pay a price for it.

  • Comment number 46.

    The Govt banned short selling of banks over here.
    Did it help?
    No.
    It just proves total lack of understanding from policy makers.

    To paraphrase one poster: It's like blaming the canaries for coal damp.

  • Comment number 47.

    The Germans have this completely wrong, and Robert seems to finally have got the idea.

    1. There is no difference between naked shorts and other shorts. In both cases you are committed to deliver securities you don't have to another party. In the first case, to the buyer (usually within a short timeframe). In the second instance, to the lender of the shares (usually within a longer timeframe).

    2. There is no difference between this and for example, the business model of Dell computers or most airlines. They also sell things they don't have yet. They don't even get stung if they can't deliver, they just give you your money back. Get over it.

    3. You need just as much capital to speculate in short as in long positions. The capital is there to cover the risk. The risk is the same. However, the point is that shorts and CDS's *reduce* risk for the other party. The buyer has secured a price in advance of delivery. Or in terms of a CDS, has eliminated the risk of default. This is buying and selling risk. Risk = cost.

    The only valid point, in my opinion, is that the explosion in new derivatives and practises means markets and regulators have been unable to keep track and effectively ensure stability. This is why the Lehmans collapse caused a crisis. The answer is to force these trades into more organised forms, not to ban them.

  • Comment number 48.

    32. At 10:27am on 19 May 2010, jephthud wrote:
    'A question arising from pure ignorance: One can see why the Euro's value is being pushed down, and also why this would drag sterling down to some extent with it. However I don't understand why sterling is going down even faster than the Euro. Can anyone provide enlightenment?'

    My guess is they're probably pricing in more QE in the near future.

  • Comment number 49.

    34 Chennai-Indian

    "The IMF is meant to help poor countries with Balance of Payments problems, not wealthy states that are part of the EU. Greece with a per capita GDP of over US $ 30,000 is taking handouts from India ( per capita GPD US $ 1000). There has to be a limit to this immorality."

    I agree but surely in India you are choosing a poor example. India seems to have many billionaires yet hardly anyone amongst the billion people is registered as earning more than $10,000. India has a tax evasion problem that makes Greece look like someone pinching the petty cash. As a result we see the odd situation of a country that aspires to be a superpower, has nuclear weapons and runs a space programme for heaven's sake, receiving international aid!

    Perhaps the limits to morality should be investigated closer to home?

  • Comment number 50.

    The whole system of shorting is wrong on every level, derivatives are as bad, the whole system is corrupt.It creates nothing but mayhem, and has to be stopped, whos got the bottle to do it ???

    Fair play to the Germans for trying at least, it might not work but at least they appear to be trying and hopefully it will make others think about doing the same.

    While this pack of pirates wander the stock and currency markets looking for their next victim , just who is it that is making the money , can we put faces and names to these people.

  • Comment number 51.

    Jacques at 35 and 33:
    You may get what you wish for Jacques, a market where people only ever sit on piles of cash instead of investing them in countries and companies, for fear that they cannot hedge effectively and the likes of Bafin make silly statements that spook the markets.

    Governments cant't borrow, pensions are decimated.

    Sounds like a depression to me. When and where has this kind of regulation actually worked?

  • Comment number 52.

    -36. At 10:33am on 19 May 2010, Boilerplated wrote:

    The problem is not being caused by the markets, the problem is with the Euro it's self, banning short selling (or any other market) will be like curing a runny nose whilst ignoring the under laying chest infection, the patient won't die of a runny nose but will from pneumonia...

    ------------

    But in the broader picture, the economical problems in the eurozone are not bigger than in the UK or USA. So sterling is going down equally is understandable, but the dollar rising against pound an euro is obviously not determined by USA's well oing, but IMHO, by the connection between the dollar and the well doing asian economies. Simply said, China owns so much dollars, that they chose to back the dollar, not the euro.

    But China has other kinds of national problems so it's not a given fact, that China will win this economical war. And that it is, a war.

    China a this point of history takes profit out of their centralised and planned, coordinated trading actions against the weaknesses of not coordinated economies in the west, especially in the eurozone, where coordination should be mandatory as they use the same currency.

    To act a bit more coordinated for this time being seems a good idea to me, as we would not have any chancy against China's power to manipulate the markets if we would not have at least some of the same weapons in this war.

  • Comment number 53.

    19. At 10:05am on 19 May 2010, Jacques Cartier wrote:

    # 11. At 09:38am on 19 May 2010, al2975 wrote:



    -If it's investment risk management, then it's a knuckle-headed
    strategy - stocks are lower than they were many years ago. It's
    just a piece of typical London nonsense.

    No i think you will find Jacques, it comes down to the adage that putting your eggs all in one basket is never a very good idea. Hardly profound knowledge there....



    I hope you don't want to re-impose the slave trade on the world!
    Or to re-create some kind of lame "British Empire"! We've
    had quite enough of that old rubbish, thank you very much!

    I feel that for historical accuracy you might want to realise that the New World Slave trade was actually started by the Spanish and Portuguese, in no way do I condone that at all though! I was merely referring, perhaps in a sarcastic manner, that Privateering in the 16th Century was indeed condoned by the State as a means to weaken your enemy, before colonial capture took place.


    -Look, we have to curb the hedgies, or it will encourage
    commies and greens etc., and that will be much, much
    worse for "The City" than heavy taxes and very low wages.

    Your logic for curbing the hedgies isn't really foolproof there, beware the commies and greens, well I'll take my chance that the urban proletariat won't rise up in my lifetime...

    Banning short selling by the way does not mean that stocks can't go down, because the fundamental method of it is a stock is worth what someone is willing to pay.

  • Comment number 54.

    41 Alan Wilson

    "It is 1035 hrs and the FTSE 100 is at 5,196.20, down 111.14 and the Dax is at 6000.49 down -155.44

    Is that what BAFIN wanted?

    To whom are these people accountable?"

    I imagine that it is exactly what BAFIN wants. Let the share market reflect the fair value of securities. Don't let it sit on a froth of speculation. Surely the problems of overvalued securities has done enough damage over the past few years. Do you want a financial system built on sand and bubbles??? To whom are you accountable other than yourself?

  • Comment number 55.

    #41
    "How can a broker, who gets an instruction to sell a security from a client in Riyadh or Zug, know whether that client is long of that security or is a naked short seller?"

    Perhaps the broker can't but this form of profitable "ignorance is bliss"
    is also part of the sickness that desperately needs curing.

  • Comment number 56.

    CDS is one instrument which should be uninvented - designed to be a useful hedge against exposure to credit risk, it has turned into a vehicle for destructive mischief.
    In the real world, if you took out a life insurance policy on your next -door neighbour in the hope that a bus ran him over, you would be an outcast, if not a criminal.
    The CDS market allows everyone in the street to take out life insurance policies on this unfortunate neighbour, and then to hire a fleet of high-speed buses to charge down the street when he leaves his house. But if he gets run over, it's still his own fault.

  • Comment number 57.

    I'm struggling to understand why anyone would lend these people the shares or currency they short, in the full and certain knowledge it will return worth considerably less than when they borrowed it.

    Am I just naive, or is there more at play here?

  • Comment number 58.

    @ 30, would you rather them have been long of your currency and lost 5-6%? Then you certainly wouldn't that return you mentioned in your example!

    @ 32 The GBP is under pressure for a number of reasons, remember a market can be irrational for longer than you can stay solvent.

    Amongst other reasons, the weakness can be attributed to political uncertainty, yes we have a 'coalition', but no one can figure out if it will last, what the budget will look like and how we will tackle the deficit.

    Weakness vs dollar will be from general risk aversion, caused by actions such as the Germans banning short selling, as well as interest rate outlook, with Merv King sounding very dovish, despite inflation being 3.7%... He knows how to reduce a deficit, inflation and currency devaluation!

    Against the euro, weakness can be attributed to the idea that they at least have a backstop for a few years, which cavalry is going to come charging to the rescue of this island? Also the rate has weakend (euro vs gbp) considerably in the past 6 months, could just be profit-taking seeing a rebound...

  • Comment number 59.

    16. Policyfirst wrote:

    "Before there's a ban on it, does anyone want to buy a million tonnes of gold from me? I'll sell it to you for a knock-down price if that helps!!"

    That was close! You nearly had me signing up - then I remembered that only about 166,000 tons have ever been mined, so I realized it was probably a scam.....

  • Comment number 60.

    Peter,

    I think you will find that naked shorting is already illegal ..... (in most USA commercial markets) I recall providing the SEC regulation to this blog in the past.

    It is thus quite logical to prevent it from perverting the currency market.

    Or, in short(!), what are you complaining about? - have you been got at by the ....(insert own choice of pejorative term).... in the City?

  • Comment number 61.

    Hedge funds create nothing new. We don't need them.

  • Comment number 62.


    Just remember that there is a clear difference between "Naked short selling" and short-selling.

    The "Naked" aspect refers to no underlying asset changing hands. It is merely ficticious leverage, which can actually be used to manipulate prices rather than "predict" future prices.

    Germany plans to halt the "naked" aspects, and not just on bonds but also other instruments where the originator either has no involvement in the underlying asset (i.e. CDS with no insurable interest) or is unable to fulfil actual delivery of the asset (e.g. bank manipulation of gold prices via naked shorts beyond intent or ability to deliver):

    http://market-ticker.denninger.net/archives/2331-The-German-Government-Has-Had-Enough.html

  • Comment number 63.

    #45 "The Euro does not need Investors that want the Euro going down, the Euro wants investors that believe in it."

    Why don't you just ban selling the Euro altogether? Surely that would solve the problem? Oh but wait.. there are people who want to buy it. Just like there are people who want to buy the insurance you sell. Banning selling it means banning buying it. Back to the drawing board.

  • Comment number 64.

    41. At 10:40am on 19 May 2010, Alan Wilson wrote:

    I hope that, eventually, those who issue these ridiculous, unenforceable rules learn enough about how markets work to act in the public interest and not against it.

    How can a broker, who gets an instruction to sell a security from a client in Riyadh or Zug, know whether that client is long of that security or is a naked short seller? These people that issue these directives are directly responsible for the current damaging volatility in the markets.

    It is 1035 hrs and the FTSE 100 is at 5,196.20, down 111.14 and the Dax is at 6000.49 down -155.44

    Is that what BAFIN wanted?

    To whom are these people accountable?


    ---------


    Well, the shares will come back soon, and the Euro too.

    But this time some short-sellers will payed the price. I have no problem with that.

    Obviously, today some shorties have to sell asap, as their plan cannot work anymore. They lose money, which isn't bad either as that is limitting their capacity for the next mess they shurely will put on.

    In the next, maybe as soon as this afternoon, the stockmarkets will turn around.

    The currency speculators will turn to other countries to victimize them, as they not only aren't allowed to do it in Germany anymore, but have to fear, that the same ban can happen soon and at any time happen in any other european country.

    And that will make the eurozone a bit more attractive for real investors with long-term goals. And, much more important, it secure inner eurozone investments, which now are needed to push the weaker countries with the money of the stronger. At this point in history, outer eurozone investors are much less needed, above all as money is narrow anywhere in the world.
    To secure the inner european investments, trade, work saves and the currency is much more important, than anything other.

    How loughable, that the speculators tell us, that their interpretation of market, which is nothing more than a phrase for their profit, could or should be more important than the points mentioned above.

  • Comment number 65.

    Derivative trading needs some more regulation.

    At one time you would only trade in (say) coal futures and electricity futures if you were a power station owner and could expunge your risk by operating your power station (or not). Now they are being used in casino gambling which is socially useless.

  • Comment number 66.

    Excuse me for being thick.........

    Is this the equivalent of trying to ban a Bear market? ...

    and is the consequence the dis-appearance of the equivalent Stag market?....

    and isn't the consequence the dis-appearance of "market"?

    and isn't the consequence the dis-appearance of Capitalism?

    No Pain ...No Gain

  • Comment number 67.

    47. At 10:58am on 19 May 2010, Chris B wrote:

    The Germans have this completely wrong, and Robert seems to finally have got the idea.

    1. There is no difference between naked shorts and other shorts. In both cases you are committed to deliver securities you don't have to another party. In the first case, to the buyer (usually within a short timeframe). In the second instance, to the lender of the shares (usually within a longer timeframe).


    ------------

    Wohoho.

    The big difference, for naked short-selling you don't have to find someone who lends the shares to you, knowing that you will devalue them.

    The ordinary shareholder wants his share to rise, so why should he loan it to you to make you able to bet against him?

    Correct, there coulb be good reasons, sometimes, to take shortselling as a kind of insurrnce for a risky investment.

    But to insure something you not own, the infamous case of insure your neighbours house against fire and then throw a molotow-cocktail on it, would be much harder, if you first would have to ask him, if he allows you to insure his house.

  • Comment number 68.

    Jim Rickards on naked short selling :-

    http://www.zerohedge.com/article/jim-rickards-goldman-can-create-shorts-faster-europe-can-print-money

    Its truly disturbing and puts perspective on Nick Cleggs speech happening now. Will we still be, almost forced to have a bank account to exist in this society ?

  • Comment number 69.

    I've never really understood some of this stuff-the stock market is way out of my everyday life experience. Yet I have to wonder about some things.

    Yesterday the eurozone voted to impose some sort of restrictions on hedge funds and today Germany ban naked short selling.

    We don't have the Euro here, but for some reason I don't understand, both our currency and our stock markets seem to be badly affected.

    I don't understand why this is. Is it because this is a Europe-wide plan to damage the UK? Is it because these measures don't address the cause of the problem, just a symptom? Why is the UK seemingly dragged into all this?

    Sorry to be a 'thicko' about this, but surely our currency and markets shouldn't be affected as much as European ones?

    I'm totally bemused by it all!

  • Comment number 70.

    I would heartily recommend the comment from Anglophone who has without doubt worked in Financial Services as I do now. The current market falls perfectly illustrate the herd mentality of the brokers and traders in the City. Is Germany's decision to ban short selling in any way equatable to a 2% drop in the FTSE? (an index made up of a number of UK companies across different industries) NO... it doesn't make a jot of difference... Unfortunately, it's now just a bunch of gamblers who decide whether news is positive or negative and buy or sell, and to be fair having spent time with a lot of the brokers and traders in the City the only thing to surprise me is that they can read so fast and that their lips don't move.

    The function of markets in the UK is no longer about "investing" or allowing a company access to fundraising to grow, it now is to support the massive market of gambling derivatives, the options, the CFDs, the CDS and all the other 'financial engineering' that has come out of the deregulation of financial services and timidity of government, lest we forget CDOs which precipitated the crisis that still churns on. The City chaps continue to pat themselves on the back, award themselves huge salaries whether they create or destroy value for their clients and look for the smallest bait ball to devour. It is simply unsustainable. The Anglo Saxon model is dead... let it be buried. Germany have taken the first step, support them.

  • Comment number 71.

    I must say I am beginning to like the Germans.
    You know you are doing something right when the market experts start squealing.

    So what if it raises the cost of govt bonds. In the UK that would be an entirely rational response to a £165 billion deficit.

    Stop em short selling shares next Angela.
    They dont like it up em

  • Comment number 72.

    Here is Blythe Masters - inventer of CDS's

    http://www.cnbc.com/id/15840232?video=1310002361

    Note her first words to defend them as vital for business, I find it disturbing.

  • Comment number 73.

    51. At 11:07am on 19 May 2010, StopFiddling wrote:

    Jacques at 35 and 33:
    You may get what you wish for Jacques, a market where people only ever sit on piles of cash instead of investing them in countries and companies, for fear that they cannot hedge effectively and the likes of Bafin make silly statements that spook the markets.

    Governments cant't borrow, pensions are decimated.



    --------------

    Or investors would have to take care of their risk for them selves again and spread their investments broader. More companies, smaller companies, would get a bigger chance of getting their piece of the cake and nobody would have to pay for unneccesarely services, that their protsgonist call insurance, while in fact, it's more like protection money, isn't it?

    The ristorante has to pay an insurrance to Don Corleone, or he would go short gainst it's windows and furniture. Right?

  • Comment number 74.

    #51
    "You may get what you wish for Jacques, a market where people only ever sit on piles of cash instead of investing them in countries and companies, for fear that they cannot hedge effectively and the likes of Bafin make silly statements that spook the markets."

    Your ultimatum seems interestingly short on possible alternatives.

  • Comment number 75.

    57. PercyPants wrote:
    "I'm struggling to understand why anyone would lend these people the shares or currency they short, in the full and certain knowledge it will return worth considerably less than when they borrowed it.

    Am I just naive, or is there more at play here?"

    I think it's because the pension fund manager (or whoever) who owns the shares and lends them to the short trader gets a very generous 'back hander' (they probably call it a 'loan fee') from the latter.

    Of course, all that the 'small investors' in the pension fund see is the value of their shares going down. They still have to pay the pension fund manager his 'fund management fee'.

    Aren't you now feeling even more queasy?



  • Comment number 76.

    #41 I'd like to know why the practice of short selling is allowed at all...

    Please....someone tell me something...anything...that vindicates this method of share dealing."

    OK I'll have a go. Let's say we want our supermarkets to give us a good service whilst being profitable for their investors in their shares. Now let's say a very experienced analyst spends all year monitoring and studying the management strategy, efficiency, delivery etc. of Tesco vs. Sainsburys. He decides that Tesco is better run and so buys Tesco shares and sells short Sainsbury shares. This way if the general market moves up or down, or even the general retail sector, he doesn't mind. This is therefore the opposite of gambling. He is taking a well researched hedged position. He will make a profit if he is correct that Tesco is better run than Sainsbury. The management of Tesco will feel rewarded for delivering a good product profitably, and Sainsbury's management will feel under pressure to perform as their share price falls.

    At the same time pension funds who just sit on Tesco and Sainsbury shares forever don't care what the price does in the short term. They are quite happy to earn extra fees for their pensioners by lending out the Sainsbury stock to the short selling analyst.

    So in summary, good management is rewarded, underperforming management is given a timely warning to improve, the analyst's time in studying both companies can be rewarded if he is right (without shorting, he would just be able to hold Tesco, and if the FTSE falls 10% he loses - i.e. he would mostly be gambling on the stockmarket). Pension funds earn better long term returns for us.

  • Comment number 77.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 78.

    If an asset is priced, in the market, at a level below that which I believe it to be really worth I borrow cash and buy that asset. If I am right and that asset rises in value then I sell that asset and repay the cash I have borrowed and retain the profit.

    If an asset is priced, in the market, at a price above that which I believe is appropriate, I borrow that asset, sell it and if, I am right, I subsequently buy that asset in the market at a lower price and return it to the lender and retain the profit.

    How complicated is that?

  • Comment number 79.

    51. At 11:07am on 19 May 2010, StopFiddling wrote:

    Jacques at 35 and 33:
    You may get what you wish for Jacques, a market where people only ever sit on piles of cash instead of investing them in countries and companies, for fear that they cannot hedge effectively and the likes of Bafin make silly statements that spook the markets.

    Governments cant't borrow, pensions are decimated.

    -------

    Or, investors wouls start to think about reasonable investments themselves again. Such with longterm profits. They would start to minimize their risks by spreading their investments broader, giving smaller companies and start-ups a better chance to get their piece of the cake.

    What you call hedging is in case of naked short-selling more equal to Don Corleone making the pizza baker an offer he can't refuse, if he does not want, that Corleones men "go short" against his windows, furniture and customers.

  • Comment number 80.

    All this user's posts have been removed.Why?

  • Comment number 81.

    Reading comments on here, you get the impression that short-selling is a licence to print money - all you need to do is short a stock, that drives the price down, you cash in. But surely it's actually like any other transaction: one party sells, and is matched by a buyer. If the share then goes up in value, the seller (short or long) loses out. If someone is shorting your stock, you know that they are accruing an obligation to buy in the future, which supports the price.
    The difference between reality and the evocative 'gold' example used earlier on is that you can't (in principle) go short when you're not able to meet the obligations you're undertaking, say if the price were to go up. If that happened, it would be irresponsible speculation. But is that going on at all? Are people defaulting on these transactions? If not, using words like 'theft' and 'fraud' about them seems a touch overblown.

  • Comment number 82.

    31. At 10:25am on 19 May 2010, Anglophone

    As someone who has worked in this city for some time now - I can concur with these sentiments.

    Don't anyone be fooled into thinking people in the city are the 'brightest and best' we have to offer - that's just a story put about by journalists who go dizzy when confronted by a pinstripe using acronyms instead of words and who fear that them not understading the gibberish spoken will be a detriment to their perceived intelligence.

    Shut the city down now - a monetary based economy has outlived it's uses and is now holding us back by telling us what we 'can and can't afford' in a world where the only restrictions on creation are effort and resources - neither of which are in short supply.

  • Comment number 83.

    # 53. At 11:11am on 19 May 2010, al2975 wrote:

    > putting your eggs all in one basket is never a very good idea.

    Good. We agree that we break up all big businesses, banking centres, and banks etc. so we have lots of baskets, as you put it. It’s good to have new converts…

    >> I hope you don't want to re-impose the slave trade on the world!
    >> Or to re-create some kind of lame "British Empire"! We've
    >> had quite enough of that old rubbish, thank you very much!

    > Slave trade was actually started by the Spanish and Portuguese,

    Try saying that in Liverpool, al!

    >> Look, we have to curb the hedgies, or it will encourage
    >> commies and greens etc., and that will be much, much
    >> worse for "The City" than heavy taxes and very low wages.

    > I'll take my chance that the urban proletariat won't rise up in my lifetime...

    You must be pretty old, then? They’ve already risen in Greece, by the way, the lib dems are in power and a Green is strutting around the HoC! That’s progress, some might say, so get ready for Vince Cable!

    > a stock is worth what someone is willing to pay.

    Nothing fundamental to add there, then! But, just to get you up to speed, we're talking about selling stuff you don't have, which you hope to get later for less once you've stampeded the herd. That's
    called "short selling", and it's a game some semi-skilled workers in London used to rip people off. It's being outlawed now, so those particular parasites will have to retrain as plumbers, assuming they have any aptitude for proper work.


  • Comment number 84.

    # 71. At 11:43am on 19 May 2010, DevilsintheDetail wrote:

    > I must say I am beginning to like the Germans.

    They are far better at things than us. Look at
    thier cars, for example. The have good beer,
    sausages, bread and "Steckenfisch" - really
    good stuff over there. They live longer than
    us, too!

  • Comment number 85.

    44. At 10:44am on 19 May 2010, coplani wrote:

    "So where am I going wrong.??"

    In order to 'make money' - or more accurately accumulate capital - in this world, you need to drop your 'producing' skills and hone your 'leeching' skills.
    The only downside is that the number of leeches are increasing - and the number of productive hosts are falling.

    Eventually the hosts will go on strike and then the parasites will die.

  • Comment number 86.

    63. At 11:26am on 19 May 2010, Chris B wrote:

    "Why don't you just ban selling the Euro altogether? Surely that would solve the problem? Oh but wait...Banning selling it means banning buying it. Back to the drawing board".

    Youre being a little bit cynical there Chris. Its not the actual buying and selling thats causing a problem for so many people/companies/countries etc - its the METHODS of buying and selling that are a concern. Nothing wrong at all with the simple and up front trades and trading methods. Its the obscure and obtuse that seem to be doing the damage and the Germans have recognised that.



  • Comment number 87.

    It appears many banking and market apologists need to be reminded of 'reality'.

    For all the supposed 'smoothing' that derivatives do to the market - the whole stack of cards is reliant on 'someone' picking up the tab on the other end of the short.

    As we saw with AIG, when the person on the other side isn't there, derivatives don't produce riskless environments, they enhance the risk - but all at the same time

    It's the same with CDS's - where 'financial whizarts' think that by taking up derivative positions they can insure their risks away and leave themselves with 'clean' profit.

    They did it with Lehmans, they did it with AIG - and if the US Government hadn't bailed them out and honoured their contracts then there would have been a realisation that nobody was insured against anything in reality - hence the reason for the CDS / derivative being so relatively cheap (compared to the underlying).

    Still - learning lessons isn't in the mind of the derivative trader - it's all about convincing yourself that what you do is correct and works and people who say it doesn't simply 'don't understand derivative'.

    I say it is you who does not understand derivatives.

  • Comment number 88.

    Back to the basics: In the end, to open a fund is nothing else than building a cartell. And if these cartell is big enough, it gets an oligopol, maybe even a monopol.

    Everybody knows, that oligopols and monopols destroy the market, as they have the power to manipulate the suply and demand mechanism.

    So, no question, in any economy there are wathdogs that regulate, if neccessary destroy cartells, oligopols, monopols.

    Have there ever been bigger monopols than some hedge-funds or investment banks, as they obvious today have the power to destroy whole countries?

    And we, the people represented by our electet governments should allow,k that these kind of multinational operating conglomerats should be not controlled and regulated? We should even allow to let them operate anonymously?

    Of course not. And let not allow them to make us believe, that them of all are the white knights of the order of the holy market gral.

    Hedgies insuring the market, that is newspeak bigger than any tautology used in Orwell's 1984.

  • Comment number 89.

    I think the big problem in Europe is actually Germany. Because of this Germany is blocking any other country to do what they have to do. France developed the Euro to be promote the commerce between all the european countries, and France is based in that, they have borders with almost every single EU country.

    When the EU was developed, Germany gave plenty of funds to countries like Greece, Spain and Italy to be sure they could have the "European-Florida" ready in the summer. The fact is this: Historically countries like Spain, Italy or Greece have more history and power than a bunch of factories (Germany), and it seems that at that time, the German goverment understimate them.

    Germany is a very young country, and they have been only economically strong in the last 50 years. They have too much to learn, from countris like France, Spain,Italy, Portugal, UK or Greece with a massive pile of history in their roots.

    Germany is blocking Turkey to get into the EU, to avoid moving the power/axis to the east, because they know that if Turkey comes in, They will lead the commerce between Asia(China) and the Middle East and Germany will lose plenty of their current GDP.

  • Comment number 90.

    Why has it EVER been possible to sell something you do not even own. In most walks of life this is called fraud. We need to remember that these speculators are parasites who do no real work at all the last thing we need to do is allow them to make even more money by not selling and not buying back things they do not even own.

    Make them all read Making Money by Terry Pratchet and ban them from trading at all until they understand the concept that money, stock debts etc. have no meaning if they do not represent any real economic activity.

  • Comment number 91.

    So the Germans want to close down a small, almost inconsequential, part of the overall job creation scheme called banking. It will have no effect at all. But at least it is a start!

    Meanwhile consider the misery about to be unleashed upon the UK economy by "Breeches" Osborne. Spending cuts galore. Real people affected.

    The hedgies affected by Merkels' ban might claim to be miserable. But at least they can afford bus fare.
    What are the hedgies to do? Get a job in mainstream banking?
    The bankers wont like that.

  • Comment number 92.


    As we all bear witness to the extent to which companies will go in the name of profit, some will continue to deny the obvious. The monetary system is at a crucial point. Either the people will finally figure out that money has no inherent value and switch to a resource based economy. Or our governments will find a way to push is into another large scale war as a way of distracting us from its flaws, while at the same time attempting to reduce our rights, locking us into it...

  • Comment number 93.

    65. At 11:30am on 19 May 2010, Chris wrote:

    "Derivative trading needs some more regulation."

    ...and who pays for regulation? - taxpayer again is it?

    "At one time you would only trade in (say) coal futures and electricity futures if you were a power station owner and could expunge your risk by operating your power station (or not). Now they are being used in casino gambling which is socially useless."

    Although this appears to be a socially useful excercise, the futures on commodities simply gave everyone a false sense off security. I could 'insure' your harvest for you, but unless I have the funds to buy another harvest, or some magical way of instantly producing a harvest - this insurance only has a monetray value.

    The reason derivatives have become (more) financial, is simply because only the 'best capital accumulators' - i.e. the banks, were in a position to be able to claim they can 'insure against great loss'. Anyone else will get wiped out when the first black swan event comes along.

    ...and with the recent banking crises meaning that we are now taking on that risk - it seems we have gone back to pre-derivatives times where the cost of unexpected failure is being borne by the population. If a harvest fails, then the people go without - the idea that derivatives changed this fact was always a work of fiction.

  • Comment number 94.

    Another classic example of political misdirection - "Blame the evil Speculators"... utter rubbish, its done as Merkel is facing a backlash in Germany as the politicians wake up to the strutural issues within the desig of the Euro - namely lack of fiscal discipline in a monetary union.

    Three points

    1) if you have 15 patients in ward, would proscribing them all the same medicine be the right thing to do. of course not, but thats what the one-size-fits-all EUro does to monetary policy.

    2) http://www.ft.com/cms/s/0/58ebec36-62aa-11df-b1d1-00144feab49a.html

    3) What happened last time shorting was banned on financials - the stocks collapsed from investors selling their shares anyway.

  • Comment number 95.

    76. At 11:52am on 19 May 2010, ontheotherhand wrote:

    #41 I'd like to know why the practice of short selling is allowed at all...

    Please....someone tell me something...anything...that vindicates this method of share dealing."

    OK I'll have a go. Let's say we want our supermarkets to give us a good service whilst being profitable for their investors in their shares. Now let's say a very experienced analyst spends all year monitoring and studying the management strategy, efficiency, delivery etc. of Tesco vs. Sainsburys. He decides that Tesco is better run and so buys Tesco shares and sells short Sainsbury shares. This way if the general market moves up or down, or even the general retail sector, he doesn't mind. This is therefore the opposite of gambling. He is taking a well researched hedged position. He will make a profit if he is correct that Tesco is better run than Sainsbury. The management of Tesco will feel rewarded for delivering a good product profitably, and Sainsbury's management will feel under pressure to perform as their share price falls.

    ---------

    So far, so right. But thisw is not what Germany banned. Germany banned naked shortselling. In your case: they do not buy Tesco and go short on Sainsbury, they only bet, that Sainsbury would go down.

    And they doesn't do it buy loaning Sailsbury shares, or selling out of their Stock. The just do it by promising. They simply invest nothing but try to collect investors who share this opinion.

    So, the problem is the multiplicator, the leverage, which theoretically is a number converging against infinity, as they don't need real capital, only enough believers to their promise.

    So, thought to the end, no real economy enterprise can compete against them, can not nearly the rate of profit in relation to the investment, that a short-seller can promise.

    In Former days, speculators needed big money to manipulate the rates, nowadays you more or less need only the aura of a prophet, while real companies, traditional salesmen and nationstates have nothing to set against them.

  • Comment number 96.

    28. frisbeex: "Financial markets are suppossed to reflect the real value of assets. They dont."

    What is the real value of an asset?

  • Comment number 97.

    74 CycleMike
    "Your ultimatum seems interestingly short on possible alternatives."

    The alternative is for governments and banks to limit themselves to sustainable levels of debt and for them to rightfully fear the market consequences of not doing so.

    The alternative to avoid wasting money on fiscal stimuli that governments can't afford.

    The alternative is for everyone to realise that too much debt is bad.

    The alternative is to realise a currency union must involve federal union.

    If you are so sure the hedge funds are wrong, sit back and watch them lose thir shirts. You are afraid that they are right, that's all.

  • Comment number 98.

    The laws of economics always win out over the antics of politicians. The euro won't survive the fact that democracies have been overruled by a politico-bureaucratic elite. Without political and fiscal union, the euro is dead. Nice try guys, but you should have taken your citizens with you if you wanted this project to survive.

    If the politicos keep this up and continue to fly in the face of the markets and the electorates, there'll be far more Greece's to come across Europe.

  • Comment number 99.

    " Shut the city down now - a monetary based economy has outlived it's uses and is now holding us back by telling us what we 'can and can't afford' in a world where the only restrictions on creation are effort and resources - neither of which are in short supply."

    What a genius idea. I wonder what will happen to our tax revenues?

  • Comment number 100.

    # 81. At 12:06pm on 19 May 2010, stwl wrote:
    > Reading comments on here, you get the impression that short-selling is a
    > licence to print money - all you need to do is short a stock, that drives
    > the price down, you cash in. But surely it's actually like any other
    > transaction: one party sells, and is matched by a buyer. If the share then
    > goes up in value, the seller (short or long) loses out. If someone is
    > shorting your stock, you know that they are accruing an obligation to
    > buy in the future, which supports the price.

    You seem to be misrepresenting the parasites as jolly good coves who are just having a bit of fun! Let's put you in the picture. These finance people are dullards, like cattle– they just play follow the leader all day. That's why the credit crunch happened, old chap.

    But some of them actual have 1 or two cells between their ears. And their hare-brained plan is to sell en-masse, as it were, to stampede the cattle. That's how shorting works – stampede the cattle and buy them back cheaper later, paying off your lender and pocketing the difference.

    Now, it would be stupid of us to tolerate that business model (based on free loading/vandalism/basic greed etc.) for nothing, so I want my share.

    Or we're putting a stop to it. There's nothing personal in it; we've got to, to stop the wave of green-communism that is sweeping the world. I have to see a clear benefit to ME, or it has to go. It's just my human nature. I can't have people "stampeding cattle" without getting my share, so that's that.

 

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