When shortselling, an investor borrows shares of a stock in a company he believes is is poorly run and will suffer. Once borrowed at say $10 a share, he sells them, at great risk, because at some point tin the future he has to return the borrowed stock at whatever the future price may be.
If he is wrong and the company is well run, the market will bet against the shortseller and buy up extra stock raising the price. This new price is higher than the shortseller received when he sold the stock a while back. The shortseller is obliged to pay this higher price, resulting in a loss for his erroneous calculations.
If the shortseller is right, and the company is poorly run, and he paid $10 for the stock a while back, and now the stock is $2, the shortseller buys at $2 and returns the stock he borrowed from its original owner, and the difference between the $10 he sold it for and the $2 he rebought it at is $8 profit.
Now when Christopher Cox, as chairmen of the SEC, outlawed shortselling on 799 stocks at the eve of the financial crisis in 2008, he outlawed both sides. No one could borrow stock to sell, although at that point no one wanted to, on those stocks anyway. What also happened was people with short positions could not buy stocks at the new low correct price, and realize their profits. So what the regulators did was protect the malfeasant banks from the market. Far from being unregulated, the regulators not only gave the banks a pass on criminal activities, because the activities might be criminal, but not against regulation, Christopher Cox also protected malfeasant banks from the market itself.
In so doing Cox, on behalf of the banks, repudiated the contractual obligations of the banks to market players, that is to sell their stock to market players. Of course insiders who desired to acquire the stock at these low prices and ride it up during the bailout boost, they could. And did. Just people who were right were going to be punished.
Not only did the regulators assure that the banks were exempt from law and market forces, the billions of income that would have been earned by those who were right was never earned, and therefore never taxed. Yet, where did the bailout dollars come from? Your taxes, just from other things getting taxed.
All the regulators swear up and down they never saw the downturn coming. But they were savvy enough on what was happening as to outlaw the one thing that would the punish the malfeasant. The regulators move was precise in timing, scope and sequence. Pretty good for people who really had no idea.
Feel free to forward this by email to three of your friends.
If he is wrong and the company is well run, the market will bet against the shortseller and buy up extra stock raising the price. This new price is higher than the shortseller received when he sold the stock a while back. The shortseller is obliged to pay this higher price, resulting in a loss for his erroneous calculations.
If the shortseller is right, and the company is poorly run, and he paid $10 for the stock a while back, and now the stock is $2, the shortseller buys at $2 and returns the stock he borrowed from its original owner, and the difference between the $10 he sold it for and the $2 he rebought it at is $8 profit.
Now when Christopher Cox, as chairmen of the SEC, outlawed shortselling on 799 stocks at the eve of the financial crisis in 2008, he outlawed both sides. No one could borrow stock to sell, although at that point no one wanted to, on those stocks anyway. What also happened was people with short positions could not buy stocks at the new low correct price, and realize their profits. So what the regulators did was protect the malfeasant banks from the market. Far from being unregulated, the regulators not only gave the banks a pass on criminal activities, because the activities might be criminal, but not against regulation, Christopher Cox also protected malfeasant banks from the market itself.
In so doing Cox, on behalf of the banks, repudiated the contractual obligations of the banks to market players, that is to sell their stock to market players. Of course insiders who desired to acquire the stock at these low prices and ride it up during the bailout boost, they could. And did. Just people who were right were going to be punished.
Not only did the regulators assure that the banks were exempt from law and market forces, the billions of income that would have been earned by those who were right was never earned, and therefore never taxed. Yet, where did the bailout dollars come from? Your taxes, just from other things getting taxed.
All the regulators swear up and down they never saw the downturn coming. But they were savvy enough on what was happening as to outlaw the one thing that would the punish the malfeasant. The regulators move was precise in timing, scope and sequence. Pretty good for people who really had no idea.
Feel free to forward this by email to three of your friends.
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