Banking Direct: The Markets work...leave them alone

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The Markets work...leave them alone

By the time all this carnage is over, the markets will be blamed by the politicians...and most people will believe them. But it's the politicians, not the bankers who are to blame. The greedy bankers will be the scape goats. The politicians blamed the short sellers for the banking shares collapse. So they banned the practise of short selling...they are idiots. Since the short selling ban, the shares of the banking institutions have fallen by more than a half...who can politicians blame now?

Short selling actually works to prevent collapses in the stock prices. Here’s how it works. As a short seller, I bet that a share price will fall. The share price falls and I cover my position by buying the share back. All the short sellers who buy the shares back provide support for the stock price and ordinary people see the rally in the stock price and decide to hang on in there.

Now, since short selling has been banned, the stock price goes down, there is no short covering rally to stop it, the share price doesn’t bounce, it's just keeps going down and down and down. Ordinary people get spooked and instruct their mutual funds to sell. The funds sell. There is still no short covering and the market continues lower. This becomes a self reinforcing panic. Everybody sells everything. The markets plummet at unheard of speed. This is the direct result of banning short sellers. The governments told us that the greedy speculators wouldn’t be allowed to drive the prices down any more...they were banned from profiting during the panic. Phew...the stocks shouldn’t go down any more now that those greedy short sellers are barred from their immoral activity...right? Wrong! The result of the short selling ban has been that stock markets have put in their worst week EVER....in history...almost as soon as the government banned short sellers. Now, no one is buying anything and the floor in this market cannot be seen....that’s how far we are above it.

Of course, the governments will tell the public that its a good thing they banned the short sellers or it could have been much worse. Again, most people will believe them. But those who understand this causal relationship won’t believe the politicians. The politicians have caused this market rout. We know, because it didn’t happen until they started to interfere...and very soon after they interfered, the worst week in history ensued.

Then they will blame YOU...the public. They will likely put in measure the limit the downward share movements or even worse, as many countries have done, they will close the market. Anyone would think that the politicians are deliberately trying to crash the markets! Everything they do adds to the crisis. The market worked perfectly, until politicians get involved. It looks like they will kill it eventually.