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Monday, May 24, 2010

Germany Allows Naked Short Selling

This story was pretty funny. German's stock market regulator announced a ban on naked short selling for 10 German financial stocks. They also banned the short selling of certain government bonds.

The obvious response is "So it's OK to naked short sell other stocks?"

In an honest short sale, the trader borrows shares from someone else. The person buying get actual shares. The person lending consented to the loan. For a naked short sale, shares are not borrowed. The person buying is forced to lend the seller shares. Some traders naked short sell on purpose, to manipulate prices.

Naked short selling is already illegal. It's illegal, but the law is not enforced. A stock trade is just an entry in a database. If there's a "failure to deliver" or naked short sale, the policy is to merely carry the position forward to the next day. There's no penalty for naked short selling.

If something is illegal, but there's no penalty or enforcement, then it's effectively legal. State parasites declare that possession of marijuana is illegal. They don't merely say "Please don't do it!" A lot of police are searching for people who sell/grow/smoke marijuana. They will assault violators. There's no enforcement of the naked short selling ban.

Financial industry insiders love naked short selling. They can push down the stock of any corporation controlled by someone they don't like. For example, suppose Sumner Redstone didn't behave as CEO of CBS/Viacom. Then, the banksters would naked short sell the stock, pushing down the price. Then, they'd arrange for a leveraged buyout and hostile takeover. Sumner Redstone would be forced to vote for the merger, lest his shareholders sue for cheating them.

Naked short selling is an excellent stock market manipulation tactic. Via "captured regulators", the banksters lobbied for lax enforcement of the naked short selling law.

If I tried to naked short sell, my broker wouldn't let me. Only the banksters may naked short sell. That makes the partial naked short selling ban ironic. The only person who can naked short sell is someone who works for a large bank! Naked short selling is banned, but only for bank stocks!

It's like the banksters agreed "It's OK to steal. However, we agree to not steal from each other!"

Contrast this with what the SEC did during the recent financial crisis. They banned *ALL* short selling of financial stocks, and not merely naked short selling. A market maker has to be able to short sell.

For example, an options market maker buys a call option, and then short sells the underlying to hedge. If all short selling is banned, then the market maker can't hedge the options he already bought/sold.

Germany's partial naked short selling ban is very offensive. It's like they declared "We're only enforcing the law when someone steals from a bankster." Naked short selling is counterfeiting and fraud. Naked short selling is already illegal. However, this law is not enforced.

1 comment:

gilliganscorner said...

Banks naked short sell money.

When you borrow $1 from me, I actually have to *HAVE* $1 I am willing to lend you. I cannot go down into my basement and print up a brand new $1 bill. This is clearly counterfeiting.

When you borrow $1 from a bank, it prints it out of thin air. If you can print money out of thin air, you don't need to charge a whole heck of alot of interest on your money to show a profit.

Every dollar in circulation is predicated off the banksters ability to short sell money.

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