Naked Shorts: Germany Attempting To Stem The Tide

Our droll friend from London, Robert Peston, succeeds at explaining the sorts of trading practices the Germans wish to curtail.

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.

Lots of talk and opinion out there about the wisdom/efficacy of this approach.

OS is dubious of guv'mints intervening in markets, but in this case, he may wish to rethink. After all, he prefers to drive in cities where the traffic signals work, go to hospitals and restaurants that adhere to sanitation standards, appreciates knowing how long that package of chicken breasts has been on the shelf, etc.

It seems the relevant question is, Does the person engaging in the transaction have any skin in the game? If so, he should be able to participate at a level appropriate with his resources. If not, he should leave the room. Otherwise, we're all mired in a deep pile of moral hazard, and the IBG/YBG (I Be Gone/You Be Gone) types can mop up and leave before anyone knows what happened. And poor schlub taxpayers and citizens end up, one way or another, bearing the cost of the moral hazard cleanup operation.

Here's an OS translation of the attempt at imposing some rules:

If ya'll don't own it, ya'll can't sell it. That's what we call fraud 'round heah'.

If'n you want to bet on a horse, use your own cash.

If'n you want to bet on a horse-race, you can't hobble the other horses. That's called cheating. It's also cheating to bribe jockeys.

If ya'll play by the rules and win, good on yah'. If'n you lose, well you lose, and we ain't gonna make yer house payments for yah'. Don't gamble with the mortgage money, bubbah.

You can't buy fire insurance on your neighbor's house, 'cuz it provides incentive to burn it down.

If you decide to cheat anyway, remember the classic Tennessee Defense, used successfully in murder trials to this day: He needed killin'.

Wall Street's Naked Swindle : Rolling Stone

A little over a year ago, I was scouring every article and source I could find, attempting to understand the frightening events I was witnessing.

Deep Capture was a blog I stumbled over, but to my poor brain, it seemed too convoluted, and frankly too conspiratorial in tone. I didn't think it was credible, and after some attempts to read and absorb, I moved on.

I was wrong. The authors of Deep Capture were spot on.

What I had balked at was the style of writing, which, to my feeble brain, made the presentation hard to follow.

This article by Matt Taibbi in Rolling Stone(of all places for an old fuddy-duddy like me to be reading) does a fabulous job of describing the outrageous criminality of both Wall Street and Washington at the top levels. It is numbing to ponder what has happened to us, while we were busily living our lives, raising our kids, going to church, and trying to keep the bills paid.

HT to Jesse, once again, for pointing it out. I sure as shootin' don't troll the pages of Rolling Stone!

I am grateful I was raised in a Southern church, because we were taught how to navigate our Bibles as children. The book of Judges is not light reading, as it describes how the most blessed nation on the face of the earth came apart at the seams, due to its own moral blindness and stupidity. The line is repeated several times, but is most pointedly used at the very end, inserted, I am certain, by the rabbinical editors just to make the point one last lamenting time:

In those days, Israel had no king; everyone did as he saw fit.

The narrative later moves to Samuel, who in response to popular demand, anoints a secular king, while warning the Hebrew Children of the horrific consequences attached. Rather than restrain their own behaviour, they opt for Saul, who turns out to be paranoid, and disastrous.

The problem wasn't the lack of a king. The problem was the lack of an ethical rudder.

Heaven help us.