Procrastinet: The SEC Becomes William Wallace

September 19, 2008

The SEC Becomes William Wallace

You've probably heard that the SEC banned short selling of 799 stocks for 10 days. You probably (unless you're one of the two people I know who work(ed) in finance) don't really know what that means. I only understand the outline of it myself.

One thing is clear: the only precedent for this kind of direct market intervention took place 79 years ago. And the only purpose of this intervention is to prevent a massive crash that clearly the powers that be expected. Today.

They just took the free market out behind the shed and shot it.

Some Very Smart People have looked at the options and decided this was what they had to do. I hope they're right. The stakes if they're wrong are huge.

In the face of this desperate-seeming action, the stock market MUST hold.

It's bad enough to have the refs intervene in the game - if they intervene and you lose anyway, you are finished.

UPDATE:

Referring not the ban on short selling, but to the $500B+ program that Hank Paulson is currently building to buy up all the crap mortgage backed securities, Brad DeLong drops some mind bending science here. It makes me cautiously optimistic, what I can understand of it. If you get bogged down, skip past the charts.

To quote my son: "You are BLOWING OUT MY MIND."

UPDATE THE SECOND:

Here's Minyanville, explaining (a) what short selling is; (b) why it's important; (c) the reasons and risks of today's action by the SEC. Simple, clear, worrisome.

It's clear that the short sale ban is to stabilize the markets short term while the Paulson Plan to suck the toxic waste out of the system (and onto the Federal books OH MY) is put in place.

Here's my new analogy: Mr. Market has a massive, terminal cancer. Mr. Market, though, is a Christian Scientist, and refuses medical attention.

Doctors Paulson, Bernanke and Cox see that he has a bad tumor and realize that without an operation Mr. Market will die.

So Dr. Cox jumps on Mr. Market from behind and etherizes him, while Dr. Bernanke pumps his chest to keep him breathing and Dr. Paulson cuts into him with the scalpel to get that tumor out.

It might save Mr. Market's life and he will return to health. It might keep him alive but irreparably damaged from the ether, the operation, or both. He might survive, but be ostracized from his former religion for having his beliefs violated, which could lead to depression or suicide.

Or he might wake up during the surgery, in which case god help us all.

Posted by rjt at September 19, 2008 10:23 AM

Comments

that hurt my brain, got to have coffee, and a little lunch, and go back to try it again.
"Our economy is sound."-John McDipshit

That sound? Our Economy.-Roto Rooter Man

Posted by: perj at September 19, 2008 12:03 PM

In your new analogy, if the cancer is, indeed, terminal, then all the other questions are of little importance, as any of the outcomes is "better" than the outcome of doing nothing...

Having brought Christian Science into your story, however, you have introduced a wild card, and the "patient" might possibly say of your final comment, that there's no need to worry, as "God always helps us all." Much depends, as always, on one's point of view.

Had thought of posting some ideas for how to avoid panic (as in the reminder from Hitchhiker's Guide), but if you are still believing your panic is important protection for all of us, I suppose that wouldn't be useful. :-)

Posted by: procrastimom at September 19, 2008 12:05 PM

HOOOOOOLLLLLLDDDDDD!!!!!!

Posted by: perj at September 21, 2008 08:12 PM