Friday, September 19, 2008


Regardless of the market situation, a broker, or market gambler can make money either way. In a short sell, you find someone that will 'borrow' you their stock and then YOU sell it (ie $10.00). You are betting the price will drop, so, after a period of time passes, you buy the stock back ($8.00) at the lower price, and return that stock to the original owner. In the example, you make $2.00. Bonus, huh! Not anymore:
NEW YORK ( -- The U.S. Securities and Exchange Commission took what it called "emergency action" Friday and temporarily banned investors from short-selling 799 financial companies.

The temporary ban, aimed at helping restore falling stock prices that have shattered confidence in the financial markets, takes effect immediately.

"This will absolutely make a difference," said Peter Cardillo, chief market economists at Avalon Partners. "Short sellers are going to have to cover their positions very heavily."

Short sellers borrow stock with the aim of selling it, then buy it back at a lower price, hoping to pocket the difference. The commission said short sellers add liquidity to the markets during normal conditions, but recent unbridled short-selling has contributed to the recent tailspin in the stock market.
I can appreciate the attempt to control the wild fluctuations during this correction, but I hope this 'temporary' fix is a very limited one. The longer you mess with the market, the harder it will be for it to recover on its own. Eventually, the leash will have to be taken off again, and the longer it is on said leash, the more difficult the transition will be.


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