Four European Nations to Curtail Short-Selling

Posted by Kendall Harmon

“The short-sale ban really smacks of desperation,” said Kenneth S. Rogoff, a professor of economics at Harvard. “That’s their plan for solving the euro debt crisis? I mean, this isn’t going to buy them much time.”

The crisis in Europe, Mr. Rogoff said, goes far beyond falling stock prices and has more to do with the state of banks there, including banks in Italy and France. He said the sovereign debt problems were an extension of the stress on the system created by the banking crisis.

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Filed under: * Culture-WatchGlobalizationLaw & Legal Issues* Economics, PoliticsEconomyCredit MarketsCurrency MarketsEuroEuropean Central BankStock MarketThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--* International News & CommentaryEurope--European Sovereign Debt Crisis of 2010* TheologyEthics / Moral Theology

Posted August 12, 2011 at 5:17 am

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1. Kendall Harmon wrote:

Four letters—D-U-M-B.  The amount of feckless leadership and poor decision making by Western leaders in this time of tumult boggles the mind.

August 12, 6:58 am | [comment link]
2. Pageantmaster ن wrote:

short sales — negative bets on stocks — would be curtailed in France, Belgium, Italy and Spain effective Friday. There is already a temporary short-sale ban in Greece and Turkey

The problem is that such decisions are made in London, New York and Tokyo, not in Paris, Milan, Madrid and Athens.  The PIGS countries [Portugal, Italy, Greece and Spain]  taking such action will not fix the problem which is a combination of:
1. Global recession;
2. Exacerbated for these countries by being tied into the Euro, which means that the options open to these countries have been closed to put things back into good order; and
3. Massive overspending and debt from societies which have got used to spending other peoples’ money with no thought given to how to repay or service that borrowing.

Contrast this with Britain - notwithstanding that our debt position is as horrendous as the PIGS countries we have maintained the confidence of the international markets; we have provided evidence of determination to bring government spending under control and reduce the deficit.  It is not that a great deal has actually happened yet, but fairly shortly after the last election, confidence of the international markets was restored and we managed not only to maintain our Triple A credit rating but to come off a negative to a stable outlook rating, keeping us as one of the world’s few Triple A rated economies.  This has meant that not only has confidence in the UK been maintained, but it has secured London as a safe place to invest and do business. 

Moreover for our debt position, with a maintained Triple A rating, we are able to borrow at cheaper interest rates and therefore to pay less in interest on our debt which helps us to dig ourselves out the hole we have been left in after years of prolifligate government.  While we may be subject to problems from our investments in the PIGS countries, we have at least to some extent, improved our position from the abyss we looked over at the end of the last goverment of facing just the same problems the PIGS countries are now dealing with, but with our currency freedom and international confidence intact.

As for individuals, so it is for countries - you can only go on for so long maxing out the credit cards before people start asking you some very hard questions, and once they start doing that, if you do not respond, trouble is not far away.  Banning short trades like not opening the post or answering the telephone, will not sort the problem; it will only alarm the creditors.

Some days I sit and think. Other days I just sit!!

August 12, 7:30 am | [comment link]

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