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When The Rules Change
Let me tell you one of the biggest secrets about the market:
Whether you own stocks or not, whether you understand futures and options and arbitrage or not, regardless of whether you think you are or not, you’re in it. Everything that happens up there on Wall Street affects you. It raises and lowers the price of everything you think you need to live. There is no escape.
The market doesn’t care if you’re Democrat or Republican or Communist or Baptist, Catholic or Muslim. It doesn’t care if you live in the US or Europe or China or Jakarta or Tel Aviv or Moscow. It controls your choices, and thereby, it controls your life.
Short Selling Crash Course
The markets aren’t a bad thing, when they’re run right. There are generally checks and balances built in, just like our American (and many other) government(s). For instance, the technique known as short selling.
Short selling is a way to check against a company’s claims by placing a bet that they’re overvalued, and that soon, everyone will find out how overvalued the company is and want to sell their shares, which will drive the price down.
If the short seller is right, then he will later buy those shares he sold at the lower price and make a little cash. If wrong, he loses the cash he invested.That’s the way it’s supposed to work, anyway. Short sellers can also be inside traders.
Attack Of The Inside Traders
Inside traders have intimate knowledge of the company’s future. Take Bear Stearns as an example. There is ample evidence that certain people within the Bear Stearns and other closely related companies knew several days in advance that the company would be deemed worthless and sold for practically nothing.
Short futures options were opened up which allowed those people to bet the depressed stock price, essentially a short sell position. When the deal finally came down, those folks raked in hundreds of millions of dollars. (A congressional inquiry concluded nothing amidst a flurry of wink-winks and yawns.)
This type of short selling has always been illegal. It’s known as ‘insider trading’ and nobody likes it except the guys who get away with it. Insider trading works both ways. You can make a mint betting the price will go up, say, if you know that your company is going to be awarded some huge government contract.
And The Ban Played On
When the ban on short selling 799 stocks went into effect this week, the government removed one of the checks that was supposed to balance out the markets. Short selling these stocks is what will bring them into equilibrium with their true value, and removing that mechanism from the process will only deepen both the depth and the breadth of the current crisis.
Since the short sales are banned for awhile, the only orders on these securities will be long. In other words, the only bets allowed are that the companies will INCREASE in value. The government is trying to create an artificial ‘bottom’ here. The balance of the market is completely destroyed with actions like this.
First with Bear Stearns, then Freddie Mac and Fannie Mae and the rest, and now with the ban on short selling, the US government has assumed control of your markets. They are choosing who will be allowed to survive and who will fail. The capitalist answer is that the market will determine that fate, but these guys aren’t capitalists.
NeoCons Show Their Socialist Face
It is the swan-song of the Bush/Cheney policy and the conclusion of the neocon plan. We are fighting pointless wars on at least 2 fronts, investing billions in borrowed dollars from China. The mortgage buildup suckered in trillions of dollars from around the world, and they can only watch as the resulting financial meltdown proceeds.
If the US lets the market correct itself, the world will teeter on the brink of a depression and maybe even fall into it. At this point, the descent would probably be swift and painful for all of us.
Still, I think it would be better to let that happen, than to become subject even further to the legacy of such a horrible and self-serving group of people. The neocons have never had a plan to deal with this crisis and they never will. They aim to simply create it and profit from it.
In spite of, and because of our massive debt to the world, in spite of and because of the mortgage crisis, the credit crunch, the financial meltdown, the world is now on the precipice of being wed to America’s neocon whims. Their vision of the world is now a reality.
I am Jon. Welcome to their ‘New World Order’.