Written by Admin | Sep 18, 2008 4:00:00 AM
I don't think I have ever quite experienced a trading day like this. Things were just awful for most of the day and the financial index was down as much as 5% at the worst point and is now up nearly 9%.
Around 1pm, Great Britain announced that they would abolish short selling in financial stocks to ensure the security of the nation's financial system. This immediately helped our markets for awhile and lead to a nice spike off the lows for many of our financial stocks and the markets in general. One of the interesting concepts I heard in the announcement was that the British government would also require anyone who was short financial stocks to disclose these positions. I would love to see that information disclosed here in the States, just to get a picture for whether or not short sellers might really be responsible for the crazy moves.
While I am all for open markets, I'm not so sure it is a good idea to allow short selling if the effects of such selling have really been responsible for the recent down drafts. Why? In the banking industry, psychology can create a run on the banks mentality, where everyone loses confidence and wants to get their money out. This mentality was captured quite well in the movie, It's a Wonderful Life. It could be every bit as destructive to the safety of our nation as all out war and therefore, at least in my opinion, must be taken quite seriously, whether intentional or not.
The markets cooled back down for a bit after the announcement from England but then spiked even more aggressively to the upside when Treasury Secretary Paulson was rumored to have floated the idea of an RTC type entity to get bad bank loans off the balance sheets of the nations banks.
These really are crazy days. That the market could move up on this based on a rumor shows me just how emotional things are.
I could use a beer.