Opinion: Madness

I have avoided politics on this blog, but:

The world has gone insane.  The administration, champion of massive deregulation, is now screaming for instantaneous regulation of the securities markets.

Can they honestly believe the markets have fallen because of the actions of short-sellers?  President Bush said that short sellers were "intentionally driving down stock prices for their own personal gain."

Am I missing something?  Don't rumor chasers and speculators drive prices higher for their own personal gain all the time?  Is there a difference? 

Don't analysts publish opinions on individual stocks with the result that a bunch of buyers appear and drive the stock price higher (and occasionally lower)?  Where are the  protesters against that activity?  Is the next move to ban analysts from making any bearish opinions public?   Are we going to copy Pakistan and prohibit stocks from trading below a predetermined level? 

I know a bull market is good news for almost everyone, but is it patriotic?  Must bear markets be treated an the enemy?  This is madness.

And now, to 'fix' the problem, 'they' are banning short sales on 799 financial stocks.  And it's been unclear to many whether the options markets are involved.

From the Associated Press:  William Brodsky, the chief executive officer of the Chicago Board
Options Exchange, said in a written statement that the ban is "a
draconian measure that will result in the sudden and severe removal of
liquidity from the marketplace.

Well said, says I.

From what I've read, investors can still buy put options and still sell call options on any of the stock that are on the 'banned short-selling list.'  But one broker, in a panicky statement issued last Friday threatened:

Attention Options Customers: Due to the above new SEC
regulation on short sales, certain options positions on these
underlying securities expiring September 20, 2008 (long uncovered puts
and short uncovered calls) that were entered into after September 18,
2008 may be subject to being closed by E*TRADE Securities at or before
expiration…Please note that options positions entered
into prior to September 19, 2008 are not subject to this action…the above circumstances are a direct result of the above described SEC regulation on short sales.

E*Trade told their customers that if they bought puts or sold calls (to open) in any of these stocks on Friday, the broker might decide to close out those trades at their discretion. Insanity!  Why would anyone tolerate that? 

Perhaps this madness will be cleared up before the markets open later this morning (Monday) – but that's unlikely.  If these government officials want to decrease volatility, they had better come to their senses.

Monday morning addendum.  Now Interactive Brokers has gotten into the act.  They allow put purchases, but the customer is NOT ALLOWED to exercise the puts.  Bottom line: This is not a problem because owning the puts allows customers to trade. But to forbid exercise is simply wrong.  The whole world is confused and the powers that be are limiting our ability to trade.  NOTE:  This does not affect me personally, but I don't like it.  Big Brother is watching.

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2 Responses to Opinion: Madness

  1. R. Baxter 09/22/2008 at 3:30 PM #

    I couldn’t agree with you more. For my lifetime and more, the U.S. has stood as man’s most successful example of capitalism and free enterprise. The Dollar has been the yardstick by which all others were measured. Now, our leaders seem to be determined to improve upon those very laws of supply and demand that have served us so well for so long. They seem convinced that their judgement is superior to “the market.” With great sadness, I have concluded that the recent bailouts, and now, regulations limiting free trade are only postponing the inevitable — the collapse of the U.S. Dollar. Where will it leave us when the world no longer considers the Dollar to have any value?
    P.S. — I appreciate your blog. Thanks. I recently bought your “Rookies” book and I’m working through it now. I’ll hit you with some Iron Condor questions in the coming days or weeks.

  2. Mark 09/22/2008 at 4:23 PM #

    I look forward to the questions.
    Mark